Newsflash: FMA releases its scorecard on the first year’s climate statements

The Financial Markets Authority (FMA) has published its observations following review of 70 climate statements prepared for reporting periods ended 31 December 2023, 31 January 2024 and 31 March 2024. Of the 70 climate statements reviewed, 22 were by managed investment scheme managers and 7 were by licensed insurers.

This report gives an insight into the FMA’s expectations – as the FMA is responsible for monitoring and enforcing the climate related disclosures regime, it is recommended reading for climate reporting entities as well as entities making voluntary disclosures. The FMA expect climate reporting entities to apply the observations in the report and any individual feedback provided.

We will have more detailed commentary on the FMA’s thematic monitoring report, the proposed class exemption for assurance, and prepping for the second year of climate reporting shortly.

 

What were the FMA’s key observations?

The FMA found disclosures generally aligned with their expectations but noted the quality of disclosure varied between the 70 climate statements reviewed. The FMA expressly give a nod to the challenges faced in obtaining reliable data, higher-than-expected costs to produce disclosures, and the absence of guidance on certain topics.

The main takeaway is that the FMA wants entities to be more specific. More detail is required.

The following areas for improvement were identified:

• Striking the right balance on the amount of information disclosed – don’t lose sight of what matters amongst the immaterial (ie don’t over-emphasise current initiatives which sound good but will have limited positive impact).
• Fair presentation – some statements were overly positive and didn’t acknowledge the challenges faced, be real.
• Disclosing all material information to explain underlying methods and assumptions, and data and estimation uncertainty.
• How processes are undertaken and, where required, the frequency of these processes – describe the “how” of the process, not just the “what”, and be specific.
• Explaining the connection between climate-related matters and other organisational activities (such as corporate strategy planning).
• Explain “current climate-related impacts” – how has that climate-related event (such as a flood) actually impacted your business.
• Disclosing all material information to explain climate-related risks and opportunities – this includes severity, exposure, the extent of vulnerability etc.
• Disclosing all material information to describe greenhouse gas (GHG) emissions targets – some entities missed detail required by the NZ CS 1, [23(e)].
• Scenario analysis – the FMA make various recommendations including references to third party scenario archetypes and the extent of adaptation of those archetypes to the entities’ business.¹
• Consistency with other disclosures – the FMA did not just review climate-related disclosures themselves but also looked at consistency with any other documents or statements published by climate reporting entities (such as financial statements). The report notes a key problem area was the misalignment between the information contained in financial statements and climate statements.
• Some entities missed legislative requirements – take care to make sure you have ticked every box.

 

What is next?

The FMA continues to review climate statements for reporting periods ended between 31 March – 30 September 2024 and will provide climate reporting entities with individual feedback or direct them to relevant insights in this report if deemed appropriate.

The FMA is also now running a targeted consultation on a class exemption allowing entities to be exempted from the assurance engagement requirements (FMCA, s461ZH) to the extent that its climate statements are required to disclose scope 3 GHG emissions. This exemption would support the XRB’s extension of the adoption relief provisions and avoid any gap between the statute and the Aotearoa New Zealand Climate Standards around assurance of scope 3 GHG emissions. Submissions close on 28 January.

The FMA’s monitoring from May 2025 will be focussed on the following areas:

• GHG emissions assurance;
• efforts to comply with the requirement to disclose current financial impacts and transition plan aspects of strategy;
• whether commitments (eg to take action, deploy new processes or gather information) disclosed in the first year of reporting have been followed through, and if not, whether this has been disclosed and explained; and
• consistency with first year disclosures and if not, any material differences being disclosed and explained.

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¹See pages 6-7 and 19-20.