How climate friendly are KiwiSaver schemes?
Most KiwiSaver providers have filed their first-ever climate reports which detail the emissions from their investments.
Tuesday, August 13th 2024, 8:35AM 
1 Comment
by Andrea Malcolm
Most KiwiSaver have now submitted their KiwiSaver climate reports with the bulk lodged with the Companies Office on July 31.
The Financial Markets Authority says it is working its way through and will report its observations on how the process has gone by the end of November.
Statements have been prepared for each fund in each scheme.
Investment scheme managers with assets under management of more than $1 billion are required to do climate reporting under the Financial Markets Conduct Act.
On July 31, around 35 investment scheme providers and 16 KiwiSaver providers uploaded their reports.
Under the climate financial disclosure framework, reporting entities have to meet three climate standards set by the External Reporting Board (XRB). NZ CS 1 requires climate related disclosure requirements across four thematic areas - governance, strategy, risk management, metrics and assurance requirements for GHG disclosures.
NZ CS 2 has seven provisions which entities can adopt, exempting them from having to include current financial impacts, anticipated financial impacts, transition planning, and scope 3 GHG emissions in their first year of reporting. The third standard contains general requirements, principles and underlying concepts such as materiality.
Financial Markets Authority head of audit, financial reporting and climate related disclosure Jacco Moison says; “We’ll then see how far they were able to comply with all the requirements, for example, if they have used some of those early adoption provisions to relieve some of the pressure of the first year of reporting.” At first glance it appears many have chosen to do so.
“Some may have done all the work to disclose it but decided not to disclose but most have had to look at it and think about what they will need to do next year.”
He says while some investment managers indicated in the past that they struggled to get data, all had reported on time.
“With the new lot of managed investments schemes it will be interesting to see because of the vast amount of data required to make their disclosures.
“Looking at underlying managers, if you go to countries that don’t yet have that information available, there will be more uncertainty and assumptions and estimates that have to be made on these sorts of disclosures.”
A team of six FMA staff is collating data and will have some early observations to discuss by the end of the month. Moison says in some cases the FMA may contact reporting entities with direct feedback on improvements.
“Also if we have some indication that something is wrong, we want people with 30th of June or September year-ends to take that into account.
“We have a broadly educated and constructive approach. In a lot of cases, we'll tell people where we believe they haven't complied and set some expectations on what we would like to see going forward.
“We might have picked up some technical issue where, for example, an entity forgot to include a link to the climate statements in their annual report. So these are some of the technical requirements or that you have to date a climate statement and they haven't dated it.”
The FMA is aiming to produce a findings report towards the end of November so that entities with a December year-end reporting period can take that feedback into account.
“It will be mainly based on the reports filed from April to August. We want to provide some observations to the market so people can start thinking about where they are in the process for the next round of climate reports.”
He says with most of the requirements becoming mandatory in the second year the FMA’s focus will be monitoring those new disclosures; current and anticipated financial impacts, transition planning and scope 3 GHG emissions.
“So rather than reviewing whole climate statements, we might be more targeted.”
Although some regulators, such as the UK’s Financial Reporting Council, have reviewed climate disclosures made on a voluntary basis, the FMA is the first regulator to look at climate statements required by law.
“We have a whole framework that people have to comply with, and regulatory tools that we can use, for example, to direct people to make changes or if they don't file on time infringe them.
“We talk to other regulators although mandates sit with different regulators in different countries. So it's not necessarily the same structure as New Zealand where it sits with the security regulator. Sometimes it's with a financial reporting regulator or an audit regulator.
“We have close contact with Australia and Singapore, because they're quite far in implementing their regime as well.”
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The CRD regime requires mandatory disclosure - not mandatory action. The regime does not mandate any actions that must be taken or processes that must be followed, such as improving climate resilience, reducing Green House Gas emissions, pursuing climate-related opportunities, or governing or managing climate-related risks in a certain manner (if at all). The FMA believes instead the information disclosed in these climate statements should enable users to make their own assessment about how CREs are considering climate-related risks and opportunities, and then make well-informed decisions based on these assessments.
The new climate related disclosure (CRD) requirement for the financial services industry is yet another example of the last Government adding unnecessary cost and complexity to business. Banks and insurers etc. will now have to hire more staff specifically to meet their new climate disclosure requirements and these costs will inevitably get past on to their customers. The New Zealand consumer continues to be saddled with additional costs due to an avalanche of overregulation much of which has questionable benefit. The only people who seem to be winning from this additional regulation are Wellington bureaucrats.
Last year the FMA said it expected a high level of public interest in climate statements, meaning it would need to respond to a high volume of enquiries and complaints and any enforcement action will be considered on a case-by-case basis. Why does the FMA believe this? None of New Zealand's biggest climate polluters are associated with the financial services industry. Stats published by the Environmental Protection Authority in 2022 showed the biggest emitters were for milk, petrol, fossil (or natural) gas and meat businesses, with electricity, and steel companies rounding out the top group because of their fossil fuel use. By contrast, many of New Zealand’s biggest employers and profit makers (including banks, vineyards, telcos, healthcare companies and renewable energy providers) didn’t appear in the top climate polluter ranks because their emissions weren’t even high enough to qualify for compulsory reporting.
As another reader of Good Returns said last year "I suspect we’ll look back on this climate reporting in years to come, with confusion & questions. Whilst there is no doubt that climate controls are increasingly important, I’m unsure whether the energy, effort & expense in producing these reports are the best use of resources &/or going to make a difference… although I’m sure that the ‘climate enthusiasts’ & those who are positioned to make a buck (or secure a taxpayer funded job) from all of this will have an opposing & vocal perspective"
I look forward to the new Ministry of Regulation reviewing and ultimately deciding to remove climate related disclosures as a compliance requirement for the New Zealand financial services industry.