Shaw James; Dean JacquiFINANCIAL SECTOR (CLIMATE-RELATED DISCLOSURES AND OTHER MATTERS) AMENDMENT BILLSecond ReadingHon JAMES SHAW (Minister of Climate Change) on behalf of the Minister of Commerce and Consumer Affairs: I present a legislative statement on the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill.ASSISTANT SPEAKER (Hon Jacqui Dean): That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon JAMES SHAW: I move That the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill be now read a second time. This bill forms a key part of our Government's response to the climate emergency. I'd like to thank the Economic Development Science and Innovation Committee for its consideration of the bill. I'd also like to acknowledge those who have made written and oral submissions and I also want to thank the Hon Dr David Clark for his work on this bill. The committee considered 55 submission from industry groups and individuals covering a range of matters. All submitters supported the policy intent of the bill. The committee has reported that key substantive decisions be retained but have recommended some changes which will refine the policy intent of the bill. These changes will assist in bringing climate risks and resilience into the heart of financial and business decision-making.Aotearoa New Zealand is the first country in the world to introduce legislation to require all large listed companies and large financial institutions to report on their climate-related risks in accordance with standards. This bill will make a significant contribution to the transition towards carbon neutrality by 2050. While we all have a part to play in reaching that goal the financial sector is in a position to generate real and significant momentum towards that goal. This legislation ensures that financial organisations disclose and ultimately take action to mitigate climate-related risks and take advantage of opportunities. It will do this by requiring the largest and most important businesses participating in New Zealand financial markets to disclose clear comparable and consistent information about the risks and opportunities presented by climate change. The current lack of reliable information about the impact of climate change on businesses is serious because it can lead to the mispricing of assets and the misallocation of capital. Investors lenders and insurance underwriters cannot make informed decisions if information about material risks is unavailable. The asset mispricing and capital misallocation risks also raise financial stability concerns because markets can be vulnerable to abrupt corrections.This bill has already caught the attention of Governments and people around the world because it provides accountability for the actions of large listed businesses and financial institutions in relation to climate change. This will help the sector to be a part of the solution rather than a part of the problem in the face of the climate change challenge. Trillions of dollars will need to be invested globally by 2050 to achieve the Paris Agreement goal of keeping the increase in global average temperatures to 1.5 degrees Celsius above pre-industrial levels. New Zealand businesses are well-placed to seize emissions-reducing opportunities in such areas as energy production food production and pollution reduction. The disclosure regime will contribute to this because it will provide a sound framework for identifying business opportunities. This bill helps investors to redirect capital to cleaner ways of doing business.I'd like to turn to changes from select committee. There are three key issues included in the report which balance the key areas of first not expanding the definition of climate reporting entities; second allowing an exemption for growth markets and small listed issuers; and third removing the disclose-or-explain provisions.So first the definition of a climate reporting entity is unchanged in the bill. The committee received a significant number of submissions proposing that the definition of climate reporting entities should include public entities and a range of private sector entities including large private companies.The original scope of climate reporting entities has been retained because focusing on the financial sector provides the most effective impact within the time frame needed to urgently respond to the climate emergency.The financial sector influences every part of the economy. As banks non-bank deposit takers insurers and scheme managers assess their own climate risks and opportunities they can demand climate information as a condition of doing business or investing in business. The financial sector was chosen as widening the scope of the disclosures would have caused a delay in introducing this bill. The Government will look at widening a scope after the legislation has been enacted.And when it comes to public entities they are covered by the reporting requirements of the Carbon Neutral Government Programme. Those reporting requirements will have some parallels to those in this bill but of course public entities access capital differently from private companies and so the parallels can only go so far.When it comes to small listed issuers with a market capitalisation below $60 million and entities listed on growth markets such as those of Catalist they will be exempted from the mandatory climate disclosure regime. However such entities may still choose to make climate-related disclosures. Catalist is a new public market licensed under the Financial Markets Conduct Act and is targeted as a stepping-stone market for small issuers to access growth capital. Growth markets and small issuers will be exempted from the regime due to the risk that requiring all listed issuers to be climate-reporting entities will put up barriers to entry for such entities to access capital. We want entities to still be able to access capital without disproportionate compliance cost barriers.Small issuers contribute less than 1 percent of the total NZX market capitalisation. The NZX has 54 issuers with a market capitalisation of less than $60 million representing only 0.7 percent of the NZX's total market capitalisation. The exemption of small issuers in growth markets still means that the majority of the financial sector are captured by the bill.The bill originally provided a disclose-or-explain exception if a climate reporting entity reasonably determined that it is not materially affected by climate change. However this still created a reporting requirement for such entities. The disclose-or-explain provisions have been removed from the bill to remove a two-tier reporting system. All climate reporting entities will prepare climate statements using the same climate standards. Any need for differential reporting could be achieved through the application of climate standards. This ensures that users are able to compare reports and that all climate reporting entities are analysing their climate risks and opportunities.To address the concerns of a few key stakeholders following the select committee process the Hon David Clark will be tabling some amendments in a Supplementary Order Paper prior to the committee of the whole House stage of the bill.Now in closing these refinements and changes the select committee have made have assisted the bill to achieve its aims of supporting intergenerational equity through informed investment decision-making. The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill will provide investors with the information that they need to make informed investment decisions. The bill will encourage disclosing entities to become more sustainable by factoring the short- medium- and long-term effects of climate change into their business decisions. Finally I'd like to take this opportunity to once again thank the Hon David Clark as well as the members of the Economic Development Science and Innovation Committee for their work in considering the bill and all those who have participated in consultation during the development of this bill for their contributions. Now on behalf of the Hon Dr David Clark I am proud to commend this bill to the House.ASSISTANT SPEAKER (Hon Jacqui Dean): The question is that the motion be agreed to.