We wish to make the following comments
350 Aotearoa supports the proposed legislation that requires mandatory climate-related risk disclosure as a mechanism to ensure extensive, thorough climate-risk reporting in our financial sector. Mandatory disclosure is a good first step to steer businesses away from unsustainable and risky fossil fuel investments, and ensuring disclosures are consistent with climate change commitments and projections.
Climate-related risk disclosure is a tool to assess the risks associated with climate change to our financial sector and should have been introduced decades ago. It is necessary but insufficient at this point as a tool to manage climate-related risks, build a climate-resilient economy, and meaningfully reduce gross emissions to achieve the targets set out in the Paris Climate Agreement and the Climate Change Response (Zero Carbon) Amendment Act.
We recognise that climate risk data and accounting is lacking and that many industries and investors need more information to make prudent decisions. However, the key data within the energy sector is clear and readily available. We simply can not burn the carbon embedded in the reserves currently disclosed by fossil fuel companies. Given the limited timeframe to reduce global emissions and curb rising temperatures to 1.5C (the ‘critical point of no return’, according to the Intergovernmental Panel on Climate Change), now is not the time for idle behaviour or inconsistent commitments to a climate-resilient future. If we are to meet this requirement in line with 1.5C, the financing of carbon-intensive industries, crucially the fossil fuel industry needs to rapidly decline. So while mandatory disclosure is at the forefront of climate financial risk mitigation, we believe we should be much further along. We should be well within that managed decline of fossil fuel finance.
350 Aotearoa agrees that a coherent international framework that promotes clear, consistent and comparable reporting is crucial if New Zealand is to have a climate-resilient economy. If we are to achieve the targets set out in the Paris Climate Agreement and the Climate Change Response (Zero Carbon) Amendment Act, businesses must take on responsibility for enabling greenhouse gas emissions. To do so, businesses must fully understand and manage information about the associated climate-related risks. Mandatory climate-related disclosure will greatly help with transparency and accountability, in investment portfolios especially.
350 Aotearoa believes the scope of the legislation could be broader to include large private entities. Private companies are not exempt from the impacts of climate change and would benefit from the opportunity to identify and manage climate-related risks and opportunities. 350 Aotearoa also suggests that disclosure requirements should apply to the non-financial sector in the future too.
We wish to make the following amendments
- Assurance engagement is a necessary mechanism
350 Aotearoa supports the requirement for assurance engagement as part of the compliance process. This is a necessary mechanism to ensure the quality and technical integrity of climate-related disclosures.
- Section 461Z should be amended to require all reporting entities to report
350 Aotearoa suggests an amendment to Section 461ZA ‘Exceptions for climate reporting entities not materially affected by climate change’. A comply or explain approach is not sufficient in generating an adequate response to the climate risks faced by the market. Climate change is already impacting New Zealand’s environment, society, and economy, and no individual, business or institution will be unaffected. 350 Aotearoa suggests that instead of a comply or explain approach, all affected parties should be required to report on climate-related risk. Any climate reporting entity that wishes to determine its activities are not materially affected by climate change should report its disclosure in line with the legislation, and in the report make its case for why its activities are not materially affected.
- Section 461ZC should be amended from ‘knowing failure’ to ‘negligent failure’
350 Aotearoa supports the approach in Section 461ZC to the shared responsibility of knowing failure to comply with climate standards on both the climate reporting entity and every director of the entity. 350 Aotearoa suggests replacing “offence to knowingly fail to comply” with “offence to negligently fail to comply” to ensure that climate reporting entities and their directors perform necessary due diligence to comply with climate standards.
- Redirection of revenue generated from fines to climate resilience and emissions reductions
350 Aotearoa supports the use of fines for the range of scenarios following a failure to comply with the legislation to ensure there are real consequences for non-compliance.350 Aotearoa suggests that any revenue generated from fines is redirected to achieve climate resilience and emissions reductions by supporting iwi-based adaptation, resilience and mitigation programmes.
- The purposes of the Bill are not fulfilled by the provisions
350 Aotearoa understands that the legislation acts as a framework for climate-related disclosures and that reporting standards will be issued by the XRB, which will align with the recommendations made by the Taskforce on Climate Related Financial Disclosures. However, it is worth noting in this Submission that the purposes of the Bill are not fulfilled by the provisions. One of the key policy objectives for the legislation states “it is intended that requiring the disclosure of reliable information about climate-related risk and opportunities to investors will result in a shift away from emission-intensive activities.” The current legislation is limited in what it can achieve to result in a shift away from emission-intensive activities. The proposed new section 19B Purpose of climate standards and climate-related disclosures states that:
“The purpose of climate standards is to provide for, or promote, climate-related disclosures, in order to—
(a)encourage entities to routinely consider the short-, medium-, and long-term risks and opportunities that climate change presents for the activities of the entity or the entity’s group; and
(b)enable entities to show how they are considering those risks and opportunities; and
(c)enable investors and other stakeholders to assess the merits of how entities are considering those risks and opportunities”
The focus of the purpose in the legislation is on the climate reporting entity and associated investors and stakeholders in identifying risks and opportunities. There is no mention of the role of the legislation to promote accountability and to encourage the raising of standards to result in a shift away from emissions-intensive activities. There needs to be a greater consideration for how disclosures will be available in the public domain, and building capacity in New Zealand for civil society to engage in understanding, comparing and responding to climate-related disclosures.
Additionally, the legislation does not require the XRB to set standards following recommendations made by the Taskforce on Climate-Related Financial Disclosures. While it is important that this legislation accounts for improvements in international reporting frameworks, the purposes of the Bill should reflect core elements of Recommended Climate-Related Financial Disclosures: governance, strategy, risk management, metrics and targets. This could be incorporated into the purposes of the bill using an ‘including, but not limited to’ approach.