XRB publishes final CRD Staff Guidance for MIS Managers and transition planning questions

  • Legal update

    30 August 2023

XRB publishes final CRD Staff Guidance for MIS Managers and transition planning questions Desktop Image XRB publishes final CRD Staff Guidance for MIS Managers and transition planning questions Mobile Image

The External Reporting Board (XRB) has released:

  • its final Climate-related Disclosures Staff Guidance for MIS Managers (Guidance). Substantial changes have been made since the draft guidance was released in July 2022. The Guidance can be found here.
  • its initial staff guidance for transition planning including some questions to get started (Transition Planning Questions). The Transition Planning Questions can be found here.
Who should read this? Why?

All directors and senior managers of MIS managers (i.e. managers of registered schemes) that are climate reporting entities (CREs) should read this Guidance. Many MIS managers will have been involved in the consultation stage of this document. 

Most CREs are now part way through their first reporting period with their first climate statements due to be lodged in 2024 within 3 or 4 months after the end of their financial year. Given the significant uplifts from the draft guidance, we strongly recommend MIS managers read this final version in its entirety. It is a comprehensive, practical guide that will hopefully clear up a lot of the uncertainty as to how the XRB's climate standards (NZ CS) apply to MIS managers. 

The Transition Planning Questions are targeted at, and intended to be useful for, all CREs.

What does it cover?
MIS Manager Guidance

The climate-related disclosures requirements under the Financial Markets Conduct Act 2013 (FMCA) differ for MIS managers, prompting the need for the XRB to release specific guidance for this type of CRE.

MIS managers must disclose climate statements in relation to each separate fund of the scheme. Alternatively, if any liabilities of the MIS manager and the scheme are not limited to a separate fund, the climate statement should be in relation to the scheme as a whole – but the XRB received feedback that this is the less common scenario of the two. 

The FMCA allows scheme and fund climate statements to be combined in a single document and common information can be presented at a scheme level. However, the Guidance highlights that any disclosures collating fund-level information should reference the separate funds to which the disclosure applies, and clearly identify any differences across funds. 

The Guidance touches on all three standards that comprise the NZ CS, with fund-specific explanations of what the XRB is looking for in relation to each standard.

The XRB has made significant amendments to the draft version that was published in July 2022, as was the case with the staff guidance for all sectors. 

In the Guidance, substantial changes have been made to:

  • the Strategy section as a whole (NZ CS 1);
  • the Metrics and Targets section – particularly in relation to GHG emissions, and relevant example metrics provided for all categories (NZ CS 1);
  • value chain, comparatives, and methods and uncertainty (NZ CS 3) – all adapted to better reflect the fact that MIS managers will be disclosing unique information under these standards compared to other CREs (such as in relation to investment portfolios and underlying securities); and
  • coherence with financial statements – this is a new section referring to the NZ CS 3 principle of coherence and encourages consistency between climate and financial statements.

The Strategy section has been largely re-written so MIS managers should play close attention to this section in particular. At a high level the Guidance now better addresses the differences in approach to the standards such as identification of climate-related risks and opportunities, and scenario analysis. The Guidance directly refers to the New Zealand Financial Services Council’s climate scenario narratives for the financial services sector (available here) as it “could provide helpful inputs” for scenario analysis.

The changes were generally in the form of additional examples or materials under the various sections to ensure that the Guidance is industry specific and highly relevant to MIS managers.

Other amendments included further information in relation to the principle of materiality (NZ CS 3) and identifying and assessing risks for the Risk Management section (NZ CS 1).    

Transition Planning Questions 

Under NZ CS 1, CREs must disclose a transition plan as to how it will position itself as the global and domestic economy transitions towards a low-emissions, climate-resilient future. It involves CREs creating a framework and strategy to ensure an entity’s longevity as climate change continues to affect the natural and economic environment. It is not just about lower emissions, though that is desirable, it is also about adaptation and resilience in a more challenging environment. 

The Transition Planning Questions includes an overview infographic setting out how a CRE can reach a transition plan following the scenario analysis it is required to undertake under NZ CS 1. Accompanying this overview are some starting questions to assist CREs in this process, split into three phases:

  • Begin with what the scenario analysis process has uncovered – the process and output of scenario analysis is expected to give CREs a good idea as to the extent to which the CRE must adjust its current business model and strategy to manage the identified climate-related risks and opportunities. 
  • Ask how uncertainty will be managed over the long term – given scenario analysis involves plausible, but still hypothetical, scenarios, a transition plan should factor in how the CRE plans to adapt to critical uncertainties. 
  • Determine the tangible actions required now – highlighting that the transition plan should not just include the long term, but also the short term actions necessary to build a CRE’s resilience.

Further, the Transition Planning Questions address some common misconceptions about transition planning. This section included emphases on transition plans being integrated into the CRE’s core strategy, entity-specific, and focused on tangible actions rather than external factors.

Our view
MIS Manager Guidance

Having industry specific guidance emphasises the fundamental differences in what MIS managers are required to do – for example, the requirement to disclose climate-related risks and opportunities in relation to the fund or scheme, rather than the CRE itself. In practice, the underlying thinking and work to be done will be substantively different to an extent to what other CREs will be doing to meet the NZ CS.

Transition Planning Questions

The Transition Planning Questions are a helpful starting base for what is one of the more difficult standards in the NZ CS. Through the question format the XRB is getting CREs thinking about their transition plans without setting out prescriptive recommendations, which is consistent with the idea that these plans need to be entity specific. 

What next?

For most CREs work is well underway on the content that will be in their first climate report. 

The XRB is currently working on more detailed guidance on transition planning and intends to publish this in October 2023. We hope that the XRB continues to take a principles-based approach in this guidance.

Further, the XRB is currently consulting with stakeholders as to whether specific staff guidance for banks and insurers is needed. 

We will continue to provide updates on the above and other climate-related disclosures news.

Past updates can be found here: 

If you have any questions about the Guidance or Transition Planning Questions, compliance with the NZ CS or the climate-related disclosures regime generally, please contact one of our experts.

This article was co-authored by Hannah Cross, a Law Clerk in our Banking and Financial Services team.