#20 Sustainability related disclosure guidance

We’ve released updated guidance to help issuers clearly and accurately disclose sustainability‑related characteristics of financial products.

As products are increasingly marketed as ethical, sustainable, ESG or green, good disclosure matters. 

Our updated Sustainability‑related disclosure guidance:

✔ explains how existing fair‑dealing and disclosure obligations apply
 ✔ outlines what good practice looks like
 ✔ is built around four core principles — clarity, substantiation, consistency and effective management of third‑party involvement
 ✔ brings earlier guidance together in one place

Listen to the latest 5 Minutes with the FMA podcast to hear Acting Head of Specialist Supervision, Marcus McMillan, talk through what’s changed and why it matters.

Find the guidance and listen to the podcast on our website: https://www.fma.govt.nz/assets/Guidance/Sustainability-related-disclosure-guidance.pdf 

Transcript

Jess

Kia ora and welcome to another episode of Five Minutes with the FMA, a podcast by New Zealand's Financial Markets Authority. My name is Jess. I'm from the Communications and Delivery team here at the FMA. The FMA has just released its updated guidance that provides clarity around sustainability-related disclosures. As more financial products are being marketed as ethical and sustainable, clear and accurate disclosure is essential. Today we're going to talk about why the FMA has updated its guidance. I'm joined by Acting Head of Specialist Supervision, Marcus McMillan. Welcome, Marcus.

Marcus

Thanks, Jess. You're looking forward to talking about this topic.

Jess

And before we delve into the FMA's views, could you talk a little bit about what sustainability-related investing is?

Marcus

Sure. So we're using the term sustainability related as an overarching term to capture a wide variety of investment strategies. This is generally beyond just financial return. Often they're labeled things like green, ethical, ESG, sustainable, transition, social, but it's not just about labeling. It's about Implementing a strategy that may be aligned with values, although isn't necessarily just about values. And some of the practices can include things like avoiding investing in certain industries like tobacco or weapons, but also supporting companies that have strong social or green credentials.

Jess

And could you talk about the updated guidance and how it will benefit issuers and investors?

Marcus

So the aim of the guidance is to be clearer in where we think practices around disclosure are misleading or deceptive, but also to highlight good practice that we have seen to help issuers in their own disclosure choices. Ultimately, the objective is that issuers will be clear around what it is that they're doing, And that will be easy for investors to understand so that they can have confidence that investment decisions they're making align with their investment objectives.

Jess

And so is this new regulation.

Marcus

No. So the guidance is our view on how the fair dealing and disclosure provisions in the Financial Markets Conduct Act apply to sustainability-related financial products, but it doesn't create new rules. Those are the existing rules. We're just trying to be clearer in what we think is misleading, but also what we think good practice looks like.

Jess

And so why was the guidance updated?

Marcus

So sustainability related strategies. not currently governed by specific regulations in New Zealand. So that means they're developed through market practice. And so those market practices continue to evolve. And so it's important that our guidance also continues to evolve to keep up to date with what is going on in the market. We've introduced a lot more practical examples in the guidance to try and help investors have confidence that what issuers are telling them is reliable and accurate and practical. We also wanted to retire the term integrated financial products, which were used in some of our older guidance, but which hasn't been adopted by the market. And that old guidance will also be retiring from 2020 and some guidance that was included in a thematic review from 2022.

Jess

And what changes were made after consultation?

Marcus

So we had really good engagement from the consultation process. We had a lot of constructive feedback that allowed us to take on board and think about how we can improve the guidance and make it more useful for issuers. Some examples of changes that we made were to include more examples and more varied examples of practices that we've seen. We also changed the name of the draft guidance from ethical investing disclosure guidance to sustainability related disclosure guidance because that aligned more closely with how other regulators overseas describe these types of activities.

Jess

And what are the four core principles that the guidance is based on?

Marcus

So the principles are general good disclosure principles anyway, but we've tried to keep the guidance focused on how they apply to sustainability related products. The first principle is claims need to be clear. So that means issuers need to make sure that they're not using technical language or vague statements. And are clearly explaining what their strategy actually is, how they're going to implement it, and what they expect to achieve from that. The second principle is issuers need to be able to substantiate their claims. So what that means is that issuers need to have a good basis for why they are making claims at the time that they make them. They can't just rely on assumptions or general hopes of how things are going to play out, there needs to be some basis that can give investors confidence that they are actually able to execute on that strategy. The third principle is that messages need to be consistent. And what that is about is Because there are so many documents and websites and other places and advertising where these claims tend to be made, it's important that issuers are consistent in their claims across all of those. So that means using consistent language, consistent tone. It also means making sure that where there are links linking between the documents, that those are kept up to date so that investors are not left with only part of the story or part of the strategy. So the final principle is that issuers need to effectively manage third parties. And the reason that's so important in the sustainability-related investing space is because it's very common to rely on third parties, such as through the provision of data or providing assurance around the credentials of a particular investment. Issuers need to make sure that their strategy aligns with what it is that the third party is actually doing and that their claims accurately reflect what it is that the services that's being provided. Otherwise, they risk being misleading for investors. Issuers can also think about whether or not they want to disclose who it is that they are using as these third parties to try and give greater transparency to investors about how that particular third party may approach provision of that service and also to allow investors to go away and do their own investigation and gather more information if they really want to understand the detail.

Jess

Awesome. Thanks so much, Marcus, for your time today.

Marcus

You're welcome.

Jess

And thank you so much for listening. You can read the full sustainability related disclosure guidance on our website. Just head to www.fma.govt.nz and I'll see you next time.