Consultation on green bonds and other responsible investment products
The Financial Markets Authority (FMA) has released a short consultation paper on proposed guidance on green bonds and other responsible investment products (including KiwiSaver and other managed investment schemes) that expressly take into account environmental, social, or governance considerations.
The FMA will initially use the submissions to help develop guidance for issuers. The FMA will also publish separate material covering matters that may be relevant for investors, including questions they should ask of product and service providers, and examples of different kinds of responsible investing products and their features and risks.
This is an important paper despite its brevity, and we recommend the target audience consider it very carefully.
Who needs to read it? Why?
This consultation, and the resulting guidance and investor information, will be particularly relevant for:
- issuers of wholesale and retail green bonds;
- managers of managed investment schemes (MIS), including KiwiSaver schemes, that are labelled as ‘responsible’ or have responsible investment objectives;
- retail and wholesale investors in these products;
- financial advisers, who advise of those products; and
- any other financial service provider or issuer promoting itself or its financial products or services as responsible.
What does it cover?
The consultation paper contains a draft of the proposed guidance, which covers:
- the risks and issues, including the challenges of issuing responsible investment products;
- the legal context for responsible investment products or services;
- complying with fair dealing requirements;
- what makes something green, ethical or responsible;
- the role of the guidance in assisting issuers to meet potential requirements that may come out of the Government’s current review of KiwiSaver default provider arrangements for example, whether compulsory responsible investment requirements should apply to default Kiwisaver funds; and
- whether the outcome of the Retirement Commissioner’s review of retirement income policies is relevant to the guidance.
The consultation then poses ten brief questions, covering topics including what the features and risks are of green, ethical or other responsible investment products, what the disclosure should include, what due diligence and governance arrangements should be in place (including SIPO content)
The proposal for guidance is timely. Interest in climate change, and other forms of impact investing, have never been higher (see the recent report of the Responsible Investment Association of Australasia on New Zealand).
And yet, apart from s 129 of the KiwiSaver Act, there are no NZ regulatory requirements specifically aimed at green, ethical or other responsible investment products or services. Instead claims fall to be judged against general disclosure standards under Part 3 of the Financial Markets Conduct Act (FMC Act), and general fair dealing requirements under Part 2 of the FMC Act and the Fair Trading Act. There is currently no guidance as to how those general provisions apply in this sector, and what steps if any issuers should take to ensure investors clearly understand what they are being offered and what risks are involved.
However, the time allowed for the consultation is brief – less than a month, and while the ten questions are short, they raise deep issues. That allows little time for issuers to understand the implications of the issues raised.
Submissions on the new financial advice regime exemption close at 5pm on Thursday, 24 October 2019.
If you have any questions in relation to the consultation or would like assistance with submissions, please contact one of our experts.
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