Advisers should lead from the front on climate disclosure

As the Financial Sector (Climate-related Disclosures and Other Matters) Amendment bill is introduced to Parliament, one expert believes advisers have a key part to play in bringing it into the public consciousness.

Thursday, April 15th 2021, 6:26AM

by Daniel Smith

This week New Zealand became the first country in the world to introduce a law that requires the financial sector to disclose the impacts of climate change on their business and explain how they will manage climate-related risks and opportunities.

As well as being a moment where New Zealand is showing leadership on the world stage, one expert believes this is a moment for advisers to show leadership.

Dr Rodger Spiller, a noted ethical investment adviser says that advisers will be important educators for the public in the coming changes.

“The new regime raises the issue of education for clients. I think that includes clients understanding that a factor increasingly in the spotlight is climate disclosures.”

Spiller says that “Advisers should see this as an exciting development that gives more transparency, more insight, and broadens our understanding of investment risk.”

The bill will make climate-related disclosures mandatory for around 200 organisations, including most listed issuers, large registered banks, licensed insurers and managers of investment schemes.

Although many advisers will not be required to disclose, they will be providing an important role in explaining the importance of the disclosures to consumers, says Spiller.

“If advisers want investors to understand what they are investing in, to understand risk and return parameters then they need to talk about risk. While we have market risk, currency risk – a risk advisers should be talking about are risks in climate.”

Though some in the industry may not be open to the idea yet, Spiller says that they soon will be.

“Some may think that this is a stretch, but some also thought that ethical investing was a stretch 20 years ago.

“The future is coming. The Government isn’t playing [around] this is a real thing.”

Spiller believes that this change in legislation is a moment for advisers to show their worth to clients.

“Advisers should treat this as an opportunity, and be proactive. If they are writing a newsletter to clients or a blog … describe this legislation and how it is impacting their portfolios.

“Maybe give examples of NZ companies that will be required to disclose what their clients have holdings in. How this will enable greater scrutiny and insight and that in turn can be reflected in understanding the companies’ risks and returns.

“This is the way that the investment world is moving. Even if you are not an investor that has climate change at the top of your list, there is a strong argument here for enlightened self-interest.”

Once passed, disclosures will be required for financial years commencing in 2022, meaning that the first disclosures will be made in 2023.

Tags: Climate Change climate risk reporting Disclosure