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There has been a lot of buzz surrounding climate-related disclosures. The question is why and how does this impact businesses listed on Catalist? (Spoiler alert: businesses listed on Catalist’s Public Market are exempt from obligations that apply to public listed businesses on NZX).
There are about 200 NZ entities that have now been captured by the mandatory reporting of climate-related disclosures under The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021. Of these 200 entities (also known as ‘climate reporting entities’ or ‘CREs’), large companies listed on NZX are captured, which means all NZX-listed issuers with a market capitalisation of anywhere above $60 Million.
What does CRD involve?
A lot of administration and reporting.... And I mean a lot. Here are just some of the requirements involved under Part 7A of the Financial Markets Conduct Act (FMC Act):
- CRE’s must keep proper CRD Records (461V)
- Climate statements must be prepared (461Z)
- Penalties for failure to comply include (461ZG)
- Imprisonment not exceeding 5 years.
- Fine not exceeding $500,000 for an individual.
- Fine not exceeding $2.5m in other cases.
Generally, the substance of reporting requirements revolves around four key topics.
- Governance: Disclosing the company’s governance around climate related risks and opportunities.
- Risk: Disclosing how a company identifies, assesses, and manages climate related risks.
- Strategy: Disclosing both actual and potential impacts of climate-related risks on the company’s strategy and financial planning.
- Metrics and targets: Disclosing various KPI’s used to assess and manage relevant climate-related risks.
How does Catalist fit into this?
Let’s take a look at the legislation.
The FMC Act states that a CRE does not include an issuer of equity or debt securities quoted on a growth market.
But what exactly is a growth market?
Well.... It’s Catalist!
In 2021, Catalist was granted a license as New Zealand’s only regulated growth market. We run a market specifically designed for businesses that are valued at less than $100 million, i.e. growth businesses.
This license was specifically granted to Catalist because we are designed to help growth companies gain access to much needed capital whilst lowering the regulatory and compliance costs that come with a public listing. However, Catalist still provides an equivalent level of investor protection to other traditional stock exchanges, such as NZX, which is why all investors (retail as well as wholesale investors) can access investments on our Public Market.
As a result of this license, growth companies listed on Catalist’s public market do not need to comply with the climate related disclosure requirements. Although Catalist encourages the disclosure of an appropriate level of climate information, this omission from the regulations was set with the intention of relieving growth companies of the disproportionate costs stemming from these disclosures.
What are some examples of the obligations?
The External Reporting Board released a supporting document outlining possible ways CRE’s could comply with CRD’s. For example, the highest-level governing body (such as the board) needs to agree that climate-related scenario analysis is a top priority. This includes the CE being heavily involved in defining a multi-year strategy to address and mitigate the risks. The extensive and time-consuming process to develop such strategy and identify risks on a business-specific level can often take valuable time away from the CE trying to grow the business, which is also top priority, especially for smaller businesses.
The External Reporting Board also tells CRE’s to engage with external stakeholders such as customers, union representatives, and local councils, just to name a few. Liaising with these stakeholders can be difficult as it takes time to agree how the company’s activities impact them, drawing out the process as a consequence.
Conclusion
Whilst these disclosure requirements encourage climate mitigation and increase transparency for potential investors, it undoubtedly increases regulatory burden on businesses. Catalist is supportive of the need for clear climate-related risk disclosures where appropriate for the size and nature of New Zealand businesses. However, the cost/burden analysis is materially different for growth businesses listed on the Catalist Public Market, when compared to listed issuers on NZX.
If you’re interested in the benefits of a Catalist Public Market listing, get in touch at hello@catalist.co.nz to talk through your requirements.
By Joshua Pan
