Clause 3 provides that Part 1 amends the Financial Markets Conduct Act 2013.

Clause 4 amends the overview in section 5 and clause 5 amends section 6, which is the main interpretation section.

Clause 6 amends section 351 in relation to listed issuers. Existing section 351(1)(ab) allows regulations to be made that remove certain listed issuers from the list of FMC reporting entities under section 451(1)(d) and provide for replacement or modified financial reporting requirements to apply to those listed issuers. Because a person must be an FMC reporting entity to be a climate reporting entity under the new provisions that this Bill inserts into the Act, new section 351(1)(ab)(ii) is inserted so that the regulations may provide for replacement or modified climate-related disclosure requirements for those listed issuers.

Clause 7 is a key provision, inserting new Part 7A into the Act. New Part 7A contains climate-related disclosure requirements for certain FMC reporting entities considered to have a higher level of accountability under existing section 461K. These entities are defined in new section 461O as climate reporting entities. Broadly, new Part 7A provides for climate reporting entities to prepare climate statements in accordance with climate standards issued by the XRB, to obtain an assurance engagement in relation to those statements to the extent that those statements are required to relate to greenhouse gas emissions, to lodge those statements with the Registrar of Financial Service Providers (the Registrar), and to keep CRD records.

New Part 7A is in 7 subparts.

Subpart 1 contains the main overview, ongoing application, and interpretation provisions for new Part 7A. New section 461O defines climate reporting entity for the purposes of identifying the entities to which new Part 7A applies, and new sections 461P and 461Q define large and large manager for the purposes of that definition.

Climate reporting entities under new section 461O(1) are required to prepare climate statements in respect of themselves, their group, or (for some overseas companies) their New Zealand business or their group’s New Zealand business. These entities include—

• listed issuers of quoted equity securities or quoted debt securities:

• certain other persons (for example, registered banks and licensed insurers) if they are large.

“Large” generally means that, as at the balance date of each of the 2 preceding accounting periods, the combined assets of an entity and its subsidiaries were more than $1 billion. In the case of a licensed insurer, if the insurer is not large on account of assets it will still be large if, in each of its 2 preceding accounting periods, the combined annual gross premium revenue of the insurer and its subsidiaries was more than $250 million. “Large”, in the case of an entity that is a body corporate incorporated outside New Zealand, looks at whether its New Zealand business, or its group’s New Zealand business, is large.

Managers of registered schemes may be climate reporting entities in respect of those schemes under new section 461O(2). (A manager may also be a climate reporting entity under new section 461O(1).) Broadly, managers of registered schemes will be climate reporting entities in respect of those schemes, and required to prepare climate statements for each separate fund of each scheme (or for the scheme itself if any liability of the manager or the scheme is not limited to a separate fund), if they are “large managers”; the size of individual schemes or funds is immaterial. The definition of large manager in new section 461Q looks at whether the assets of schemes managed by the manager and schemes managed by authorised bodies providing that service under the manager’s licence total more than $1 billion as at the balance date of each of the manager’s 2 preceding accounting periods. If a manager is a large manager, the authorised bodies will also be large managers.

Because large and large manager are defined by reference to accounting periods, an entity may be a climate reporting entity in relation to some accounting periods but not in relation to other accounting periods.

Subpart 2 of new Part 7A relates to CRD records.

In subpart 3 of new Part 7A,—

• new sections 461W to 461Z contain the obligations of climate reporting entities to prepare climate statements (discussed broadly under the notes for subpart 1 above):

• new section 461ZA sets out exceptions to the obligations to prepare climate statements under any of new sections 461W to 461Z and new section 461ZB sets out conditions that an entity must meet to rely on an exception. Exceptions relate to whether the entity reasonably determines, in accordance with applicable climate standards, that the relevant activities (for example, the activities of the entity or group) are not materially affected by climate change:

• new section 461ZC contains offences for knowingly failing to comply with climate standards issued by the XRB.

Subpart 4 of new Part 7A relates to assurance engagements that climate reporting entities are required to obtain under new Part 7A. New Part 7A contains 2 circumstances where an entity would be required to obtain an assurance engagement: one is in new section 461ZB (and applies if an entity wishes to rely on an exception); the other is in new section 461ZD, which relates to climate statements to the extent that those statements are required to disclose greenhouse gas emissions.

An assurance engagement under new Part 7A must be undertaken by a qualified CRD assurance practitioner: see new section 461ZE, which defines qualified CRD assurance practitioner, and new sections 461ZG to 461ZM, which relate to the carrying out of an assurance engagement, access to information by an assurance practitioner, the assurance practitioner’s report, and associated offences. Among other things,—

• a qualified CRD assurance practitioner must be a natural person and a member, and subject to a code of conduct and disciplinary process, of a CRD assurance body approved by the FMA under subpart 6 of new Part 7A:

• there is provision for a qualified CRD assurance practitioner to be a partnership (see new section 461ZF):

• assurance engagements must be carried out in accordance with, and the assurance practitioner’s report must comply with, applicable auditing and assurance standards (see new sections 461ZG and 461ZH(1)).

In subpart 5 of new Part 7A,—

• new section 461ZN requires a climate reporting entity to lodge copies of climate statements and the assurance practitioner’s report on those statements with the Registrar:

• new section 461ZO requires a climate reporting entity (other than a manager in respect of climate statements prepared in relation to registered schemes) to provide information in its annual report about where climate statements, etc, can be accessed.

In subpart 6 of new Part 7A,—

• new section 461ZP empowers the FMA to approve as CRD assurance bodies entities whose members are eligible to be qualified CRD assurance practitioners for the purposes of new Part 7A, and to impose such conditions on those approvals as the FMA thinks fit:

• new section 461ZQ contains provisions relating to the cancellation or suspension of recognition of a CRD assurance practitioner by a CRD assurance body, and the cancellation or suspension of approval of an entity as a CRD assurance body by the FMA:

• new section 461ZR relates to what happens to assurance engagements that are underway when a CRD assurance body has its approval cancelled or suspended.

Subpart 7 of new Part 7A relates to civil liability for certain contraventions of new Part 7A.

Clauses 8 to 19 contain amendments relating to enforcement, regulations, and exemptions that are consequential on, or related to, the insertion of new Part 7A. These amendments include,—

• in clause 8, extending the ability of the FMA to make stop orders under section 462 if it is satisfied that an issuer of financial products, or a person that provides a licensed market service, has contravened any provision of new Part 7A:

• in clause 9, extending the ability of the FMA to make direction orders under section 468 if it is satisfied that, by engaging in any conduct, a person has contravened, or is likely to contravene, certain provisions of new Part 7A:

• in clause 10, extending the ability of the FMA to make an order under section 470 (relating to the ability to distribute, or otherwise make an offer under, a simplified disclosure PDS) if satisfied that the offeror or issuer has failed to comply with any provision of new Part 7A at any time during the 12 months before the order is made:

• in clause 11, extending the ability of the FMA to make an order under section 474 that clause 19 of Schedule 1 of the Act (which contains an exclusion for certain offers from disclosure under Part 3 of the Act) does not apply in respect of an issuer if satisfied that the issuer has failed to comply with any provision of new Part 7A at any time during the 12 months before the order is made:

• in clause 14, extending the defence for directors in section 501 to directors who, under section 534 (as amended by clause 15(2)), are treated are contravening certain provisions of new Part 7A:

• in clause 16, providing for regulations to be made for certain purposes under new Part 7A:

• in clause 18, extending the FMA’s powers to grant exemptions to include a power to grant exemptions from compliance with any provision or provisions of new Part 7A. Clause 17 makes a related amendment:

• in clause 19, amending section 561A so that exemptions granted by the FMA under its exemption power relating to new Part 7A may apply to certain earlier accounting periods (as they can now in relation to FMA-granted financial reporting exemptions).

The amendments in clauses 12, 13, and 15(1), (3), and (4) are consequential.

Clause 20 amends Schedule 4 of the Act, which relates to transitional, savings, and related matters. New Part 7 is inserted into that schedule (see above under clause 2 for notes on that new Part).

Clause 21 provides that Part 2 amends the Financial Reporting Act 2013.

There is 1 key group of amendments to the Act, and a few smaller themes. The key group of amendments relates to the XRB’s new, additional, functions relating to the issue of climate standards for the purpose of any enactment that requires climate statements or other information to be prepared in accordance with those standards.

Clause 22 amends the purpose in section 3 and clause 23 amends the overview of financial reporting duties in section 4 to, in each case, refer to climate-related disclosure duties under the Financial Markets Conduct Act 2013.

Clause 24 amends section 5, which relates to interpretation. A technical amendment is made to the definition of applicable auditing and assurance standard, to ensure that definition applies to assurance engagements in accordance with the standard. Definitions of climate standard, climate statements, and group climate statements are inserted, and the definition of reporting entity replaced so that it applies to entities in relation to climate statements as well as in relation to financial statements. Climate standards are included in the Act’s definition of standard by clause 24(4).

Clause 25(1) amends section 12 to add functions relating to the issue of climate standards to the existing functions of the XRB.

The effect of clause 25(2) is to extend the XRB’s functions relating to the issue of auditing and assurance standards for purposes relating to the rules or codes of ethics of CRD assurance bodies.

Clause 26 amends section 14(2) to add knowledge of, or experience in, sustainable development to the list of qualifications that a person may have in order to be eligible to be recommended by the Minister of Commerce and Consumer Affairs (the Minister) for appointment as a member of the XRB.

Clause 27 replaces a heading consequential on the addition of the concept of climate standards into the Act.

Clause 28 inserts new section 19A, which relates to guidance, and new sections 19B to 19D, which relate to climate standards.

New section 19A will allow the XRB to issue non-binding guidance on certain non-financial matters.

New section 19B sets out the purpose of climate standards and climate-related disclosures.

New section 19C contains general provisions relating to climate standards (and mirrors section 15 of the Act, which applies to financial reporting standards).

New section 19D imposes an obligation on the XRB that will result in requirements for entities’ climate statements in certain circumstances (see new section 19D(2)).

Clause 29 amends section 27 to give section 27(2) effect for climate standards, and to remove an unnecessary reference to accounting.

Clauses 30 and 31 make technical changes related to the structure of the Act (based on the introduction of climate standards into the Act).

Clause 32 amends section 48 to—

• require the Minister to review the monetary amounts related to the definitions of “large” and “large manager” in new Part 7A of the Financial Markets Conduct Act 2013; and

• require reviews of the monetary amounts in section 48 to be completed within 6, rather than 8, years of the last review. (The first review under that section is due no later than 1 April 2022.)

Clause 33 amends section 49 consequential on the amendment to section 48 made by clause 32.

Clause 34 amends section 51, to include climate reporting entities and CRD assurance bodies in the list of persons who may be required by regulations to pay 1 or more prescribed levies.

Clause 35(1) makes a technical amendment to the Schedule of the Act, which relates to existing transitional, savings, and related provisions, and clause 35(2) inserts a new Part into that schedule containing transitional matters for the Act that are related to this Bill.