Australia’s mandatory climate reporting regime begins its first reporting period on 1 January 2025. Overall, the coverage is much broader than the equivalent New Zealand mandatory climate-related disclosures (CRD) regime, which is already in force.

Australia’s regime is being introduced to reporting entities in three phases. The first reporting period for Group 1 entities will start on the beginning of the next financial year after 1 January 2025 (for most, that is 1 July 2025). For Groups 2 and 3, their first reporting period starts on or after 1 July 2026 and 1 July 2027 respectively. 

The Australian Sustainability Reporting Standard (AASB S2) can be found here and the New Zealand Climate Standards (NZ CS) can be found here. Our previous commentary on NZ CS and International Financial
Reporting Standards (IFRS) S1 and S2 alignment can be found here.

Who needs to read this? Why?

Businesses with a connection to Australia should look closely at the Australian regime. These businesses or their Australian subsidiaries may be required to report under the regime, regardless of whether they are captured by the New Zealand equivalent. 

This article highlights the key differences between the Australian and New Zealand mandatory climate reporting regimes. 

Overview: New Zealand Climate Disclosures

New Zealand’s mandatory CRD regime applies to approximately 172 large NZX-listed issuers, registered banks, licenced insurers, credit unions, building societies, and managed investment scheme (MIS) managers. 

The regime’s key requirements are set out in three standards: NZ CS 1, NZ CS 2, and NZ CS 3. These are issued by the External Reporting Board (XRB) under the Financial Markets Conduct Act (FMCA). They were among the first mandatory standards introduced globally. The Financial Markets Authority (FMA) supervises the regime and has issued a series of exemptions which tailor the application of the regime. 

The standards are based on the international Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations, and relevantly, created before the IFRS S1 and S2 had been issued. 

Overview: Australian Sustainability Reporting Standards

The Australian Sustainability Reporting Standards comprises two standards, AASB S1 and AASB S2, which were based on IFRS S1 and S2. AASB S2 sets out mandatory climate reporting requirements for Australian reporting entities, while AASB S1 contains voluntary sustainability-related disclosure provisions. 

According to the Australian Securities and Investments Commission (ASIC), more than 6,000 entities will be required to file climate-related disclosures under AASB S2 by 2030. The coverage is much more extensive than New Zealand, and will include:

• large proprietary (i.e. private) companies;

• listed companies that trigger size thresholds;

• National Greenhouse and Energy Reporting (NGER) reporting entities; and

• superannuation and MIS schemes with AUD5 billion or more in assets under management.

These entities are required to file according to a phased group approach:

1. Group 1 entities are required to file in respect of reporting periods beginning on or after 1 January 2025; 
2. Group 2 entities are required to file in respect of reporting periods beginning on or after 1 July 2026; and 
3. Group 3 entities are required to file in respect of reporting periods beginning on or after 1 July 2027. 

A breakdown of the reporting entities’ thresholds is below under ‘Application’.

The key differences

In summary, AASB S2 captures most NZ CS obligations (with a few exceptions), but there are some AASB S2 disclosure requirements that go over and above the NZ CS requirements. 

We have categorised the key differences into nine categories: international standards alignment, application, director liability, reporting exemptions, governance, strategy, risk management, GHG emissions, and assurance engagement. 

1. International standards alignment and general approach

Given that New Zealand was world-first in passing its climate reporting legislation, its CRD regime is based on the IFRS’s predecessor, the Financial Stability Board’s TCFD recommendations. In contrast, Australia’s regime is based on the IFRS S1 and S2 disclosure standards, which were ultimately based on the TCFD recommendations. Perhaps as a result of their different heritages, the AASB S2 has more detailed requirements reflecting a closer approach to reporting under financial standards, whereas NZ CS is generally more principles-based and flexible. 

2. Application 

Reporting entities: AASB S2 applies to a significantly wider group of entities compared to NZ CS. The regimes also determine applicable reporting entities in different ways. 

A climate reporting entity (CRE) is defined in NZ by s 461O of the FMCA. Entities are CREs if they are a financial institution covered within the CRE’s definition (NZX-listed issuers, registered banks, licensed insurers, credit unions, building societies, or managers of investment schemes) and meet the ‘large’ threshold requirement based on their size. 

Generally, the threshold requirements are total assets (or assets under management for fund managers) exceeding NZD1 billion for financial institutions. For an insurer, the requirement can also be met if it has an annual gross premium revenue exceeding NZD250 million. For NZX-listed issuers, the threshold requirements are measured by value of the quoted securities – either equity securities with a market capitalisation exceeding NZD60 million, or debt securities with a total face value exceeding NZD60 million. 

This means non-financial institutions are not included in the mandatory regime unless they have debt or equity quoted on the NZX. Private companies or subsidiaries of multinationals or co-operatives are also excluded by New Zealand’s mandatory regime. 

An exemption was recently granted for CREs who are in liquidation, who are registered schemes or funds in wind-up, or who are in receivership or voluntary administration. For the first two categories, full relief is provided from all climate statements and climate-related record-keeping obligations. For the last category, relief applies for the reporting year in which the receivership or voluntary administration appointment was made, and for the following two reporting periods.

In contrast, AASB S2 covers both listed and unlisted entities across many industries. Entities are subject to the Australian scheme if they are required to lodge a financial report under Chapter 2M of the Corporations Act 2001 and meet the size thresholds of their relevant reporting group. The size thresholds are as follows:

Accordingly, AASB S2 does cover non-financial institutions or private companies. If entities meet the AASB S2 size thresholds, they will be required to make climate disclosures when their respective reporting period begins.

Territory of application: NZ CS can apply to both domestic and foreign entities, whereas AASB S2 only applies to foreign entities if they are required to lodge financial reports in Australia.

Of the 151 CREs (which are not captured as MIS managers) and appear on the Registrar’s website, 24 are overseas incorporated entities, as follows: 

• 15 are registered banks or licensed insurers incorporated overseas that operate a branch in New Zealand, and whose New Zealand business is “large”. 
• Nine are overseas entities that have equity or debt quoted on NZX, and meet the “large” value threshold for the listing. 

However, most of the NZX-listed overseas entities are able to rely on a full exemption from all climate reporting, assurance, and record-keeping duties. They are only required to lodge confirmation of their exemption. This class exemption applies to overseas entities with a small New Zealand presence who have a secondary listing on a financial product market operated by NZX Limited. The notice also provides an exemption for NZX-listed entities from the requirements to the extent that a subsidiary or related body corporate of the entity is required by the FMCA to comply with climate reporting, assurance, and record-keeping requirements for the entity’s New Zealand business. 

Finally, the exemption provides a partial exemption for an NZX-listed overseas entity that has a large presence in New Zealand, meaning the entity is only required to report on its New Zealand business or New Zealand-based investment assets (i.e. not its entire global business). 

In contrast, AASB S2 only applies to entities required to lodge financial reports under Chapter 2M of the Corporations Act 2001, meaning that the S2 standard only applies to entities incorporated or formed within Australia. The standard applies to all Australian subsidiaries of foreign entities who are required to lodge financial reports. 

3. Director liability and immunity

It is important to note that both New Zealand’s FMA and Australia’s ASIC authorities have made statements outlining an educative approach towards enforcement in the early years. The FMA's CRD Monitoring Plan 2023–2026 outlines a "broadly educative and constructive approach", whereas ASIC stated they would take a "proportional and pragmatic approach" to enforcement. It will be interesting to see how ASIC’s approach will play out next year, given the more stringent nature of AASB S2 compared to the NZ CS.

In New Zealand, CREs and their directors [1] currently have the same degree of liability as they do in relation to financial statements. Accordingly, directors can be liable for failing to prepare climate statements under the FMCA and charged with either imprisonment for up to five years or a fine of NZD500,000, or both. Directors may also face civil liability for contravening CRD record-keeping obligations and be subject to a pecuniary penalty of up to NZD200,000.

The Australian regime does not have deemed director liability, at this stage. Instead, it provides limited immunity for directors and companies, protecting them from legal action other than criminal action or action by ASIC. The immunity is applied over a transitional period, with a one-year limited immunity for future-related climate disclosures and a three-year limited immunity for scope 3 greenhouse gas emissions, scenario analysis, and transition plans. Once the transitional period has elapsed, the following penalties may apply in Australia: 60 penalty units, a fine, or up to two years imprisonment.

4. Reporting exemptions

The New Zealand standards have content exemptions that apply to the initial reporting periods. NZ CS 2 provides transitional exemptions in the form of adoption provisions for eight aspects of all climate statements, including financial impacts, transition planning, and scope 3 GHG emissions. These phase out in stages until no exemptions apply by a CRE's fifth reporting period. 

AASB S2 does not provide content exemptions as broad as NZ CS 2. Like New Zealand, all entities are exempt from reporting their scope 3 GHG emissions for their first applicable reporting period, including on financed emissions of entities participating in asset management, commercial banking, or insurance activities. There is also an exemption for commercially sensitive information, but this has a high threshold. Lastly, Group 3 entities under AASB S2 may have an exemption for climate-related risks and opportunities. If a Group 3 entity has self-assessed that it does not have any relevant climate-related risks or opportunities, it is exempt from disclosing this information provided that it includes a statement to this effect. 

5. Governance

The governance disclosure requirements are broadly the same between the New Zealand and Australian regimes, but the latter requires more demonstration of responsibility from the governance body. Both regimes require entities to report on governance processes, controls, and procedures used to manage climate-related risks and opportunities. 

However, AASB S2 also requires the governance body to consider climate-related risks and opportunities within its operations. This includes deciding on major transactions or when overseeing the entity's strategy, and disclosures of how the governance body determines climate targets and if climate performance metrics are included in remuneration policies. Interested parties should have confidence that the governance requirements of both standards overlap and can be similarly met. 

6. Strategy

NZ CS strategy disclosures are simpler and broader, while AASB S2 requires a greater breadth of information on its climate-related strategy and decision-making. NZ CS 1 requires a CRE to disclose descriptions of an entity’s climate-related risks and opportunities, and there are no strict requirements for quantitative information. Comparatively, AASB S2 requires the risks and opportunities to be contextualised within the entity’s business model, and both quantitative and qualitative information regarding an entity’s climate strategy. 

Climate resilience and scenario analysis: NZ CS 1 requires three scenarios to be analysed, while AASB S2 requires only two scenarios. NZ CS 1 requires a CRE to analyse a 1.5°C scenario, 3°C or greater scenario, and another third scenario relevant to the CRE. The Australian regime only requires two scenarios: a 1.5°C scenario and a “well above 2°C” or greater scenario. The well above 2°C threshold in the final regulations differs from the 2.5°C in the exposure draft. 

Unlike NZ CS 1, AASB S2 requires reporting entities to demonstrate extensive knowledge on its business model in relation to climate resilience. NZ CS 1 requires a CRE to define short, medium, and long term climate-related risks and opportunities and how these inform its internal capital and funding decisions. AASB S2 requires a reporting entity's assessment on how climate-related changes impacts its business model, the flexibility of its assets to respond to these changes, and details of its climate-related scenario analysis. For the scenario analysis, information about the entity's inputs and their key assumptions must be reported. 

Financial impacts: AASB S2 requires strict disclosure of both qualitative and quantitative information, something not required by NZ CS 1. The Australian regime requires much greater depth for the categories of information required for disclosure, whereas NZ CS 2 is quite broad and general with its statements.

The disclosure of quantitative information for current and anticipated financial impacts under NZ CS 1 can be omitted if the entity provides an explanation of the reason for the omission and utilises adoption provisions available under NZ CS 2.The standard does not elaborate on the extent of the explanation or any requirements for included details. 

Under AASB S2, not only are disclosures relating to current and anticipated financial impacts required, the impacts on financial position, financial performance, and cash flows are also required, along with a requirement to use all reasonable and supporting information available to the entity without undue cost or effort. The requirement for quantitative information under AASB S2 can be omitted, but the entity must provide an explanation and alternative data that informs on the financial effects the omitted information would represent.

7. Risk management

The risk management disclosure requirements are more stringent under AASB S2 than NZ CS 1. NZ CS 1 sets out a basic framework of reporting requirements for a CRE's risk management processes, requiring disclosures on scope and methodology. AASB S2 has similar requirements, but also requires the reporting entity to demonstrate active monitoring of the risks, how they have used their scenario analysis to inform the identification of risks, and a comparison of its risk management processes with the previous period.

To date, climate statements lodged in NZ have often had relatively short risk management sections, but the FMA have indicated that these need to be more detailed in future. They will be closely analysing them against how risks play out in a reporting entity's business model.

Given that AASB S2 disclosures are more stringent, Australian reporting entities’ disclosure approach may inform the future direction and approach of risk management disclosures in New Zealand, especially for those with Australian related entities. This will be interesting to monitor as AASB S2 reporting begins. 

8. GHG emissions

GHG emissions standards for measurement: AASB S2 standardises GHG emissions disclosures using an international standard, something NZ CS does not require. It will be interesting to see whether corporate groups that need to report under both regimes will voluntarily apply the same standards in their New Zealand reporting as they are required to do under the Australian regime, and also whether Australian practice influences the New Zealand market.

Under NZ CS S2, CREs are only required to include a statement on the standard(s) it has used to measure its GHG emissions, and the consolidation approach used. AASB S2 requires all scope 1–3 GHG emissions to be measured in accordance with the Greenhouse Gas Protocol Corporate Standard, or in accordance with other jurisdictional authority requirements where applicable. Further, it requires a detailed breakdown of the measurement approaches and their underlying assumptions and justifications.

GHG emissions disclosures: AASB S2 requires further breakdowns of scope 1–3 GHG emissions than NZ CS. NZ CS 1 requires disclosure of the source of emission factors and the global warming potential rates used but stops short of requiring more information under each scope. AASB S2 requires the disaggregation of scope 1 and 2 emissions between the consolidated accounting group versus other investees, and further disclosures within scope 3 emissions in accordance with the Greenhouse Gas Protocol Corporate Value Chain Standard.

9. Assurance engagement

New Zealand: NZ CS 1 requires assurance engagements for GHG emissions, while AASB S2 currently does not include any assurance engagements. 

Assurance standards reflect the scrutiny and comprehensiveness of a report’s contents. For climate reporting, assurance engagements are of two levels: limited or reasonable. These standards are determined by each jurisdiction’s respective body: the Australian Auditing and Assurance Standards Board (AUASB) for Australia, and the XRB for New Zealand.

Under NZ CS 1, a limited assurance engagement is the minimum requirement for GHG emissions disclosures. The XRB defines a limited assurance engagement as a level of assurance that is meaningful to the assurer’s professional judgement, but is of a limited nature, timing, and extent. Within the NZ CS, limited assurance is qualified as descriptions and explanations of the reporting methodology. No other aspects of NZ CS require assurance.

An adoption provision regarding assurance was recently introduced into NZ CS 2. This provides an exemption for the assurance of scope 3 GHG emissions disclosures until 31 December 2025. Our discussion on this amendment can be found here.

Australia: While AASB S2 currently lacks assurance requirements, the AUASB has recently proposed a standard for sustainability assurance. The request for comments on the exposure draft closed on 16 November 2024. The draft proposes assurance phasing for AASB, where all reporting areas are phased into reasonable assurance by an entity’s fourth reporting year. The definitions of assurance levels from this draft follows the AUASB’s guide to Prescribing Assurance and Related Services, where limited assurance involves a review, and reasonable assurance involves an audit. 

If the exposure draft for the assurance requirements is accepted without modifications, AASB S2 climate disclosures will be subject to more rigorous assurance requirements than NZ CS. This may result in significant demand for sustainability auditing services if the proposal succeeds, given the reasonable assurance requirement, the requirement of assurance across multiple sections of the report, and the wide scope of entities to which the standard applies.

Unlike NZ CS, AASB S2 does not provide exemptions for assurance once an entity becomes subject to the regime. But it remains to be seen if exemptions may be demanded as the smaller entities enter the later phases of the Australian regime.

For entities operating in both Australia and New Zealand, there may be different assurance standards that apply to specific areas of cross-border business operations.

It will be interesting to see if, in practice, corporate groups, or entities which are required to disclose under both regimes voluntarily apply the same level of assurance in New Zealand. If they do, they should bear in mind the FMA’s comment in its recent report that CREs are expected to lodge the assurance practitioner’s report on the Climate-related Disclosures Register. The full report is available here.

What next?

We encourage New Zealand companies with a connection to Australia to follow the implementation of Australia’s regime and check whether they may be required to report under AASB S2. Australian subsidiaries of New Zealand companies may be captured by AASB S2 in the future, even if the parent company is not captured under NZ CS.

In addition, given the high degree of integration between the New Zealand and Australian economies, even when a New Zealand business or a related entity does not itself have a presence in Australia, New Zealand businesses may be indirectly impacted by the Australian requirements. That’s because if the New Zealand business is a material customer or supplier of an Australian reporting entity, that entity may require information to enable it to report its scope 3 GHG emissions. An example is that an Australian lender may require information as part of its conditions of finance from a New Zealand borrower to determine the lender’s financed emissions. Another is that a large Australian business may require a material New Zealand supplier, as part of the contract between them, to provide information to enable the Australian business to assess its exposure to climate risks and opportunities. 

For further discussion on the New Zealand regime, our CRD register observations for the first three major cohorts of statements can be found here, here, and here. Our discussion on the FMA’s report reviewing the first cohort of statements can be found here. For more information about the Australian regime, see this newsletter issued by our Australian sister firm MinterEllison for a guide to mandatory climate reporting in Australia.

In terms of what Australian entities can learn from the New Zealand experience, the points made in our newsletter here have all been proven in New Zealand. See the section “What should directors of CREs be doing”.

If you have any questions about the differences between the New Zealand and Australian climate reporting regimes and what the Australian requirements might mean for your business, please contact one of our experts. 

Footnote

1. On 13 December 2024, the Minister of Commerce announced consultation on proposed reforms to director liability settings for CREs. The full discussion document on adjustments to the regime can be found here.