Climate reporting a scramble but collaboration will help

Three months into the first reporting period for climate related disclosure, we have a huge amount of work to do.

Monday, June 19th 2023, 1:01PM

by Andrea Malcolm

MinterEllisonRuddWatts partner and financial services specialist Lloyd Kavanagh is seeing a complete spectrum when it comes to how well organisations are prepared.

Under the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021, annual reporting on climate risk is mandatory for specified entities including investment managers, large banks and insurers with total assets exceeding $1billion, and NZX-listed issuers with market-cap of more than $60 million.

“This takes it to another level, we are dealing with a law and folks can be prosecuted if they don’t comply with the standard,” Kavanagh told a packed house at a climate related disclosure (CRD) event organised by Kernel Wealth Management.

“There are those who have been voluntarily doing TCFD (Task Force on Climate-Related Financial Disclosure) for a few years to those who have realised belatedly that their first reporting period began in April. They are scrambling,” he says.

Kavanagh is backed by Financial Services Council (FSC) head of regulatory affairs Carissa Perano.

Perano says CRD submissions by FSC members, including insurers, asset managers, KiwiSaver providers, banks, and consultants, have ranged from showing a deep understanding of the issue to the opposite.

“It’s a regime that has come out very rapidly and members are dealing with many other regimes. Not only are organisations trying to get resources, so are the regulators. ”

Perano’s biggest concern is that the exercise will become a compliance activity only. “It's not just a regime for organisations and customers, it’s a regime for the climate and I think that’s often forgotten.

“The focus is the climate and we will make these improvements by working together, not being secretive.”

She says the FSC can add value by bringing participants together to share knowledge and experiences. In collaboration with Boutique Investment Group (BIG) it has just released a CRD toolkit including climate scenarios, CRD tools analysis and risk data.

Kernel managing director Dean Anderson says engagement on the topic has been heartening with a general camaraderie building within the sector as it tackles the challenge.

“We are building collaboration with various industry groups to come up with some consistency on the information that we produce for the consumers about how we solve these problems collectively.”

Anderson says the financial services sector needs to communicate its role in climate change to consumers as the average consumer is likely to be confused by multiple regulatory changes coming through in annual reports and not connecting them to why.

Pathfinder co-founder John Berry, recommends plain English commentary and graphics to educate investors. “It’s a hell of a challenge though. Part of it is that financial statements are backward looking while climate analysis is forward looking and that adds a lot of complexity.”

Adaptation

Kavanagh says the whole dialogue is about understanding that the regime is part mitigation and part adaptation.

“The adaptation is really important as one of the great benefits for companies. Even if they don’t publish anything, [companies] should use the standards and framework as part of their strategy and risk analysis.

He says the framework is based around primary users, where capital will come from, and making sure it is appropriately allocated in capital markets.

He says there are companies which may never publish climate reports, using the standards as an analytical framework and they will use the climate reports that are published to compare strategies.

Representing issuers, head of sustainability and operations for NZX-listed Property for Industry Sarah Beale, says the company has filed several TCFD voluntary reports, including carbon footprint, and climate risk and opportunity assessments.

“We have been working on it for a long time and even now have a lot of work to do. A lot of resource is going into the data collection side, and the financial impact has been challenging.”

Beale says it comes down to the difference between reporting and changing the business model.

“We need to make sure we’re not losing sight of why we’re doing this and be constantly reminding ourselves it’s not just to meet regulatory obligations, it is the best thing we can do, and make sure we don’t drop the ball out of fear.”

Tags: FSC