The Ministry of Business, Innovation and Employment (MBIE) announced today a consultation on a package of reforms which aim to strengthen New Zealand’s capital markets. There are two reforms proposed in the package’s first phase which will seek to change KiwiSaver settings and the climate-related disclosures (CRD) regime under the Financial Markets Conduct Act 2013 (FMCA). 

The proposed reform to KiwiSaver settings is the next step in a long campaign towards making it easier for KiwiSaver providers to invest in private assets. MinterEllisonRuddWatts, together with Chapman Tripp, was commissioned by the Centre of Sustainable Finance to issue an opinion on the legislative and regulatory barriers on KiwiSaver investments in private assets. The joint opinion, issued in December 2023, was co-authored by two of our own KiwiSaver experts: Lloyd Kavanagh and Claire Brabant. Our full commentary on the opinion can be found here.

The full announcement on the reform package can be found here.

Who needs to read it? Why?

All participants in New Zealand’s capital markets should read and follow these reforms. KiwiSaver fund managers and climate reporting entities (CREs) in particular should note these proposed reforms in the package’s first phase. MBIE has indicated that the package’s second phase will include broader work on the capital markets regulatory system.

What does it cover?

The two proposed reforms in phase one are:

1. Enabling KiwiSaver investment in private assets to broaden investment options and enable greater capital funding for productive domestic projects.
2. Adjustments to the CRD regime to ensure its appropriateness in the New Zealand context and prevent it from being a barrier to listing on the NZX.

Enabling KiwiSaver investment in private assets

In the discussion document on KiwiSaver investments, MBIE intends to remove the barriers KiwiSaver providers face in supporting investments into private assets. These proposals aim to address the lack of clarity from KiwiSaver rules on private asset investments. To this, the document outlines four key proposals:

1. enabling KiwiSaver providers to use liquidity risk management tools;
2. improving private asset visibility in disclosure requirements;
3. ensuring valuation requirements support private asset investment; and
4. considering whether the total expense ratio formula is appropriate for KiwiSaver providers.

We are pleased to note that these key proposals broadly align with the recommendations outlined in our joint opinion. 

Like our opinion, the discussion document recognised that liquidity risk management tools, specifically side pockets and redemption gates, are not available for KiwiSaver providers. Daily pricing was another issue recognised by both papers, where the current pricing strategies used to ensure liquidity are incompatible with investments into private assets. The MBIE also recognised that the governing documents for KiwiSaver schemes usually stipulate a valuation of five business days or less, which does not provide for the valuations private assets usually undergo (usually quarterly but could be longer). 

The full discussion document is available here.

Adjustments to the CRD regime

The discussion document on the CRD regime outlined significant issues that are negatively impacting New Zealand businesses. There are four areas of concern raised:

• Some CREs consider that the cost of reporting is excessive and disproportionate. An Australasian survey found that the median cost for published climate statements range from NZD250,000 to NZD300,000. 
• Some stakeholders consider that the reporting threshold for listed issuers is too low. They also consider that the misalignment with the Australian reporting regime leads to a competitive disadvantage for listed issuers in New Zealand.
• Some stakeholders consider that the reporting threshold for investment scheme managers is also too low and misaligned with Australia.
• Some stakeholders have raised concerns with the director liability settings and their effects on climate reports. The document refers to feedback that current director liability settings generate high legal and consultancy costs for producing climate statements, limit exploratory or innovative approaches to climate reporting, and disincentivise listed issuers to list on the NZX.

To address these issues, the document proposes changes in four areas:

• Amending the NZX listed issuer reporting thresholds. Three options are given for this area:
  • NZD60 million market capitalisation (for quoted equity) or principal amount (for quoted debt) – this is the status quo.
  • NZD550 million (for quoted equity) or principal amount (for quoted debt), with effect from early 2026, status quo till then.
  • NZD550 million (for quoted equity) or principal amount (for quoted debt), with effect from early 2026 (status quo till then), then dropping to NZD250 million from early 2028.
• Amending the investment scheme manager reporting thresholds.Three options are given for this area:
  • NZD1 billion asset under management in registered schemes (AUM) – this is the status quo.
  • NZD5 billion AUM.
  • NZD5 billion assets under management per scheme
• Moving the location of the thresholds from the FMCA to secondary legislation (e.g. regulation) which would make it easier to adjust again in future.
• Changing director liability settings. Options include retaining the status quo of having the same level of responsibility as applies for financial statements, amending the FMCA director liability provisions for climate-related disclosures, or introducing a temporary safe harbour provision similar to Australia’s regime.

The discussion document also seeks submissions on whether New Zealand subsidiaries of multinational companies should file their parent company’s climate statements in New Zealand. The full discussion document is available here.

We have already highlighted some of the key differences between climate reporting regimes in New Zealand and Australia - our article is available here. 

Our view

We welcome the proposed changes to KiwiSaver settings. We hope the changes will encourage KiwiSaver providers to undertake more private asset investment, providing consumers with more choice. We acknowledge that further consultation is required to ensure that appropriate regulations and tools are provided to KiwiSaver providers however, the proposed reforms are an important step in the right direction to encourage greater investment in assets like infrastructure projects, and private New Zealand businesses. 

Regarding the second reform, the proposed adjustments to the CRD regime require careful consideration, and it is important that the views of a wide range of stakeholders are considered. 

In deciding which options to support, it will be important to balance both the benefits of reducing the regulatory burden, against the benefits of facilitating a transition to a more sustainable, low-emissions economy. In that context, it will be relevant that by early 2026 many more jurisdictions’, including Australia’s, mandatory climate reporting regimes will be in effect (at least in part). 

Given the need to pass amending legislation any changes will only take effect after some CREs in New Zealand have completed their second reporting period, and lodged their second climate statement. It will be interesting to see whether or not there is market demand for those who are no longer required to report, to provide some form of voluntary disclosure, especially if Australian competitors are reporting under their regime. We note the discussion document itself raises the prospect that the External Reporting Board could issue standards for smaller listed issuers. 

What next?

The two proposed reforms are now open for consultation with submissions due on 14 February 2025. Submissions can be made by following the instructions at the bottom of the reform page, which can be found here.

If you have any questions about the reform package or how the reforms may affect your business, please contact one of our experts.