For super funds and their advisers

RIAA panel maps out climate reporting

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The NZ Government will release climate risk scenario guidance for the financial and corporate sectors by year-end to support impending new carbon reporting standards.

Alex White, Ministry for the Environment (MFE) sustainable finance team leader, told a funds industry gathering in Auckland last week that the in-production scenario analyses would help NZ investors better understand how climate change could impact portfolios and companies.

Speaking on a panel at the Responsible Investment Association of Australasia (RIAA) annual NZ conference in Auckland, White said the climate scenario tools would describe potential outcomes if world temperature rose to 1.5°C or higher based on the most up-to-date global research.

“It will be a synthesis of global reports but easy to understand through a NZ lens,” she said. “But they are not NZ-specific climate risks… MFE is not best-placed to tell you what your risks are.”

But White said the risk scenarios would help local fund managers, financial institutions and companies develop insight into how climate risks might play out in their own fields.

She said the MFE guidance should be published by the end of the year with a view to feeding into the external reporting board (XRB) to be established under the imminent NZ carbon reporting legislation.

The Financial Sector (Climate-related Disclosure and Other Matters) Amendment Bill, currently in select committee phase, will impose climate risk reporting obligations on about 200 NZ entities including most banks, insurers, listed companies and licensed fund managers. Under the proposed law, the independent XRB would have a reasonably wide brief to develop reporting regulations but based on the global Task Force on Climate-related Financial Disclosures (TCFD).

And with the TCFD-like reporting expected to go live in NZ for the 2022/23 fiscal year, the RIAA panel focused largely on practical solutions for local fund managers in meeting the coming regulatory burden.

Although, ‘burden’ was the wrong way to view the proposals, White said.

While TCFD-style reporting would bring challenges and expenses, she said it was also a “useful strategic discovery exercise” on climate risks and opportunities for investors.

Erica Miles, director of West Nine Consulting (and on the panel with White), said the carbon emissions reporting regulatory regime would be a “journey”.

“We want to see TCFD-right, not TCFD-lite,” Miles said. “But your first disclosure does not have to be perfect.”

She said there were still issues surrounding the supply of “consistent and comparable” climate risk data.

“But TCFD is about financial disclosures, not about how wonderful your risk and governance disclosures are,” Miles said.

Greenhouse gas emission information was only a small piece of the TCFD puzzle, she said, with “forward-looking data more important”.

Miles said the UK Financial Conduct Authority, for example, had produced a useful TCFD reporting guide for asset owners and fund managers.

The NZ Superannuation Fund (NZS) had also carried out a lot of research on how TCFD reporting could improve portfolio management, according to Lucas Kengmana, senior investment strategist.

Kengmana said the TCFD exercise provided multiple benefits including helping to understand the broad climate change risks across its portfolio as well as offering a “crash-test” of the NZS current carbon-reducing strategies.

Furthermore, he said the formal climate-reporting policy was a “useful communications tool” for the entire NZS investment team while offering ways to engage with underlying managers, service providers and NZ companies (both indirect and directly held entities).

Head of investment solutions at the Westpac-owned BT Funds, Philip Houghton-Brown, said the group – recently reappointed as KiwiSaver default provider – started building a serious climate change strategy last year.

Philip Houghton-Brown

“We’re now going down the implementation path but it will take some time,” Houghton-Brown said.

For example, he said BT was researching a number of new climate-related investment benchmarks to understand the “benefits and pitfalls” of the various methodologies.

Houghton-Brown said there were a growing number of resources to help investors with climate-reporting such as the TCFD ‘Knowledge Hub’ and the International Carbon Action Partnership (ICAP).

Despite the sometimes-overwhelming implications of climate change for investment processes and reporting duties, he said the “journey” has to begin somewhere.

“Keep it simple, don’t let the complexity get in the way of starting,” he said.

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