The New Zealand government has introduced a new regime making climate-related disclosures mandatory for some large organisations (climate reporting entities, or CREs). We have summarised the important points of the regime below.

Who does the regime apply to?

The regime applies to listed issuers with a market capitalisation over $60 million (excluding issuers listed on growth markets), registered banks, credit unions, and building societies that have over $1 billion in assets, fund managers that have over $1 billion in assets under management (excluding restricted schemes), and licensed insurers that have over $1 billion in assets or premium income over $250 million per annum.

Some non-captured entities might also consider preparing statements under the framework on a voluntary basis. In the wake of Cyclone Gabrielle, the value of a structured approach to identifying climate-related risks and developing strategies to address them is clear. The very exercise of completing climate statements in and of itself can provide rich and strategic insights into climate-related opportunities and risk mitigation.

This in turn can assist boards in discharging their director duties. As we said in our related article on climate litigation and director duties, now, more than ever, directors must ensure that they have climate plans in place and are actively managing risks.

Entities that are not CREs but who prepare financial statements under the IFRS framework may also see another reason to start to use the framework voluntarily, to build up capacity for future compliance. The International Sustainability Standards Board (ISSB) (which develops IFRS requirements) is working on two proposed standards - one on climate-related disclosures and one on general sustainability-related disclosures. In other words, if you are not a CRE now, your entity may in the next few years expect to see similar requirements under the IFRS umbrella. The External Reporting Board (XRB) is following this closely, and has published a comparison between the exposure draft of the New Zealand climate standards and ISSB’s exposure drafts, as at July 2022, showing a large amount of alignment between New Zealand’s climate standards and what is being proposed by the ISSB.

What is required of CREs under the regime?

CREs will be required to prepare and make public an annual “climate statement” that discloses information about the effects of climate change on their business or any fund they manage. The disclosures will relate to governance arrangements, risk management, strategy, metrics and targets for mitigating and adapting to climate change impacts and will involve scenario analysis. CREs must make their climate statements available to the public and should ensure that their annual report contains a copy of their climate statements (or a link to an Internet site where a copy of those statements can be accessed).

CREs will need to prepare their climate statements in accordance with climate standards issued by the XRB.

There are also record keeping requirements that apply to CREs.

Reporting against the climate standards will require a comprehensive response that is time-intensive to develop, but it can be an extremely valuable exercise that should be much more than “tick-box”. Certainly, we recommend bringing on board a range of perspectives early on and throughout the process, to get the best out of it – including stakeholders such as finance, operations, sustainability, communications and legal.

When do the first climate statements have to be published?

CREs will need to report against the XRB’s climate standards for financial years beginning on or after 1 January 2023. Climate statements must be prepared within four months after the CRE’s balance date (or by any earlier financial reporting deadline that might apply, eg listed companies are required to publish their annual report, which will now need to include a copy of their climate statements or a link to where those statements can be accessed, within three months of balance date).

This means that climate statements will need to be published from early 2024 at the earliest. For example, if you are captured and have a balance date of 31 December 2023, your climate statements must be completed by 30 April 2024 (31 March 2024 if listed). If you have a balance date of 31 March 2024, your climate statements be completed by 31 July 2024 (30 June 2024 if listed).

Are there any assurance requirements?

The regime contains an assurance requirement that comes into force in October 2024. For financial years ending on or after 27 October 2024, CREs will need to ensure disclosures in their climate statements relating to greenhouse gas emissions are independently assured.

MBIE is proposing that persons who provide assurance to CREs on greenhouse gas emission disclosures in their climate statements need to be licensed by the Financial Markets Authority (FMA). MBIE is also proposing to extend the assurance requirement to the entire climate statement from October 2028, and to empower the XRB to stagger the introduction of assurance requirements before the date for full assurance. MIBE has recently completed public consultation on these proposals, with the next stage being to consider the feedback received.

Although assurance requirements do not apply yet, entities must ensure that information they publish is clear and accurate, and assumptions are clearly explained.

Who monitors and enforces the regime?

The FMA is responsible for independent monitoring and enforcement of the regime. The FMA intends to take a broadly educative and constructive approach during the early years of the regime, with a focus on issuing high-level guidance on compliance expectations, before moving to a proactive regulatory role as the regime becomes established.

Enforcement during the early years of the regime will primarily be focused only on serious misconduct (eg failure to produce a climate statement, or where a climate statement is false or misleading).

Greenwashing is a key area of focus for regulators. Climate statements must make considered disclosures, and entities must be able to substantiate what they are saying.

Get in touch

If you are affected by the climate-related disclosures regime or want to use the regime as a tool to manage your duties and understand and strategise your climate-related risks and opportunities voluntarily, please get in touch. We would be happy to talk to you about the implications for your business, and to develop your responses/next steps.

Special thanks to Josiah Koh for his assistance in writing this article.