Clark DavidHon Dr DAVID CLARK (Minister of Commerce and Consumer Affairs): It is a pleasure to bring proceedings on Part 1 of the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill. The bill forms a key part of the Government's commitment to addressing climate change and I would like to make at the outset a number of points as I thank the Economic Development Science and Innovation Committee for its consideration of the bill and intend to seek perhaps one or two calls at the beginning just to cover off some of the changes that are proposed as a consequence of the work of that committee and other matters that have come to light. I do want to thank at the outset also not just the committee but the Hon James Shaw for the work that he has done alongside the Prime Minister in the background to get this bill to the House.I'd like to highlight some of the key features of Part 1 of this bill. New Part 7A inserted by clause 7 inserts new climate-related disclosures provisions into the Financial Markets Conduct Act. 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 global standards. Others are following fast behind. We've seen the UK make progress in that regard and I'm sure many other countries will too but New Zealand is the first to bring this legislation into the House so it is world leading.The legislation ensures that financial organisations disclose and ultimately take action against climate-related risks and opportunities. It will do that by requiring the largest and most important businesses in the New Zealand context and those that participate in the financial markets to disclose clear comparable and consistent information about the risks and opportunities presented by climate change. The original scope of the climate-reporting entities is unchanged in the bill. Some submitters had suggested that the disclosure regime should cover a wider range of entities including public sector organisations and large companies that are not listed on the NZX. The definition of climate-related entities in the bill is sector neutral. Approximately 15 public entities are climate-related entities. Four Crown financial institutions including ACC and the New Zealand Superannuation Fund with more than $1 billion under management will be required to make climate-related disclosures and that will be done through the letters of expectation process. The Minister of Finance will write to those entities in the usual process stating that they must prepare climate statements in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures and that of course is the same advice that informs this regime and produced advice I believe in 2017. So those are kind of well understood parameters. There are potential reasons for extending the disclosure obligation to large non-issuer companies. However requiring these companies to do so does not fit within the scope of the bill. Furthermore climate-related disclosures are intended to be read in the context of an entity's financial reports and of course large non-issuer companies are not required to make their financial statements available to the public so it's questionable how useful stand-alone climate statements might be to investors. New section 461OA excludes small listed issuers and issuers on growth markets and that's kind of a pragmatic response. The select committee recommended excluding small listed issuers with market capitalisation below $60 million and entities listed on growth markets like Catalist from the mandatory disclosure regime. Small issuers—to give some context to the committee—are less than 1 percent of total NZX market capitalisation. So that gives you a sense of the scale of those issuers. The exemption of small issuers and growth markets still means that the majority of the financial sector are captured by the bill.New Subparts 2 3 and 5: to keep climate-related disclosure records prepare and lodge climate statements—so climate-related entities will be required to prepare statements in according with climate standards issued by the External Reporting Board (XRB). Climate statements have to be lodged with the Registrar of Financial Service Providers within four months of the climate-related entity's (CRE's) balance date and CREs also have to keep climate-related disclosure records and make them available for inspection. There's a new Subpart 7: climate-related contraventions are added to the Financial Markets Conduct Act's existing civil liability regime. That means that contraventions will attract pecuniary penalties not exceeding $1 million for individuals or $5 million in other cases.Schedule 1 new section 92 which concerns transitionals—I'm mindful of concerns around the industry's preparedness to comply with the disclosure requirements while the standards are being prepared. The transitional provisions clarify that the disclosure and record-keeping requirements do not come into force until after the XRB has published and issued at least one climate standard. The XRB standard of course as I've mentioned already will be based on the recommendations of the Task Force on Climate-related Financial Disclosures and that material has been available for some time. None the less there is a due process consideration here. The XRB therefore is required to adequately consult with those likely to be affected by the standards before those standards are issued. That's a part of due process.The XRB has already started consulting with affected entities. On 20 October which is tomorrow it will launch its consultation on the governance and risk management sections of the proposed climate-related disclosure standards. Climate reporting entities will have ample opportunity to provide feedback on the proposed climate standard that may apply to them. That is the fundamental point. Once the XRB has issued a climate standard that applies to that entity the disclosure obligations apply to accounting periods that commence on or after the date that standard is issued.Now there's also been a removal of the disclose-or-explain provision. The bill originally provided an exception if a climate reporting entity reasonably determined that it is not materially affected by climate change but what was recognised was that that would've created a two-tier reporting system. Far better to have a simple single standard for reporting and then investors can compare even if those that are not materially affected—well that will be clear in their disclosure that that is the case. It ensures that the records are easy to compare and that all climate reporting entities are analysing the climate risks and opportunities in the same way.There's been a removal of the assurance practitioner accreditation and licensing regime. The select committee recommended removing the licensing regime proposed in the bill as introduced because it would not be effective and that removal responds to concerns that non-accountants would be excluded from carrying out greenhouse gas assurance engagements. The Financial Markets Authority (FMA) also supported removing the proposed licensing regime. Now despite removal of the licensing regime the greenhouse gas assurance engagements that are carried out up to three years after Royal assent will still be robust and that's because new section 461ZDA would require assurance practitioners to comply with all applicable auditing and assurance standards" when carrying out an assurance engagement.Now in respect of assurance of greenhouse gas emissions required three years after Royal assent to allow entities and the assurance industry time to build assurance capability assurance engagements for climate statements that are required to disclose greenhouse gas emissions will only be required three years after Royal assent.Now I want to speak also briefly to the Government's Supplementary Order Paper (SOP). I'm going to be tabling a Supplementary Order Paper which makes three small changes to two provisions in Part 1 that implement the select committee changes. The first change is to close a loophole in the definition of market capitalisation. The definition was added to the bill as part of the decision to exempt small listed issuers from climate-related disclosures. For listed debt issuers the current test is based on the net assets of the issuer and its subsidiaries. That's not a measure suitable for economic significance of debt instruments. It's the amount of debt that the issuer is seeking to raise that matters most not the size of the issuing entity. I'm not disagreeing with the fundamental principle introduced by the select committee but making an amendment. The current provision could also have the effect of excluding issuers that raise debt through a special purpose entity and that's not an uncommon practice. The SOP therefore changes the test for a listed debt issuer from net assets of the issuer and its subsidiaries to the aggregate dollar value of all of the entity's quoted debt instruments when they are issued. That is the face value. The second and third changes both relate to an assurance practitioner's report on parts of climate statements relating to greenhouse gas emissions. This provision was changed at select committee to address the legal consequences for assurance practitioners when their report does not comply with the requirements of all applicable auditing and assurance standards or if a qualified report is not sent to the FMA XRB and the supervisor within seven working days. There will still be a fine if instead it doesn't meet the new 20 working day deadline. As it stood though assurance practitioners if convicted would have been liable on conviction to a fine not exceeding $50000 for either of those requirements as they stood in the legislation. The SOP amends the bill so it's not an offence if an assurance report fails to comply with applicable auditing and assurance standards. The risks of criminal conviction could deter high-quality assurance practitioners from taking on greenhouse gas assurance engagements. Assurance standards for greenhouse gas emissions is new territory for the industry. We want to make it permissive for folks to turn their hand to it. Practitioners may not want to risk as the bill currently stood committing an offence by not meeting the standard. So that's why we have made that change.In closing the refinements and changes that we've made will help the bill to achieve its aims of ensuring that climate change risks and opportunities are routinely considered in business and financial market decisions. It will also support intergenerational equity through informed investment decision making. We are seeking here to make sure that New Zealand's financial markets disclose clear comparable and consistent information about the risks and opportunities presented by climate change and believe that that transparency will enable the efficient allocation of capital and effective markets. I commend this bill to the House."