Today, the Economic Development, Science and Innovation Committee (EDSIC), a Parliamentary Select Committee, reported its findings on the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill (CRD Bill). The EDSIC summarised a number of amendments to the CRD Bill based on submissions received during the Select Committee stage which we summarise below.
See here for a copy of the EDSIC’s report which includes the relevant amendments to the CRD Bill. The next step is for the EDSIC’s report to be debated by the House of Representatives in the CRD Bill’s second reading, the date of which is still to be confirmed.
Who needs to read the EDSIC report?
Listed issuers, registered banks, credit unions, and building societies, managers of registered investment schemes, and licensed insurers should all read the EDSIC’s report.
What does it cover?
Key changes following the EDSIC’s report on the CRD Bill are summarised below.
Entities that are considered climate reporting entities
- Exclude small listed issuers and growth markets
- The climate reporting entity definition is amended to only include “large listed issuers” and issuers that are not “excluded listed issuers”. A new section 461OA will be inserted and define “large listed issuers” as issuers with a market capitalisation over $60 million as at the balance date of each of the two preceding accounting periods. “Excluded listed issuers” will include issuers whose securities are listed only on a growth market, or listed issuers who have no quoted equity or debt securities.
- Clarify provisions relating to entities amalgamating
- A new section 461PA will be inserted in the Financial Markets Conduct Act, making clear that any large entities which amalgamate into another entity would still be considered large. The two-year period in calculating if an entity is “large” will not apply to the new entity, however.
Changes to the assurance provisions
- Delay implementing assurance requirements for an additional two years
- The assurance requirements will form a new Part 1A of the CRD Bill and that will come into force within three years after the CRD Bill receives Royal Assent. Climate reporting entities will still be required to prepare climate-related disclosures in respect of accounting periods of the entity that commence on or after the date on which the External Reporting Board issues the first climate standard that applies to the entity, however, will not be required to engage assurance practitioners for the green-house gas emission statements in these disclosures until new Part 1A is in force.
- Remove the assurance practitioner licensing and accreditation provisions
- The licensing and accreditation for CRD assurance bodies are removed from the CRD Bill as they considered ineffective. Note proposed section 461ZDA will still require assurance practitioners, in carrying out an assurance engagement, to comply with all applicable auditing and assurance standards.
- Add a criminal offence for non-compliance with applicable assurance standards
- A new section 461ZDB will be inserted alongside other assurance requirements and make it an offence, liable on conviction to a fine note exceeding $50,000, for an assurance practitioner who contravenes applicable assurance standards.
Removal of disclose-or-explain provisions
- The ‘disclose-or-explain’ provisions under proposed sections 461ZA and 461ZB will be removed from the CRD Bill as Government members were concerned these may lead to different reports and quality of reporting, and undermine the goal of CRD to achieve consistent and comparable climate reporting.
Removal of provisions relating to immaterial information
- New section 19D as introduced would have required reporting entities to include information to explain why other information is immaterial. This has been considered as of no value to users and will be removed from the CRD Bill.
Other things to note
- A new section 461ZA has been added to clarify that where a manager of a registered scheme changes and the new manager is not a large manager, the new manager is not required to ensure the completion of climate statements and lodgements of those climate statements in relation to the accounting period it becomes the new manager of the scheme.
The EDSIC’s report on the CRD Bill has moved in a positive direction, signalling the key purposes of the CRD Bill will remain and taking into account some concerns arising out of submissions. In particular, the recognition of the position of smaller listed entities at least in the short-term is welcomed.
However, the CRD Bill still does not address some key aspects.
It does not make any reference to the status of public sector agencies in relation to their climate-relating disclosure obligations. The commentary of the EDSIC report notes the New Zealand National Party raised this point during discussions, but that Ministers had indicated they will direct government entities through letters of expectation. In our view, given government departments, Crown, and local authority entities may compete with listed entities, it is important there is a level playing field and they have at least as strict requirements. Further, many such entities are major emitters.
The EDSIC’s report also does not clarify the role of the Financial Markets Authority, nor government coordination generally.
For some of our recent climate-related disclosure news alerts, see the following:
- Climate reporting bill to receive first reading this week
- XRB issues timeline for developing climate-related financial disclosures
- Climate-related financial disclosures: Driving capital markets and corporate governors to address the climate emergency
- The gathering storm – and how to prepare
If you have any questions in relation to the CRD Bill or would like to know how it may affect your business, please contact one of our experts.
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