On August 16, 2021, the Committee for Economic Development, Science and Innovation (Select committee) published its report on the Financial Sector Amendment Bill (Climate Information and Other Matters) (Invoice). The bill, as presented, can be read here.
The bill will require climate reporting entities (CRE) – around 200 organizations (including listed issuers, registered banks, insurers and fund managers who are “big” defined by reference to assets or income) to report annually on their climate related financial risk and deliver on the government’s pledge to introduce the world’s first mandatory climate risk reporting regime. The omnibus bill will amend the Financial Market Conduct Act, the 2013 Financial Reporting Act and the 2001 Public Auditing Act.
The special committee report proposes a number of amendments to the bill as presented. In summary, the main recommendations of the select committee are as follows:
- Removal of disclosure or explanation provisions The bill, as drafted, exempts any entity from preparing a climate statement in accordance with climate standards set by the External Reporting Board (XRB) when it determines that it is not significantly affected by climate change and prepares a separate report explaining the basis for that determination with the support of a certification professional. The recommendations of the select committee would require that all CREs apply the same climate standards to their publications for the sake of consistency.
- Exclusion of growing markets and small issuers The bill as presented applies to all listed issuers. The recommendations of the Select Committee would introduce a new definition of CRE which would only include “large listed issuers” (issuers with a market capitalization greater than $ 60 million) and issuers that are not “excluded listed issuers” (issuers whose securities are listed only on a growing market, or listed issuers who do not have listed equity or debt securities).
- Clarification for merging entities It is proposed to modify the definition of CRE to clarify that any large entity that merged into another entity would still be considered “large”. As introduced, the bill’s definition of CRE is for “large CME reporting entities” that meet certain financial thresholds for two consecutive years. The bill as presented does not specify how the two-year period would be affected if entities were to merge or merge. The select committee’s recommendations state that if a large entity were to merge with a second entity to become a new entity, the two-year period would not apply to the new entity and the new entity would still be considered large.
- Delay insurance obligations The bill as introduced would require CRE to seek assurance of their GHG emissions disclosures, and require insurance practitioners to comply with all standards of applicable audit and assurance. To allow time to develop professional capacity in climate reporting, the special committee proposes that these obligations come into effect three years after the bill receives Royal Assent (two years later than originally proposed). in the bill). It is important to note that this extension only concerns the obligation to obtain insurance and does not affect the timing of CRE entities to prepare climate declarations.
- Removal of the provisions relating to the approval and issuance of insurance licenses The proposed change stems from the select committee’s concerns that the proposed licensing scheme would be ineffective and also means that non-accountants such as carbon and energy professionals would now be able to perform GHG insurance, at provided they have the relevant skills and experience and comply with all applicable auditing and assurance standards.
- New offense The proposed changes would introduce an offense, punishable on conviction by a fine of up to $ 50,000, for a certification professional who contravenes applicable certification standards. The bill as presented requires practitioners to comply with all applicable auditing and assurance standards. However, no sanction was initially provided for in the bill for non-compliance.
- Removal of a provision requiring the explanation of immaterial information The bill as presented would apply where climate standards allow entities to exclude immaterial information and require the entity to explain why the information is immaterial. The select committee would remove this requirement to explain why the information is irrelevant, as it believes that XRB is in the best position to determine what is important and the select committee considers that the provisions may result in “reports containing information of no value to the public. the users “. .
It is expected that the bill will be passed this year and that CREs will be required to prepare climate declarations for fiscal years starting in 2022, with disclosures being made in 2023 at the earliest. All CREs and their directors will closely monitor the progress of the bill and await the release of the XRB standards, so that they have processes in place to ensure that they can comply with this important initiative.