Today, the Financial Markets Authority (FMA) published further guidance on climate-related disclosures (CRD) obligations. This comprised of the long awaited consultation and draft guidance on record-keeping, and two information sheets: one on the CRD monitoring oversight plan from 2023-2026, and another on the use of third-party providers by climate reporting entities (CREs) for CRD.
Follow the links below to view each of these documents and their corresponding media release:
- CRD Monitoring Plan 2023-2026
- CRD record keeping draft guidance for consultation
- CRD regime and the use of third-party providers
Who needs to read it and why?
All CREs should read these documents. In particular, directors and other authorised bodies and persons within CREs should be paying close attention. The record keeping draft guidance (Draft Record Keeping Guidance) indicates what approach CREs should take to record keeping while they wait for finalised guidance, since the requirement to keep records is already in force for CREs subject to mandatory reporting in 2024.
The information sheet on the CRD monitoring oversight plan from 2023-2026 (Monitoring Plan Information Sheet) informs CREs of the approach the FMA will be taking to monitoring compliance with the CRD regime, and the information sheet on the use of third-party providers by CREs (Third-Party Providers Information Sheet) informs what CREs should consider before engaging a third-party provider to deliver services for the CRD regime.
What does it cover?
Monitoring Plan Information Sheet
The Monitoring Plan Information Sheet outlines the FMA’s approach to its oversight of the CRD regime for its first three years. It states that the FMA intends to take a “broadly educative and constructive approach” to monitoring compliance, with a focus on providing high-level guidance. It can be expected that this will shift to a more proactive approach as the regime becomes more well established. The FMA will be approaching enforcement action on a case-by-case basis, and notes that it is anticipating a high level of engagement from the public with climate statements, which will lead to a substantial volume of enquiries and complaints.
The FMA anticipates that its monitoring approach will go through the following stages:
- Year 1: Setting initial compliance expectations – reporting periods commencing in 2023;
- Year 2: Supporting development of best practice – reporting periods commencing in 2024;
- Year 3: Steady state guidance, monitoring and enforcement – reporting years commencing in 2025.
Detail is provided on what each of these stages will look like. For CRE’s first year of reporting, the FMA will be focussing on whether climate statements have been filed within the legislative time frame, that they have been filed for the correct entity, meet the disclosure requirements, are transparent and provide context, and are internally and externally consistent.
Draft Record Keeping Guidance
Section 461Y of the Financial Markets Conduct Act 2013 requires that every CRE makes its CRD records available to directors of the CRE, its supervisor (if any), the FMA, and any other authorised or permitted persons. Recording keeping is a vital part of creating climate statements, as they “support the accuracy and legitimacy of climate statements, including substantiating how the CRD framework has been applied” (Jenika Phipps, FMA Manager, Climate Related Disclosure).
The Draft Record Keeping Guidance covers:
- when and how the FMA will exercise specific powers under legislation;
- how the FMA interprets the relevant law;
- the principles underlying the FMA’s approach; and
- practical examples about how to meet CRD obligations.
Guidance is also provided on the recently published record keeping regulations exposure draft. This section of the guidance will be updated once the regulations are finalised.
In the Draft Record Keeping Guidance, the FMA makes clear that when it comes to record keeping, the focus of CREs should be to “develop climate reporting policies that include processes and controls to produce and retain records to substantiate both the information disclosed in the climate statements, and that the disclosures comply with the CRD framework.” CREs should be working to ensure that their record keeping is conducive to an effective process for preparing their disclosures.
The Draft Record Keeping Guidance is open for consultation until the 4th of August 2023.
Third-Party Providers Information Sheet
Services provided to a CRE in relation to the CRD regime need to comply with all the requirements for the mandatory disclosures, including the CRE’s record keeping obligations. The Third-Party Providers Information Sheet provides guidance to CREs to understand what they should consider before engaging a third-party provider to deliver such services.
The FMA recommends that before a CRE contacts a potential third-party provider for support with CRD compliance, they firstly ensure the third party has a basic understanding of the CRE’s obligations in order to identify their reporting gaps. Secondly, CREs should seek to understand the third-party providers’ specific services and expertise, in order to consider whether these align with the areas identified as requiring external support. Examples of what a third party may be engaged to do, and questions that CREs could ask before engaging them, are provided.
The FMA’s broadly educative approach to monitoring is to be welcomed. Compliance with the CRD regime is going to be an iterative process, and with no comparable regimes internationally, the directors and authorised bodies of CREs face a significant task ahead (see here for our director action points for climate reporting). The Monitoring Plan Information Sheet is therefore a valuable resource for CREs looking to understand what approach should be anticipated in terms of enforcement. At the same time, CREs will need to be take into account the FMA’s recent comments about greenwashing (see our legal update on this topic here), which indicates a stronger approach to misleading statements about climate change and other sustainability claims.
The publishing of the Draft Record Keeping Guidance follows the issuance of the Exposure Draft of regulations for the CRD regime by the Ministry of Business, Innovation and Employment on 21 June 2023. These will prescribe the record keeping requirements (see our legal update on the draft regulations here).
The first reporting period for CREs will align with their first financial reporting period starting on or after 1 January this year, with the first climate statements expected to be published as early as March or April 2024. CREs will have their work cut out for them in needing to comply with the record keeping requirements which have not yet been formally issued. This Draft Record Keeping Guidance is therefore helpful in indicating to CREs what processes and approaches (if any) are going to need to be recalibrated in order to achieve compliance.
The Third-Party Providers Information Sheet lays out valuable practical guidance for CREs, which will need to carefully consider who they are engaging to assist with CRD in order to mitigate the chances of compliance issues arising further down the road.
See our recent financial services news alerts on CRD below:
CRD Scenario Analysis released by the Financial Services Council
XRB publishes final Climate-related Disclosures Staff Guidance for All Sectors
New Zealand leads with mandatory climate-related disclosures
If you have any questions in relation to the Draft Record Keeping Guidance and information sheets, or are looking to ensure that your business is keeping up with the requirements of the CRD regime, please contact one of our experts.
This article was co-authored by Elise Plunket, a solicitor in our Banking and Financial Services team.
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