Happy New Year to all climate reporting entities (CREs).

As the first cohort (31 December year-end) of CREs are preparing their second climate statements to be lodged by 30 April, there are a raft of changes to keep up to date with, some which already apply for the second reporting period, and others which are still being consulted on and may take effect for the second or later reporting periods.

Who should read this? Why? 

All CREs should ensure they are aware of these changes and take them into account as they plan for their second year of reporting. 

What does it cover? 

The major changes fall into a series of very different categories:

• the mandatory requirement for CREs to obtain independent assurance over their greenhouse gas (GHG) emissions disclosures now applies (for reporting years ending on or after 27 October 2024);
• the expiry of various adoption provisions and a new adoption provision under Aotearoa New Zealand Climate Standard 2 (NZ CS 2) (as modified by the XRB at the end of last year); 
• XRB’s further guidance on transition planning;
• changing emphasis under the FMA’s Climate-related Disclosures Monitoring Plan; and
• the Ministry of Business, Innovation and Employment (MBIE) discussion document on proposed adjustments to the climate-related disclosures regime – mainly in the form of statutory changes to CRE thresholds. 

Assurance over GHG emissions disclosures

Section 461ZH of the Financial Markets Conduct Act 2013 (FMCA) requires CREs to ensure that the GHG emissions disclosures content of their climate statements are the subject of an independent assurance engagement for reporting years ending on or after 27 October 2024 – this is a new requirement that did not apply to CREs last year in relation to their first climate statements. However, a new adoption provision and proposed FMA class exemption will modify this requirement in respect of scope 3 GHG emissions, as discussed below.

Changes to adoption provisions

The adoption provisions in NZ CS 2 provide transitional exemptions to CREs from certain mandatory disclosure requirements. These were designed by the XRB in part to acknowledge developing high quality climate statements takes time and otherwise to allow relief for disclosures that, due to the nature of the requirements or unavailability of the relevant information, required an exemption. In the first reporting period, CREs were permitted to elect to use one or more of the adoption provisions. 

On 25 November 2024, the XRB approved and issued changes providing CREs an additional year of relief from disclosure and assurance of scope 3 GHG emissions and anticipated financial impacts disclosures. CREs may apply these standards for accounting periods that begin on or after 1 January 2024. 

The current status of the Adoption Provisions are as follows:

Adoption Provision 4, initially set to expire alongside 1 and 3, was extended by the XRB for an additional year. The changes were introduced to acknowledge stakeholder feedback in which concerns were expressed regarding the uncertainty and difficulty experienced in gathering scope 3 GHG emissions data.

The new Adoption Provision 8 allows CREs to exclude their scope 3 GHG emissions disclosures from the scope of the assurance engagement – CREs may still elect to use this adoption provision even if they decide to disclose scope 3 emissions. CREs should note that assurance engagements are still required for scope 1 and scope 2 GHG emissions for their second reporting year, adoption provision 8 only applies to scope 3 assurance requirements.

To support the changes, the FMA has just consulted on a proposal for a class exemption for assurance over scope 3 emissions. This exemption, if granted, will provide complete certainty for CREs in relation to the interaction between the recent amendments to the NZ CS regarding assurance engagements over scope 3 and the statutory requirement for a CRE’s GHG emissions disclosures to be the subject of an assurance engagement.

XRB transition planning guidance 

The External Reporting Board (XRB) also published in December 2024 a suite of guidance documents on transition planning to support CREs for their second reporting year. The guidance includes:

• an overview to climate transition planning, available here;
• a guide for directors, available here;
• a guide for executives, available here; and
• the XRB staff guidance to transition planning disclosures, available here.

The XRB has expanded on its Staff Guidance published in May 2023 to include more extensive guidance on transition planning disclosures. The guidance includes useful illustrative examples reflecting best practice. CREs are likely to face substantial difficulty and complexity in generating these disclosures and must closely engage with guidance to ensure compliance.

FMA’s Monitoring Plan and Insights Report 

In June 2023, the FMA published its planned approach to monitoring the compliance of CREs with the legislative requirements under Part 7A of the FMCA and reporting obligations under the climate related disclosure framework (i.e. the NZ CS). This document outlines the FMA’s compliance monitoring plan to take place over the period of 2023-2026. A link to the document is available here.

As outlined in the Monitoring Plan, for CREs’ second year of reporting, the FMA will incorporate three additional areas into their reviews of climate statements. These include assessing whether CREs have: 

• obtained independent assurance over their GHG emission disclosures for reporting years ending on or after 27 October 2024 (though this is subject to change contingent on the FMA’s proposed class exemption relief for scope 3 GHG emission assurances as discussed above);
• improved on their first-year reporting based on areas covered in FMA monitoring reports and any individual feedback provided to them; and 
• made reasonable efforts to comply with all additional disclosure requirements, noting that the first-time adoption provisions under NZ CS 2 are no longer available to CREs in their second reporting year (as discussed above).

In December 2024, the FMA published an Insights Report outlining its initial feedback based on the first 70 climate statements they reviewed last year. This Insights Report is a key read for all CREs as it indicates the FMA’s opinion of good practice in climate reporting and signals its future monitoring activities. The document is available here, and our previous article covering this Insights Report in more detail is available here. 

MBIE discussion document on changes to the CRD regime 

MBIE published, in December 2024, a document discussing concerns raised by CREs in relation to the CRD regime and the potential legislative options for amending the threshold requirements to address those concerns. The document also calls for stakeholder feedback on their proposals. The full discussion document is available here, and our previous article covering this consultation is available here.

MBIE has proposed options for changes in four areas: 

• Amending the NZX listed issuer reporting thresholds. Three options are given for this area:
  • NZD60 million market capitalisation (for quoted equity) or principal amount (for quoted debt) – this is the status quo;
  • NZD550 million (for quoted equity) or principal amount (for quoted debt), with effect from early 2026, status quo till then; or
  • NZD550 million (for quoted equity) or principal amount (for quoted debt), with effect from early 2026 (status quo till then), then dropping to NZD250 million from early 2028.
• Amending the investment scheme manager reporting thresholds. Three options are given for this area:
  • NZD1 billion asset under management in registered schemes (AUM) – this is the status quo.
  • NZD5 billion AUM; or
  • NZD5 billion assets under management per scheme
• Moving the location of the thresholds from the FMCA to secondary legislation (e.g. regulation) to enable flexibility so that reporting thresholds can be easily amended in the future. 
• Changing director liability settings. Options include retaining the status quo of having the same level of responsibility as applies for financial statements, amending the FMCA director liability provisions for climate-related disclosures, or introducing a temporary safe harbour provision similar to Australia’s regime.

Stakeholders are invited to provide feedback on the proposed changes by 5:00pm on 14 February 2025. The MBIE will then make recommendations, including any received feedback, to the Minister of Commerce and Consumer Affairs with a view to introducing amendment legislation this year. The Minister will then need to seek Cabinet approval for legislation to amend Part 7A of the Financial Markets Conduct Act 2013 (which contains the relevant part of the climate reporting regime). 

Assuming Cabinet approval is given, the amendment legislation would first have to pass through Parliament. That would usually imply legislation being introduced mid-year with the timing then being in Parliament’s hands. Unless urgency was adopted, any changes to have effect either late 2025 or in 2026 at the earliest. 

Our view 

While the FMA’s monitoring approach will be similar to the first reporting period – an “educative and constructive approach” – it is important to be aware that FMA will still be looking for uplift, particularly where they have published commentary or given individual feedback. For this reason, we recommend that all CREs read the FMA’s Insights Report as it will have shaped the FMA’s expectations for year 2. The Insights Report also indicates some of the key areas that the FMA may pay particular attention to when reviewing second climate statements, for example: more comprehensive methods and assumptions disclosures, the plausibility and applicability of CREs’ scenarios as part of scenario analysis, and greater alignment with the fair presentation principles contained in NZ CS 3.

We expect the FMA to take a monitoring approach similar to year 1 in respect of the new disclosures. The FMA in its Insights Report said that it will be looking to see whether CREs have made “reasonable efforts” to comply with the current financial impacts and transition planning disclosure requirements. Accordingly, CREs should endeavour to align with the XRB’s transition planning guidance, in particular its extension to the Staff Guidance document, as it is the most detailed guidance document on the subject matter and reflects the XRB’s (and likely the FMA’s) expectations. 

It is also timely to highlight the important of good record keeping again. Transition plans by their very nature, defined by the NZ CS 1 as “an aspect of an entity’s overall strategy that describes an entity’s targets, including any interim targets, and actions for its transition towards a low-emissions, climate-resilient future”, are likely to contain “promises” or “commitments” at varying degrees of specificity. It will be crucial for CREs to have sufficient records to substantiate any commitments made in the transition plan disclosures – substantiation in this context will require evidence of a robust action plan such that the CRE has reasonable grounds for believing the outcome will be achieved. The FMA has published record keeping guidance, available here.

MBIE’s proposed changes for CRD

We support MBIE’s consultation and willingness to respond to concerns that do warrant further consideration but hope to see a balance struck between reducing regulatory burden while upholding the purpose of the regime. The CRD regime is aimed at ensuring the effects of climate change are routinely considered in business, investment, lending and insurance underwriting decisions, and ultimately facilitating the transition of CREs to a low-emissions and climate-resilient future. 

Further, providing primary users with the information required to understand how a CRE plans to approach climate change, in respect of both adaptation and mitigation, is intended to lead to a more efficient allocation of capital. While costs are an onerous element of the regime, disclosure may be beneficial in attracting investment, particularly foreign investment. The MBIE noted in the discussion document that large overseas investors are increasingly demanding climate-related reports from entities and funds. CREs that fall below the lower thresholds under Option 2 or 3 and are no longer obligated to report may ultimately decide to publish a form of climate-related disclosure voluntarily to keep up with market demand. 

The Australian Sustainability Reporting Standard 2 provides for disclosure requirements that go over and above those in NZ CS 2, and there are broader reaching reporting thresholds – over 6,000 entities are expected to be caught by the Australian regime. We discuss the differences between the Australian and New Zealand climate-related disclosure regimes in depth in our previous article – available here.

What next? 

The FMA continues to review climate statements lodged for the first climate reporting period and intends to publish further feedback in its continuing support of CREs in achieving better practice. 

As CREs prepare their second climate statements, they should have particular regard to the specific transition planning disclosure guidance provided by the XRB. CREs formulating these disclosures for the first time may find the examples and additional guidance helpful in determining the extent, manner and content these new disclosures obligations require. 

CREs with an interest in amending threshold requirements should submit consultation to the MBIE before the February 14 deadline. All CREs must pay close attention to the MBIE’s proposals and whether they receive assent as it could impact their status as reporting entities. 

This article was co-authored by Solictor Hannah Cross and Summer Clerk Edward Kruger