Yesterday, the Financial Markets Authority (FMA) proposed an exemption from the reporting requirements under the climate-related disclosures (CRD) regime for climate reporting entities (CREs) in liquidation, receivership, or voluntary administration. It also applies to managers that are CREs in respect of registered managed investment schemes in wind-up. The exemption is intended to apply differently depending on the CRE’s status, as we explain below.
The FMA is seeking feedback on the proposal. A link to the consultation document is available here.
Who should read this and why?
This consultation has relevance primarily for:
• liquidators, receivers, and voluntary administrators who may be appointed to CREs; and
• licensed fund managers who are CREs and may wind up any of the funds they manage.
They will want to make sure that the proposed exemption sufficiently covers the circumstances that it will relieve them of what might otherwise be significant obligations.
What does it cover?
The FMA is considering a 5-year class exemption to compliance with the whole of Part 7A of the Financial Markets Conduct Act 2013 (FMCA) for CREs in liquidation, receivership, or voluntary administration, and for managers that are CREs in respect of registered managed investment schemes in wind up.
Part 7A requirements include:
• preparing and lodging climate statements, group climate statements or scheme-related climate statements;
• record-keeping obligations; and
• obtaining an assurance engagement for the climate statements.
The proposed exemption would not apply to the fair dealing obligations under Part 2 of the FMCA, which covers any greenwashing behaviour.
Insolvent or solvent liquidations or scheme wind-ups
The exemption would provide full relief to CREs in liquidation and CREs winding up a scheme, regardless of whether they are solvent or insolvent. The outcome of ceasing operations and investment decisions is the same, which explains the FMA’s equal treatment of them.
As the FMA points out, in these situations, the focus is on ending the CRE or scheme in the most financially viable way to creditors, shareholders and investors. The FMA considers that climate statements are not likely to be relevant to those stakeholders given the CRE’s (or schemes) lack of future business activities.
Receiverships or voluntary administrations
CREs in receivership or voluntary administration would only be given deferral relief for two years, due to the possibility that the CRE may begin trading again. The FMA considers that only where there is a plausible future for the business will primary users want to know about the CRE’s approach to climate-related risks and opportunities.
The proposed exemption is practical and a welcome addition to ensure the CRD regime is fit-for-purpose. Liquidators, receivers, and voluntary administrators must prioritise creditors or focus on ensuring the CRE’s survival, and directors of these CREs may not have the authority to sign off on climate statements.
The FMA notes the reality that CREs facing insolvency, or a scheme wind-up are not likely to have the capacity to direct their energy towards preparing climate statements and other CRD requirements.
Submissions on the consultation document close on 20 July 2023.
If you have any questions about this consultation document and how it applies to you, or about the CRD regime generally, please contact one of our experts.
This article was co-authored by Hannah Cross, a law clerk in our Banking and Financial Services team.
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