Climate-related reporting in New Zealand – what is it all about?

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New Zealand has committed itself to achieving net zero carbon emissions by 2050. To help achieve this goal, Parliament passed the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 (Act), which imposes mandatory climate-related disclosures and reporting for certain businesses—approximately 200 large publicly listed companies, insurers, banks, and investment managers in New Zealand. 

Knowing what to report: Climate-related disclosures will encourage businesses and their stakeholders to identify climate-related risks on business, and to take responsibility for reducing their impacts on climate change. 

Small businesses are not captured yet: Climate-related disclosure obligations will build over the coming years and are currently targeted at big business only. 

Yes, but there are benefits in being an early adopter: Smaller businesses not yet caught by mandatory climate-related disclosures can do so voluntarily. This may become important as a tool for securing overseas investment and/or demonstrating commitment and a pro-active response to climate change in a competitive market. Climate-related disclosures are likely to present new opportunities for growth in many sectors, and it may be a good time for your small business to start considering making these disclosures. 

Time to plan for climate reporting now: The External Review Board's (XRB) is planning to issue the first of the standards in December 2022. Businesses should ensure staff have the necessary processes and tools to capture climate-related data.

Is my business captured? 

Certain New Zealand businesses will be subject to mandatory climate-related disclosures and reporting, and are defined as Climate Reporting Entities under the Act. These big businesses include:

  • licensed insurers, banks, credit unions, building societies, and managers of registered investment schemes that hold substantial assets (exceeding $1 billion); and

  • listed issuers with equity or debt securities exceeding $60 million

Certain large overseas businesses and groups (incorporated outside of New Zealand) are also subject to mandatory disclosure and reporting obligations under the Act if their New Zealand business is over the above listed thresholds. 

What will need to be disclosed/reported? 

A climate-related disclosure framework for New Zealand (i.e. what needs to be reported on) has been prepared by the XRB and is split into three standards: 

  • CS1 (Governance and Risk Management);

  • CS2 (Strategy, Metrics and Targets); and

  • CS3 (General requirements). 

The standards remain in a draft form, are informed by engagement with key stakeholders and have been subject to public consultation. Further detail on what the draft standards is likely to require is set out below.

  • CS1 will incorporate the disclosure requirements and broadly cover:

    • The role of governance and management in assessing the climate-related risks and opportunities for the business, how climate-related responsibilities are to be delegated and the frequency of internal engagement/assessment.

    • Identification of climate-related risks and opportunities over the short, medium and long term, including scenario analysis, and how the business will transition to low-emissions and a climate-resilient future state. This will likely require an assessment of anticipated and financial impacts and the implementation of a transition plan.

    • The processes for identifying, assessing and managing the climate-related risks and how those processes will be integrated into the management process.

    • Consideration of cross-industry and industry-based metrics on greenhouse gas emissions and intensity, transition/physical risks, climate-related opportunities, capital deployment, internal emissions price and management remuneration linked to the climate-related risks and opportunities. This also involves, consideration of key performance indicators, targets and performance against those targets, together with measure of greenhouse gas emissions. 

  • CS2 sets out the first time adoption provisions and timeframes in order to implement CS1 and CS3. This will include short term exemptions for certain disclosures which acknowledge that it will take time to produce high-quality climate-related disclosures. The expectation is that guidance will develop over time.

  • CS3 will cover general requirements and principles to follow when making disclosures. These include location of disclosures, reporting entity and period, exposure of the business’s value chain, materiality of information, comparative information and methodologies, assumptions and estimation of uncertainty.

When will the Standards be effective?

The XRB is planning to issue the first of the standards by December 2022. This will require entities to provide disclosures for accounting periods that start on or after 1 January 2023. Accordingly, reporting is likely to be required from December 2023 (depending on the balance date of your entity).

What does my business have to do? 

Knowingly failing to comply with the standards results in hefty penalties—an individual will be exposed to imprisonment for a term not exceeding 5 years and/or a fine not exceeding $500,000.00, and any other entity will be exposed to a fine not exceeding $2.5m. It’s crucial that your business understands its obligations and prepares itself for the final form standards.

From 2023, climate-related entities will need to:

  • Prepare climate-related disclosures records. Climate-related disclosures records must be held for a period of 7 years after they have been made. Climate-related disclosures records must be available to the directors and supervisors of the Climate Reporting Entities (including manager of a registered scheme), the Financial Market Authority and any other person authorised to inspect the records.

  • Prepare annual climate statements and/or notices. These must be prepared (potentially annually) as at an entity’s balance date as required by specific climate standards. If any of the standards are silent on whether a statement is required then the entity will be required to prepare an authoritative notice. For many entities these statements/notice will align with their accounting year and will need to be lodged with the Registrar within 4 months after the balance date of the entity.

  • From Oct 2024, climate-related entities will need to engage a climate-related disclosures assurance practitioner. Some of the standards will require disclosure of greenhouse gas emissions, which will need to be the subject of an assurance engagement in accordance with auditing and assurance standards (to be prepared by the XRB).

What should my business do right now? 

We recommend that if your business is identified as a climate-related entity (but there is benefit in all businesses progressing these steps) that it:

  • Ensures it is properly resourced to deliver on its climate-related disclosures, including equipping staff with the necessary processes and tools to capture climate-related data.

  • Provides training to ensure that Board of Directors and managers are familiar with the climate-related disclosures reporting obligations and timeframes. Comprehensive insurance cover is likely to develop to respond to and mitigate against climate-related disclosures risk.

If you have any specific questions regarding your entity’s reporting obligations, contact a member of our Resource Management Law team.

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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