The External Reporting Board (XRB) published the final version of its Climate-related Disclosures Staff Guidance for All Sectors (All Sectors Guidance).
A link to the All Sectors Guidance is available here.
Who should read this and why?
The All Sectors Guidance is:
- a must-read for company directors, C-suite and sustainability officers of Climate Reporting Entities (CREs);
- a useful overview for the leaders of other businesses and advisers to CREs and others.
The All Sectors Guidance is a well-written, practical guide for company directors, C-suite and sustainability officers of Climate Reporting Entities (CREs) to meet their mandatory obligations under New Zealand’s new climate-related disclosures (CRD) regime. It also provides an accessible framework for other entities to consider how their businesses may be affected by the physical and transition impacts.
What does it cover?
New Zealand’s new mandatory CRD regime, under Part 7A of the Financial Markets Conduct Act 2013 (FMCA), is already in force and acts as a model for other countries and intergovernmental bodies wishing to develop their own climate reporting requirements and standards as part of their response to the climate crisis.
The estimated 200 CREs to which the CRD regime applies on a mandatory basis include:
- large NZX-listed issuers of quoted equity securities or quoted debt securities (i.e. with a market capitalisation or nominal amount exceeding NZ$60 million);
- large registered banks, licensed insurers, credit unions and building societies (i.e. with total assets exceeding NZ$1 billion, or, in the case of licensed insurers, where premium income exceeds NZD$250 million p.a.); and
- large licensed managers of registered managed investment schemes (i.e. with total assets in registered schemes exceeding NZ$1 billion).
In addition, various governmental agencies are also expected to comply under Ministerial Letters of Expectation, and other entities have opted to comply voluntarily.
The All Sectors Guidance provides a comprehensive guide to the regime including an overview of all three XRB issued standards that make up the Aotearoa New Zealand Climate Standards:
- Aotearoa New Zealand Climate Standard 1: Climate-related Disclosures (NZ CS 1);
- Aotearoa New Zealand Climate Standard 2: First-time Adoption of Aotearoa New Zealand Climate Standards (NZ CS 2); and
- Aotearoa New Zealand Climate Standard 3: Requirements for Climate-related Disclosures (NZ CS 3).
CREs must apply the three standards for annual reporting periods beginning on or after 1 January 2023. Assurance of GHG emissions applies to annual reporting periods that end on or after 27 October 2024.
Detailed guidance is provided, with practical examples drawn from the World Economic Forum and Task Force on Climate-Related Financial Disclosures recommendations, as well as the voluntary approach of specific businesses in New Zealand and Australia, in relation to the four main areas of NZ CS 1:
- governance;
- strategy;
- risk management; and
- metrics and targets.
The XRB notes that they are not endorsing these examples as perfect, but instead offering them as inspiration for other CREs to look to when drafting their own climate statements.
The All Sectors Guidance explains the adoption provisions in NZ CS 2 in relation to the requirements in both NZ CS 1 and NZ CS 3, recognising the time that may be required to develop the capability to produce high quality climate-related disclosures and that some disclosure requirements, by their nature, may require an exemption.
The All Sectors Guidance addresses NZ CS 3 in greater detail than XRB’s earlier consultation draft, dealing with its key principles (fair presentation and materiality) and its general requirements. NZ CS 3 is the foundation of the climate-related disclosure framework. It contains the principles, underlying concepts, and general requirements. As the XRB points out, NZ CS 3 should be read first and referred to when applying the disclosure requirements in NZ CS 1.
The All Sectors Guidance also emphasises key messages such as the fact that all three climate standards should be read together to provide a “complete, coherent, and consistent picture”, and recommends that all CREs undertake a holistic review of their climate statements.
Our view
We applaud the XRB’s extensive work on the All Sectors Guidance, particularly how they have responded to the feedback based on the consultation paper on the exposure draft last year.
We have previously discussed the consultation paper on the exposure draft of the All Sectors Guidance, however, the final has been significantly revised.
Although the XRB’s guidance is not mandatory as part of the CRD regime, it is a great place for businesses to start looking, particularly for how to approach the specific disclosure requirements under NZ CS 1.
You can find further information about the CRD regime via the links below to our earlier articles:
- XRB publishes final Aotearoa New Zealand Climate Standards
- Director action points for climate reporting
- New Zealand leads with mandatory climate-related disclosures
What next?
The XRB is currently working on additional specific guidance for managers of registered managed investment schemes.
The XRB has also said specific guidance for banks and insurers is in the works.
If you have any questions in relation to the All Sectors Guidance or would like to know how the CRD regime applies to you, please contact one of our experts.
This article was co-authored by Hannah Cross, a law clerk in our Financial Services team.
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