As at 25 September, seven licensed insurers have lodged – two being general insurers and the remainder life insurers. 15 banks have also lodged, though that includes dual registered banks lodging climate statements for both the overseas branch and a local subsidiary. Many other licensed insurers have June year-ends and will be lodging by 31 October.
We set out some key observations that are relevant to those ‘large’ licensed insurers with over NZD1 billion of assets or NZD250 million net written premiums who are required by the climate-related disclosures regime to prepare and lodge climate statements, complying with the Aotearoa New Zealand Climate Standards (NZ CS).
Particular insights for insurers
From the climate statements that have been lodged on the Climate-related Disclosures Register, it is clear that climate reporting entities (CREs) have put a great deal of time and effort into preparing these documents. As we are still in the early days of the climate-related disclosures regime, market practice is very much still evolving. But we are already seeing some key themes as to what entities are doing well, and not so well.
Style and approach
There has been a wide spectrum of approaches so far. The climate statements to date have ranged from 6 to 129 A4 pages – though those at the longer end have been fund managers whose documents cover multiple funds. The seven insurers’ statements so far have been between 20 and 28 pages. The banks’ statements are typically twice as long. There is variety in the style of the document too, with some making greater use of images, diagrams, and tables.
While the great majority of CREs so far have published standalone climate statements, approximately 6% have integrated them within their annual report, and 12% within a broader sustainability report. Integrated disclosures are permitted under the NZ CS but when doing so you must include a detailed table of references identifying where primary users can find the location of the prescribed disclosures.
Some CREs have chosen not to follow the structure of the four pillars within NZ CS 1 (Governance, Strategy, Risk Management and Metrics & Targets), with Strategy often being at the front of the document. The logic we understand is that users are more interested in what CREs are doing than who is making the decision.
Though not strictly required by the NZ CS in a standalone climate statement, often a table of references or index of the prescribed disclosures in this case too can assist with readability
We expect the reason for such variety in approach is because CREs have been making internal decisions that the level of detail, structure, or way in which the information is presented, is appropriate for their “primary users”. Always having “primary users” front of mind during preparation of the climate statements is crucial, because that is the prescribed, intended audience by way of the materiality threshold in NZ CS 3.
For insurers, the largest group of primary users is most likely to be the CRE’s investors and creditors. While policyholders are technically not primary users – at least until they make a claim – they will be some of the stakeholders who may also be interested in the climate statements.
Current and anticipated impacts of climate change
CREs are now well aware of the distinction between physical impacts (i.e. directly or indirectly attributable to the physical aspects of climate change) and transition impacts (e.g. directly or indirectly attributable to the actions taken by governments and markets to transition to a low-emissions, climate-resilient future).
Insurers are in the business of managing risk and general insurers tend to be highly focused on climate-related risks and adapting to weather events that can have large scale impacts on their policyholders and accordingly their business i.e. physical impacts. However, transition impacts that result from societal or regulatory change can have significant impacts on insurers too, so it is important for insurers to be thinking about how markets be, government and shifts in consumer preferences are affecting their business too – both positively and negatively.
An observation is that in relation to the requirement to disclose a CRE’s current and anticipated climate-related impacts, it is important to disclose how the particular CRE has been impacted, as opposed to simply disclosing an event that occurred in the reporting period.
Targets
As part of the Metrics & Targets pillar in NZ CS 1, many CREs have been disclosing greenhouse gas (GHG) emission targets. Though everything in the climate statement must be substantiated, substantiating targets requires CREs to have a robust, clear action plan that it reasonably believes will lead to the achievement of that target. This is an area the Financial Markets Authority (FMA) has called out where some of the climate statements lodged to date have not had enough detail.
Coherent, effective disclosure
Both the External Reporting Board (XRB) and the FMA have publicly stated that at least some CREs are not focussing enough on the requirements of NZ CS 3. The NZ CS 3 principles complement the fair dealing provisions in Part 2 of the Financial Markets Conduct Act 2013; having regard to principles like Understandability, Balance, and Coherence will have flow on effects in terms of ensuring that the disclosure of targets or other statements made within the climate statement do not amount to inadvertent greenwashing by way of false or misleading representation. And NZ CS 3 contains some specific required disclosures that have been overlooked in some cases.
GHG assurance engagements
The requirement for CREs to obtain limited assurance of their GHG emissions does not come into force until next year (for reporting periods ending on or after 27 October 2024), however some CREs have chosen to obtain voluntary assurance. Many of those CREs getting voluntary assurance did not disclose the assurance report in the climate statement: This is key for providing full transparency to primary users as to whether the assurance had any qualifications, limitations or assumptions.
International reporting regimes
Many insurers have overseas parents or have a presence in another jurisdiction, such as Australia. Operating within an overseas group adds to the challenge of preparing climate statements, due to the misalignment of climate reporting regimes both in terms of a timing but also what is required to be disclosed. In September 2024, the Australian Parliament, Parliament passed the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) which paves the way for the implementation of a mandatory climate-related disclosures regime.
The XRB is closely following the international developments with the International Sustainability Standards Board (ISSB) Standards 1 and 2, and the still to be finalised Australian Accounting Standards Board’s (AASB) standards (which have been issued in exposure draft form, will more closely follow the ISSB Standards, than the NZ CS did). The XRB published a report in 2023 comparing the NZ CS with the ISSB in 2023, and intends to undertake a review of the NZ CS in light of these international regimes in December 2025.
Generally, the Australian requirements will be much more granular than New Zealand’s principles-based approach, and some have estimated the cost of compliance is roughly twice that for the NZ CS. But there are some elements e.g. the requirement to have three scenario narratives under NZ CS versus two under ISSB and AASB, which means that overseas documents will not automatically meet the New Zealand requirements.
The coverage in Australia will eventually be much broader too. NZ has an estimated 200 CREs required to lodge climate statements, whereas Australia is estimated to have about 20,000 entities which will eventually be captured in three phases: initially large public companies (500,000+ employees and NZD5 million+ revenue), then medium (250+ employees and NZD200 million+ revenue) and in 2026, smaller companies (100+ employees, NZD50million+ revenue).
FMA feedback
Having finished reviewing the December and January year-end climate statements lodged in April and May, the FMA is now in the midst of reviewing all of the climate statements that were lodged by 31 July in line with a March year-end.
Some CREs will be receiving individual feedback letters from the FMA where there are significant matters that need to be addressed. If there are more minor points that can be easily resolved, such as not including the required link in a CRE’s annual report to its climate statement, or not having two directors sign the climate statement, the FMA may send an email for this to be addressed quickly. But the FMA has been clear that it has not and will not have time to write to everybody.
The FMA will be providing general feedback in a monitoring report they are intending to publish end of November or early December, based on what it has seen in a detailed review of as many of the statements as it can cover before then. This will be an important document to read as CREs get ready to prepare their second climate statements – those with December year-ends are already well underway with preparations.
The FMA has already been out and about speaking to their findings so far too. At a recent INFINZ seminar which MinterEllisonRuddWatts hosted, FMA’s Jacco Moison’s observations included:
- They have seen limited disclosure in some cases of the underlying methods and assumptions, and data and estimation uncertainty used in the preparation of climate-related disclosures. This was particularly in relation to GHG emissions and scenario analysis disclosures. In future, they will be looking for more comprehensive disclosures for these NZ CS 3 prescribed requirements.
- There had been some cases of insufficient disclosure of the nature of assurance obtained over GHG emissions and other verification or assurance services, where the CRE had chosen to refer to assurance ahead of the mandatory requirement to do so. Following the first climate statements, the FMA has engaged with all assurance providers to highlight areas to focus on for the mandatory assurance which applies from October 2024 onwards.
- CREs also needed to ensure they disclose how they have actually been impacted by climate-related events rather just disclosing that an event happened. For example, disclosure that Cyclone Gabrielle happened without also disclosing what impact (if any) that had on the entity is not sufficient.
- The language used in some climate statements to describe the link between climate-related risks and opportunities and capital deployment didn’t always provide a clear picture. This was relevant in relation to how the short-, medium and long-term time horizons for climaterelated risks and opportunities are linked (if at all) to strategic planning horizons and capital deployment plans. Moison pointed out that if there was no link, then it was appropriate to say so, but general statements indicating a link – but not describing how they are connected – were not enough.
Overall, however, Moison indicated that the FMA was generally pleased by the proactive approach CREs had taken to the regime without much time to prepare. But that doesn’t mean that the FMA will not have higher expectations in the years to come.
These various mediums by which the FMA is providing feedback aligns with the key message that the FMA has continued to reiterate – namely, is that they are taking a constructive and educative approach to monitoring in this first year, in line with their Climate-related Disclosures Monitoring Plan 2023–2026 published last year.
Get in touch with one of our experts if you would like to discuss any of our observations above, or your climate reporting obligations generally.
This article was co-authored by Hannah Cross, a Solicitor in our Financial Services team.
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