The Financial Markets Authority (FMA) published its report reviewing the first group of climate statements today. Notably, the report indicates the FMA’s opinion of good practice in climate reporting and signals its future monitoring activities. The full report is available here.
The FMA also published illustrative examples for climate-related record-keeping that summarises the previous guidance document. These examples can be found here.
Who needs to read it? Why?
All climate reporting entities (CREs), their directors, and their advisors and assurance practitioners should read this report. The report’s feedback and insights will be important, especially for those CREs preparing climate statements for their second reporting period. It is full of useful insights that the FMA has gleaned from its extensive review.
What does it cover?
The report reviewed 70 climate statements from CREs in the first and second reporting cohort (reporting periods ending between December 2023 and March 2024). That compares with the 123 documents, which we have counted as being lodged up until 3 December 2024.
Of the 70 statements, the FMA categorised them into four groups based on the type of CRE:
The report assessed compliance with the Aotearoa New Zealand Climate Standards disclosure requirements (NZ CS 1, 2, and 3), compliance with the legislative requirements in Part 7A of the Financial Markets Conduct Act 2013 (FMC Act), and consistency with documents and statements published by all CREs.
The report contains nine key insights for CREs to improve disclosures in future climate statements. These are summarised below:
- Materiality: When assessing the materiality of information, CREs must consider their own facts and circumstances in the context of the nature and characteristics of their report’s primary users.
- Fair presentation: CREs must avoid vagueness or presenting information in a manner that may over-emphasise positive impacts.
- Methods, assumptions, and data and estimation uncertainty: For climate-related scenarios, CREs must fully disclose all material information regarding methods and assumptions.
- Application of disclosure requirements: For the processes in the Governance and Risk Management areas, some reports did not explain the processes’ methodology or provide specificity for their frequency. Some reports also did not meet disclosure requirements for climate-related risks and opportunities and greenhouse gas (GHG) emissions targets. CREs must address these matters.
- Scenario analysis: CREs must demonstrate careful consideration of the plausibility and applicability of their scenarios.
- Other disclosure matters: CREs who didn’t present statements in a standalone document must identify all locations of required disclosures within their identifying table.
- Legislative requirements: CREs must ensure they properly follow the requirements in s 461ZJ of the FMC Act (Information about climate statements of climate reporting entities to be made available in annual report) so primary users can locate their climate statements. Climate statements must be lodged on time and be signed and dated.
- Consistency and coherence with other information: CREs should ensure that climate statements are consistent with or contain material information disclosed in other documents (such as annual reports). It is important that climate related disclosures and information in financial statements provide a coherent and consistent picture to primary users.
- Assurance: There was no mandatory requirement for CREs to obtain assurance for the relevant reporting periods. However, 39% stated they obtained some voluntary assurance over their scope 1 and 2 GHG emissions inventory. CREs obtaining voluntary assurance over any climate related disclosures should make the assurance report publicly available and lodge it on the CRD register.
FMA’s future monitoring activities
The report also contains the FMA’s future monitoring activities. In the immediate future, the FMA will review the remaining climate statements for CREs with reporting periods ending between 31 March to and including 30 September 2024.
For reporting periods beginning on or after 1 January 2024, the FMA will continue to take an educative and constructive regulatory approach to monitoring and enforcing the CRD regime in the second year of reporting as set out in the FMA’s Climate-Related Disclosures Monitoring Plan 2023-2026, which can be found here. They will incorporate additional focus areas into their reviews, including whether:
- CREs have complied with the requirement to obtain assurance over their GHG emissions disclosures;
- CREs have made reasonable efforts to comply with the requirement to disclose current financial impacts and transition plan aspects of their strategy;
- any commitments (e.g. to take action, deploy new processes or gather information) disclosed in the first year of reporting have been followed through, and if not, that this is disclosed and explained; and
- disclosures are broadly consistent and coherent with those in the first year and if not, any material differences are disclosed and explained.
They will commence monitoring of these additional focus areas in May 2025.
Moving forward, the FMA notes that adoption provisions 1 and 3 are not available for CREs in their second reporting period. However, as described in our newsletter here, certain adoption provisions have been extended to the second reporting year.
Our view
We welcome the FMA’s release of the review report. The report will assist climate statements across all CREs to be fit for purpose. The level of detail the FMA has provided in its feedback and on how to achieve good practice climate reporting will provide useful guidance to CREs in their second reporting period.
What next?
The FMA has announced it is holding two webinars to discuss the report’s findings on 10 and 12 December 2024. The link to register can be found here.
Next week, we are planning to release an update that compares the Australian and New Zealand mandatory climate reporting regimes. Entities with a connection to Australia should look out for this update.
If you have any questions about what the FMA’s insights may mean for your business or are seeking advice on compliance with the climate reporting regime, please contact one of our experts.
This article was co-authored by Ivan Zhang, a Summer Clerk in our Financial Services team.
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