The External Reporting Board (XRB) has opened its consultation on the Proposed 2024 Amendments to Climate and Assurance Standards. This follows feedback from climate reporting entities (CREs) regarding challenges with obtaining the data required to produce their climate statements, high cost, and a lack of guidance.
The consultation is open now, and submissions close on Wednesday, 30 October 2024.
Who should read this? Why?
All CREs should read the consultation and consider the XRB’s proposed amendments to the current standards as set out in the Aotearoa New Zealand Climate Standards (NZ CS) and the Greenhouse Gas (GHG) Emissions Disclosures 2024. Generally, the amendments relate to delaying the expiry of certain transitional adoption provisions in NZ CS 2.
What does it cover?
Proposal 1: Delaying mandatory scope 3 GHG emissions disclosure
The XRB proposes that Adoption Provision 4 (Scope 3 GHG emissions), Adoption Provision 5 (Comparatives for Scope 3 GHG emissions) and Adoption Provision 7 (Analysis of Trends) have increased reporting terms from one accounting period, to two periods. CREs have reported to the XRB that they have not previously reported scope 3 GHG emissions and therefore lack the ability to report on this accurately. The extension will allow entities to establish appropriate internal systems to accurately determine their GHG emissions and provide more time to obtain reliable data on which to base their disclosure.
Proposal 2: Delaying mandatory scope 3 GHG emissions assurance
A new Adoption provision 8 will be added to NZ CS 2 (and paragraph 7A in the New Zealand Standard on Assurance Engagements 1 amended), proposing to allow CREs to exclude scope 3 GHG emissions from the scope of the assurance engagement for an additional (i.e. 3rd) accounting period. Assurance of GHG emissions will only be required from CREs with an accounting period ending on or after 31 December 2025. This proposal will allow CREs additional time to obtain accurate and reliable disclosure information, particularly regarding financed emissions where information is required from third-party providers.
Proposal 3: Delaying anticipated financial impact disclosure
The XRB proposes that Adoption Provision 2 (Anticipated financial impacts) be extended from one accounting period, to two. The range in detail provided by CREs has been significant, where a lack of useful domestic and international guidance has raised concern amongst CREs regarding a lack of comprehensive guidance and an inability to produce accurate future forecasts of financial performance. The extension will allow CREs to gather more information about their primary users’ needs.
Proposal 4: Delaying transition planning disclosures
Adoption Provision 3 (Transition Planning) is proposed to be extended from one accounting period, to two periods. This will allow more guidance to be published on transition planning (which includes climate resilience) and to support the development of international alignment as to best practice, such as with Australia and the European Union. The time extension will allow CREs to establish a more suitable strategic process and to produce higher quality disclosure.
Additional guidance
The XRB intends to publish further guidance in 2025 to support CREs in relation to the assurance of GHG emissions, anticipated financial impacts, and transition planning.
Our view
We generally welcome the XRB’s proposals. They are a proportionate recognition that while CREs have generally done well, the significant additional requirements which are currently intended to come into force for the second accounting period will involve a significant uplift and cost.
More broadly, we have observed a wide range of approaches to the CRD regime from CREs, and welcome additional guidance from the XRB and any international bodies.
We further support the XRB’s approach to ensuring that the CRD regime does not become a tick-box exercise for CREs. By allowing CREs more time to consult guidance and gather accurate information, they will be in a position to determine more meaningful targets and implement more effective strategies towards achieving those targets.
What next?
We encourage all CREs to participate in the consultation and support the XRB’s proposals even if they do not propose to use the additional time themselves. If you have any questions about the consultation or climate-related disclosure more generally, please get in touch with one of our experts.
This article was co-authored by Andrew Walker, a Solicitor, in our Financial Services team.
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