RIAA aligning climate standards across borders
Climate standards must be consistent and comparable while ensuring they don’t drive “vanilla” uniformity.
Wednesday, September 25th 2024, 6:19AM 
3 Comments
by Andrea Malcolm
Speaking at the RIAA 2024 conference aligning standards across different jurisdictions, Stewart Investors portfolio specialist Pablo Berruti, said In NZ, the task force for climate related financial disclosure (TCFD) was set up to allow that comparison.
“It didn’t say you have to have governance or risk management of a certain type, but you needed to explain how you’re performing those things.”
But applying legislation with a checklist of things to do, including something as complex as scenario analysis, tends to channel people to want to do the same thing. “There is a drive to vanillaness, when we need to encourage diversity and creativity in the problems we’re trying to solve and the types of solutions we’re trying to offer.
Helen Skinner, head of responsible investment ANZ, said looking at TCFD reports globally it’s very difficult to compare. “There’s been a lot of discussion on the first round of climate disclosures on whether it hit the mark for something that a consumer could read.
“I think the XRB was future proofing standards and we all have enough trouble getting climates to read statements, let alone a 50 to 100 page climate change document.
“The plus side is that the standards is we now have directors throughout industries that know what climate is and are thinking about how it's going to impact their community and companies - a massive change in a very short space of time.”
Skinner spoke about the iceberg of CRD, with climate reports sitting above the water while everything underneath; governance, structures, metrics and data are unseen.
“Record keeping is a big thing and that’s been a great step forward out of climate disclosure. It means we’re taking more steps to consider what we’re saying publicly and do we have the evidence to support it and those conversations are a really good thing to come. But there are changes and tweaks needed.”
Climate scenario analysis almost “broke us”, Skinner said, because the team had two weeks to do it and she had to take the ANZ board through education and agreement in one session. “But it was good because it started the conversation and debate especially with our investment teams and global partners.”
Being trans-Tasman, ANZ is captured by Australia's modern slavery obligations and it will be interesting to see if and when NZ follows suit. “In getting Australian and NZ lawyers to look over a document, you get different options and trying to marry those up has been challenging.”
Greg Liddell, director of responsible investment Betashares said, “You don’t want disclosure for the sake of disclosure. “There are now 1000 data points on the climate disclosure register and he hoped the extent to which climate reports are accessed and whether any one does anything with that data is monitored.
On the cost of compliance Skinner said climate reporting was a full time job and meant increasing staff. There are also costs with external partners. One of ANZ’s large global fund manager partners had to set up a global committee to be able to agree the terms and processes where they can get efficiencies between all the different markets where they’re distributing products.
“That cost to get all those high level people in a room agreeing isn’t just a cost for global managers. Their cost is our cost. They run our KiwiSaver in NZ.”
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I'm also unsure of the problem(s) that this additional reporting is solving... although would genuinely benefit from other respondant's views.
On your last point you raise a very relevant question been asked by NZ taxpayers who are now unfortunately paying for the FMA to monitor all this stuff. Do the new requirements mean Climate-reporting entities (CREs) must take action to mitigate or adapt to the effects of climate change? The short answer is NO.
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.
Considering that none of New Zealand's biggest climate polluters are associated with the financial services industry I think it’s only a matter of time before the new Ministry of Regulation decides to remove climate related disclosures as a compliance requirement.
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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. As noted above banks and insurers etc. now have to hire more staff specifically to meet their new climate disclosure requirements and these costs will inevitably get past on to 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 and those climate enthusiasts’ who are positioned to make a buck or secure a job.
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 any difference…”
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.