Select Committee report on Climate-related Disclosures and Other Matters Amendment Bill released

On 16 August 2021, the Economic Development, Science and Innovation Committee (Select Committee) released its report on the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill (Bill). The Bill, as introduced, can be read here.

The Bill will require climate reporting entities (CREs) - approximately 200 organisations (including listed issuers, registered banks, insurers and fund managers who are ‘large’ defined by reference to assets or revenue) to report eachyear on their climate-related financial risk and give effect to the Government's promise to introduce the world's first mandatory climate risk reporting regime. The omnibus Bill will amend the Financial Markets Conduct Act, the Financial Reporting Act 2013 and the Public Audit Act 2001.

The Select Committee's report proposes a number of amendments to the Bill as introduced. In summary, the Select Committee's main recommendations are:

• Removal of disclose-or-explain provisions
  The Bill as drafted exempts any entity from preparing a climate statement in accordance with climate standards made by the External Reporting Board (XRB) where it determines it is not materially affected by climate change and prepares a separate report explaining the basis for this determination with support from an assurance practitioner. The Select Committee's recommendations would require that all CREs apply the same climate standards to their disclosures for consistency.

• Exclusion of growth markets and small issuers
  The Bill as introduced applies to all listed issuers. The Select Committee's recommendations would introduce a new definition of CRE that includes only 'large listed issuers' (issuers with a market capitalisation over $60 million) and issuers which are not 'excluded listed issuers' (issuers whose securities are listed only on a growth market, or listed issuers who have no quoted equity or debt securities).
  

• Clarification for amalgamating entities
  The definition of CRE is proposed to be amended to make it clear that any large entities that amalgamate into another entity would still be considered 'large'. As introduced, the Bill's definition of CRE relates to 'large FMC reporting entities' which meet certain financial thresholds for two consecutive years. The Bill as introduced does not specify how the two-year period would be affected if entities were to amalgamate or merge. The Select Committee's recommendations clarify that, if a large entity were to merge with a second entity so it 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 assurance obligations
  The Bill as introduced would require CRE to seek assurance about their disclosures relating to GHG emissions, and requires assurance practitioners comply with all applicable auditing and assurance standards. To enable time to grow professional capacity for climate reporting, the Select Committee proposes these obligations come into force three years after the Bill receives Royal assent (two years later than originally proposed under the Bill). It is important to note that this extension only relates to the obligation to obtain assurance and does not affect the timing for CRE entities to prepare climate statements.
  

• Removal of assurance licensing and accreditation provisions
  The proposed change arises from the Select Committee's concerns that the proposed licensing regime would be ineffective and also means that non-accountants such as carbon and energy professionals would now be able to carry out GHG assurance, provided they have the relevant skills and experience and comply with all applicable auditing and assurance standards.
  

• New offence
  The proposed changes would introduce an offence, liable on conviction to a fine not exceeding $50,000, for an assurance practitioner to contravene applicable assurance standards. The Bill as introduced requires practitioners to comply with all applicable auditing and assurance standards. However, no penalty was initially stipulated in the Bill for non-compliance.
  

• Removal of provision requiring explanation of immaterial information
  The Bill as introduced would apply where climate standards permit entities to exclude immaterial information and would require the entity to explain why the information is immaterial. The Select Committee would remove this requirement to explain why the information is immaterial as it believes XRB is best placed to determine what is material and the Select Committee considers that the provisions may result in 'reports that contain disclosures that are of no value to users'.

It is expected the Bill will be passed this year and CREs will be required to prepare climate statements for financial years commencing in 2022, with disclosures being made in 2023 at the earliest. All CREs and their directors will be closely watching progress of the Bill and waiting for XRB’s standards to be issued, so that they have processes in place to ensure that they can comply with this important initiative.

Please get in touch if you would like further advice on the Select Committee's proposed changes to the Bill and how the climate reporting regime would affect your business.