New Zealand has become the first country to codify aspects of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (“TCFD”) recommendations into legislation backed up by sanctions with real bite. The TCFD recommendations are set out in the Task Force’s June 2017 report. These provide a global framework for companies and other organizations to develop more effective climate-related financial disclosures through their existing reporting processes.


New Zealand’s Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill (“the Bill”) amends the Financial Markets Conduct Act 2013 by introducing Part 7A titled “Climate-related disclosures for certain FMC reporting entities with higher level of public accountability”. The effect of the Bill is to introduce obligations on “climate reporting entities” (“financial entities”), singled out by the Bill for their large size, to keep proper records relating to their obligations to make climate-related disclosures, prepare climate statements, and lodge these (ss.461N-461Q). In general, climate statements must be prepared, signed off by directors of the financial entity and lodged within a deadline of four months from the balance date (ss.461W-461Z). A failure to prepare such a statement, lodge it, or include it in the financial entity’s annual statement attracts fines. The Bill also applies to the New Zealand businesses of overseas companies that fall within the same definition (s.461Y).


Significantly, the Bill includes the offence of knowingly failing to comply with climate standards. If a climate statement fails to comply with an applicable climate standard, and the financial entity or director of that entity knows that the statement fails to comply at the time it is filed, the financial entity as well as every director of said entity commits an offence (s.461ZC). A director convicted of such an offence is liable to a term of imprisonment not exceeding 5 years and/or a fine not exceeding NZ$500,000. A financial entity convicted of such an offence is liable to a fine not exceeding NZ$2.5 million. Additionally, such contraventions may also attract civil liability, including a pecuniary penalty not exceeding NZ$1 million in the case of an individual, or NZ$5 million in the case of a financial entity. The Bill also includes requirements relating to the storage of relevant records in order to enable the financial entities to prepare the mandatory climate statements, which are open to inspection by the authorities (ss.461S – 461V). A contravention of the storage obligation may also give rise to civil liability, including a pecuniary penalty not exceeding NZ$200,000 for an individual or NZ$600,000 for a financial entity (s.461ZS(4)).


New Zealand is at the vanguard of a wave of new legislative and regulatory reform anticipated to sweep through many countries. Such reforms will build on obligations already in place in some regions. It will be recalled in this respect that:


  • EU law already requires certain large companies to disclose information on the way they operate and manage social and environmental challenges by way of the Directive 2014/95/EU, known as the Non-Financial Reporting Directive. The European Commission also published in 2017 non-mandatory guidelines to help companies disclose environmental and social information, and in 2019 guidelines on reporting climate-related information.


  • Prior to the enactment of the New Zealand Bill, France had previously held the mantle for the country with the most innovative legislative developments in climate-related matters. Its rules served as a model for the EU regulations on sustainable finance disclosure. Article 173-VI of the Law on Energy Transition for Green Growth and its implementing decree applied the ‘comply or explain’ principle, providing investors with broad flexibility in choosing the best way to fulfil the law’s objectives. On 27 May 2021, France adopted Decree No. 2021-663, in application of article 29 of the Climate Energy Law (Law no. 2019-1147). The new decree inter alia extends the scope of reporting obligations to credit institutions, investment firms with respect to their portfolio management activities on behalf of third parties, and investment advisory firms. It permits entities which do not publish certain elements of the information specified in the Decree instead to publish a continuous improvement plan.


  • In Japan, the Tokyo Stock Exchange, Inc. (“TSE”) revised Japan’s Corporate Governance Code effective from 11 June 2021. This is the second revision of the Code and was timed to coincide with the launch of the new market division system (prime, standard and growth market) of the TSE, scheduled to start in April 2022. With respect to sustainability and climate-related objectives, the new Code requires companies to develop a basic policy and disclosure initiatives based on TCFD recommendations or equivalent international guidelines. The Code adopts a ‘comply or explain’ approach.


  • The United Kingdom’s Financial Conduct Authority (“FCA”) introduced in December 2020 new rules for companies with a UK premium listing to disclose climate-related risks and opportunities in line with the TCFD recommendations on a ‘comply or explain’ basis.


Proposed legislative developments in various regions around the world are summarized in the latest TCFD status report of 2021 and include the following:


  • Brazil. In September 2021, the Central Bank of Brazil announced mandatory TCFD-aligned disclosure requirements, to initially focus in the first instance on qualitative aspects related to governance, strategy and climate-related risk management for regulated institutions, with a second phase incorporating quantitative aspects to follow.


  • European Union. In April 2021, the European Commission issued a proposed Corporate Sustainability Reporting Directive, to amend existing reporting requirements, and which envisages the adoption of EU sustainability reporting standards. The draft standards would be developed by the European Financial Reporting Advisory Group with the first set of standards to be adopted by October 2022. The proposal:
  • Extends the scope to all large companies and all companies listed on regulated markets (except listed micro-enterprises);
  • Requires the audit (assurance) of reported information;
  • Introduces more detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards; and
  • Requires companies to digitally ‘tag’ the reported information, so it is machine readable and feeds into the European singles access point envisaged in the capital markets union action plan.


  • Hong Kong. In December 2020, a new Strategic Plan was published by Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group announcing that TCFD-aligned measures would become mandatory across financial sectors by 2025.


  • Singapore. In August 2021, the Singapore Exchange Regulation proposed a series of mandatory TCFD-aligned disclosure measures: commencing in 2022, all issuers would be required to adopt TCFD-aligned reporting on a ‘comply or explain’ basis; in 2023, disclosure would become mandatory for companies in key industries including finance; in 2024, such disclosure would become mandatory for most industries.


  • Switzerland. In August 2021, the Swiss Federal Council instructed the Federal Department of Finance to prepare a consultation draft for mandatory climate reporting based on the TCFD by summer 2022.


  • United Kingdom. In November 2020, the UK’s Chancellor of the Exchequer announced the UK’s intention to mandate climate disclosures by large companies and financial institutions by 2025. In June 2021, the FCA published further proposals to extend TCFD-aligned disclosure requirements to issuers of standard listed equity shares and introduce TCFD-aligned requirements for asset managers, life insurers and FCA-regulated pension providers. The FCA intends to confirm its final policy on climate-related disclosures before the end of 2021, and it will publish a Feedback Statement in the first half of 2022 after considering stakeholder views on ESG-related discussion topics in capital markets. 


We anticipate much more legislative and regulative movement in the near future, both as an attempt to codify aspects of the TCFD recommendations, and also as a response to the outcome of the pending UN Climate Change Conference (COP26) next month.


The June 2017 TCFD recommendations can be consulted here: https://assets.bbhub.io/company/sites/60/2020/10/FINAL-2017-TCFD-Report-11052018.pdf

The TCFD’s 2021 status report is available here: https://assets.bbhub.io/company/sites/60/2021/07/2021-TCFD-Status_Report.pdf

The New Zealand bill can be consulted on the New Zealand Legislation website here: https://legislation.govt.nz/bill/government/2021/0030/latest/LMS479633.html?src=qs

Information on the EU rules on corporate sustainability reporting can be consulted here: https://ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en