The New Zealand market is making its mark globally with respect to mandatory ESG rules and regulation. However, a lack of quality data remains a significant and pressing challenge writes BNP Paribas’ Jules Bottlaender, Head of Sustainable Finance, APAC, and Iain Martin, Head of Securities Services, New Zealand.
New Zealand is punching above its weight when it comes to climate change initiatives and the global march to net zero. Amid a swathe of sweeping programs, in October 2021 it was the first country in the world to legally mandate climate change.
More recently, in 2022 New Zealand Government issued its first Stewardship Code to provide investment leaders with ‘a clear framework for using their influence to steer the companies they own on critical environmental, social and corporate governance issues.’
The measures are timely, as according to RIAA’s 2022 Benchmark Report for Aotearoa New Zealand,[1] corporate engagement and shareholder action approaches increased from around $153 billion in 2020 to $167 billion in 2021 representing 46% of total assets under management. Product issuances continue to see strong growth in the market.
In this environment, New Zealand’s External Reporting Board (XRB)[2] stands as a key influential body and is responsible for developing and issuing reporting standards on accounting, audit and assurance and climate, for all public, private, and non-profit entities. This includes a climate-related disclosure framework developed in collaboration with the International Standards Board (ISSB) and subsequently leading to the release of the XRBs final climate standards in December 2022.
While setting a clear and strict environmental blueprint for the future, New Zealand’s evolving climate change regime has opened the door for even greater challenges for the country’s asset owners and asset managers in the areas of ESG measurement and reporting.
The data countdown and ensuing challenges
Behind the growing number of national ESG-driven programs, New Zealand investment leaders are now under significant pressure to sharpen their reporting standards. At the heart of this is high-quality quantitative and qualitative data. January 2023 is the deadline to commence observing and collecting data on emissions, standards and initiatives for a New Zealand entity with a 31 March balance sheet.
The actual reporting deadline is one year ahead in April 2024, after which organisations will have just three months to provide the data in the required format and with a high degree of accuracy.
While it seems like a while away, there’s much to be done in the lead up to these deadlines and it’s imperative that asset owners and asset managers act quickly, rather than adopting a wait and see approach in this instance. Barriers such as time and the costs associated with this type of reporting need to be considered, now.
Being compliant will also be mandatory within the applicable time frames and failure to do so could result in up to five years imprisonment for individuals and fines of up to $2.5 million for businesses.[3]
BNP Paribas’ 2021 ESG Global Survey found that close to half Asia Pacific asset owners and asset managers, including those based in New Zealand, are ill-equipped when it comes to ESG data; the exception being the larger companies with an international presence who have taken the initiative to collaborate with some form of ESG data provider. Furthermore, a significant 76% are prioritising ESG data aggregation and analysis for technology investment.
Our experience has shown that when organisations are required to comply with ESG regulations, one of the mandatory and initial steps is to compute for all holdings within their businesses – portfolio emissions, the physical risks, and the transition away from carbon risk. It is not an easy task as much of this climate data is quantitative, often client specific and difficult for a portfolio manager to compute on their own as they have many holdings.
Another crucial piece is managing and defining board oversight to ensure there are no breaches. For this step, the articulation of how the risk management function within the organisation will integrate physical and transition risk, including the way it will adapt and leverage these opportunities, is a fundamental outcome of this process. It involves a tremendous amount of data collection and effort which is difficult to achieve without the input of an external data provider.
It is well worth the investment, as accessible and easy to source high quality data will enable New Zealand investment leaders to build a risk management framework, develop an organisational strategy and finally a governance framework to help meet reporting deadlines by the end of the required fiscal period. In addition, preparing early by collecting and testing this data well beforehand is key to successfully ensuring that essential reporting and disclosures are accurate, comprehensive and as timely as possible
Manaos – an adaptable data solution for NZ
BNP Paribas can assist New Zealand asset owners and asset managers by providing an adaptable data solution that can assess the ESG impact of a portfolio in a cost and time efficient manner, helping to prepare organisations for key regulatory updates and disclosure regimes such as the upcoming standards by the XRB.
BNP Paribas’ high quality data platform, Manaos, has been developed and enhanced over the past few years to suit a growing and ever-emerging European ESG regulatory environment.
The proven Manaos platform can help New Zealand asset owners and asset managers come up to speed quickly and efficiently with data requirements, minimising the early challenges experienced by asset owners and managers when Sustainable Finance Disclosure Regulation (SFDR) was released in early 2021 in Europe.
Manaos’ robust platform has worked through the initial issues organisations faced following Europe’s onset of SFDR, learnt through the hurdles and has ultimately developed high quality data solutions which New Zealand businesses can have the benefit of relying on immediately.
By leapfrogging to the latest technology, asset owners and asset managers can access a system that can seamlessly connect clients’ portfolios with a wide range of third-party ESG data vendors and fintechs, all secured by bank-level security standards.
Looking ahead
With the final delivery of the ISSB (International Sustainability Standards Board) expected in early 2023, we anticipate the need for ESG guidance will extend to social and governance factors. New Zealand has already made headways into this area and has begun to include elements beyond the environment into their ESG frameworks.
Developing ESG taxonomies is another area where New Zealand needs to evolve in line with guidelines being developed in Europe and other parts of the world, where fighting greenwashing has now jumped to the top of the priority list.
We see the XRB continuing to play a significant and valuable role by providing the bridge between the changes to local regulation and the international global requirements of the ISSB. With BNP Paribas’ European heritage and experience already established in a market that’s clearly leading the way in ESG in terms of a more integrated approach to climate and now social and governance issues, we’re expertly positioned to help New Zealand asset owners and managers make the leap to best practice data.
As New Zealand data requirements advance to the forefront in 2023, businesses can also benefit from data developments in social and taxonomy themes, where Europe is now very much ahead. Through the Manaos application, BNP Paribas has a proven and tested solution available to enable New Zealand to progress their leading climate change position within the Asia Pacific, and leverage from the data advancements in place which are now identified and captured in this innovative platform.
About Manaos (manaos.com)
Developed for the asset management industry by AELX SAS, a technology subsidiary of BNP Paribas, Manaos provides a swift and easy connection between investors, asset managers, and a panel of carefully-selected fintechs and regtechs. This facilitates fund inventory collection and data standardisation and allows users to look through their portfolios for full transparency on their investments. Manaos operates according to bank-level, industry security standards.
[1] Responsible Investment Benchmark Report 2022 Aotearoa New Zealand
[3] Financial Markets Conduct Act 2013 (New Zealand)