New Zealand was the first country in the world to pass a law requiring mandatory reporting of climate-related risks and opportunities for large financial institutions and NZX-listed entities. Many of those entities have now lodged their first climate statements.
We have collaborated with MinterEllison's sustainability governance experts in Australia to help Australian companies navigate the implications of mandatory climate reporting.
New Zealand’s experience with mandatory climate reporting provides useful lessons for Australian companies that face Australia's own mandatory climate-related reporting from 2025, as both regimes are aligned with the framework established by the international Task Force on Climate-related Financial Disclosures.
Here are the four key lessons we have distilled from early experiences in New Zealand to help with what has been defined by Joe Longo, ASIC Chair, as the "biggest change to corporate reporting in a generation".
1. Climate impacts are a business issue first
The regime is primarily about adapting corporate strategy and risk management to the physical and transition impacts of climate change, and then about disclosure to support the efficient allocation of capital.
In providing a consistent framework for entities to consider the climate-related risks and climate related opportunities that climate change presents for their activities over the short, medium and long term, the objective of this Standard is to enable primary users to assess the merits of how entities are considering those risks and opportunities, and then make decisions based on these assessments.
2. Start reporting preparations early
Adopting a ‘just in time for filing' or 'we'll cross that bridge when we come to it' mindset is a recipe for problems. The challenge, and benefit, of climate reporting lies in the necessity to gather detailed data and analysis, evaluate complex climate impacts, climate scenarios, value chain sensitivities and carbon footprint metrics, and informing board decision-making early.
It's clear that companies that embarked on their preparation for mandatory reporting well before the first reporting year had an easier time both shaping strategy and producing accurate investor-useful reports come the reporting date. An early start is more than just good practice; it offers the best chance for enhancement and innovation.
3. Confident boards equals less friction
Impact scenario analysis, GHG Scope 1, 2, and 3 emissions, forward-looking statements, granular quantitative and qualitative information on governance and strategy of the company — climate reporting obligations require companies to not only disclose previously undisclosed information, but also for Boards to form opinions on complex and novel questions often outside their comfort zone. Companies which have built Board and Management climate capacity in advance have been able to finalise assured disclosures with less friction.
Mandatory climate reporting isn’t meant to be easy for Boards! The scope and complexity of new reporting requirements is not to be underestimated and Boards need to find practicable and workable ways to apply care and diligence to climate reporting.
4. Align early on reporting strategy
There isn’t a right or wrong way, but the process has definitely been smoother for companies that take a clear, consistent position throughout. If Management is more ambitious than the Board or vice versa, then problems arise. Early alignment is crucial, and it also helps to reduce the risk of greenwashing and misleading statements.
Identification of climate-related risk and opportunity is just the starting point. Developing strategy to manage risk and capture opportunity is also essential. But more than that, the challenge is to communicate effectively about those things to investors and other stakeholders. Managing disclosures safely is next to impossible if Board and Management aren’t themselves clear about strategy
The introduction of mandatory climate reporting in New Zealand and Australia signifies a transformative step in corporate governance, offering companies a chance to understand climate risks and opportunities and seek sustainable competitive advantages.
Our multidisciplinary teams in New Zealand and Australia are ideally positioned to provide the comprehensive support in helping organisations navigate climate-related reporting. Feel free to reach out to MinterEllisonRuddWatts Partner, Lloyd Kavanagh or MinterEllison Partner, Paul Schoff.
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