Today, the External Reporting Board (XRB) has published the final Aotearoa New Zealand Climate Standards (Climate Standards), aimed at shifting New Zealand towards a low-emissions economy.
Following our July 2022 update, the XRB has finalised their mandatory framework for Climate Reporting Entities (CREs) to consider climate-change related risks and opportunities. The standards apply from 1 January 2023 and the XRB will publish guidance to assist entities with compliance in early 2023.
Links are available to access the Climate Standards, the XRB’s 15 December 2022 media release and a summary of the main changes to the Climate Standards following consultation. The Climate Standards are made up of three standards:
• Aotearoa New Zealand Climate Standard 1: Climate-related Disclosures (NZ CS 1);
• Aotearoa New Zealand Climate Standard 2: Adoption of Aotearoa New Zealand Climate Standards (NZ CS 2); and
• Aotearoa New Zealand Climate Standard 3: General Requirements for Climate-related Disclosures (NZ CS 3).
Who needs to read it? Why?
The Climate Standards are relevant for all CREs as they are mandatory for these entities. CREs are large publicly listed companies (i.e. market capitalisation over $60 million), large licensed insurers, banks, non-bank deposit takers and managed investment scheme (MIS) managers (large means having over $1 billion in assets or for insurers $1 billion in assets or premium income over $250 million per annum).
Additionally, advisors and suppliers to CREs should read this update and the linked material, and other businesses should monitor developments as the list of CREs will be expanded in the future.
The Climate Standards are an exciting development in New Zealand’s transition towards a low-emissions and climate-resilient future.
What does it cover?
The substance of the Climate Standards remains largely as previously consulted on. They are broadly based on the international TCFD recommendations relating to the physical and transition impacts of climate change and incorporate four key themes: governance, strategy, risk management, and metrics and targets, as well as requiring some greenhouse gas (GHG) emissions reporting.
Minor changes were made due to the public’s feedback on the Exposure Draft. The changes primarily sought to clarify terms and concepts used for CREs.
The XRB noted the following primary changes made to the Climate Standards in their ‘summary of the main changes’ as a result of the consultation.
Main changes to NZ CS 1:
- Relocation of ‘strategy disclosure’ to the ‘anticipated impacts and financial impacts’ section.
- Relabelling of ‘financial planning processes’ as ‘internal capital deployment and funding decision-making processes’ because MIS managers use the term ‘financial planning processes’ differently.
- Replacement of ‘targets aligned with science’ with a target of ‘limiting global warming to 1.5 degrees Celsius’.
- Reinstatement of the requirement for CREs to disclosure the source of their emissions.
Main changes to NZ CS 2:
- Clarification that for entities that qualify as a CRE from time to time, some provisions in the standards apply the first time the entity enters the regime, while other provisions apply each time the entity enters the regime. Additionally, such entities are granted a one-year exemption for reporting their scope 3 greenhouse gas (GHG) emissions.
- Addition of ‘adoption provision 5’, which covers comparatives for scope 3 GHG emissions.
Main changes to NZ CS 3:
- Relocation of the ‘consistency’ principle to an information principle and the ‘balance’ principle to a presentation principle.
- Requirement that all information reported by a CRE is contained within their disclosure.
- Change of the definition of ‘material’ to a more subjective standard about what value users of CREs’ disclosure statements would attribute to their disclosure.
- Clarification that new metrics do not require comparative data.
- Change of the methods and assumptions behind disclosures.
Our view
We support the XRB’s efforts to clarify the Climate Standards that apply to CREs and lead New Zealand towards a low-emissions future. While the XRB will publish guidance to help CREs comply with the mandatory regulations, we strongly encourage CREs to seek advice on how the Climate Standards affect them due to their complexity and length.
The mandatory reporting regime will require CREs to disclose according to the Climate Standards for the relevant CRE’s accounting periods that start on or after 1 January 2023. For example:
- A CRE with a 31 December balance date (i.e. reporting period 1 January to 31 December), will be required to prepare their first climate statement as part of their 31 December 2023 reporting.
- A CRE with a 30 June balance date (i.e. reporting period 1 July to 30 June), will be required to prepare their first climate statement as part of their 30 June 2024 reporting.
Some of the requirements relate to matters (e.g., record-keeping and governance) that the CRE is likely to want to be able to report on and address during this period. CREs who have not yet started to consider the Climate Standards may struggle - despite the transitional relief offered in NZ CS 2.
What next?
If you have any questions in relation to the Climate Standards or are considering how the standards affect your business, please contact one of our experts.
This article was co-authored by Darlene Hu, a Summer Clerk in our Banking and Financial Services team.
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