To date in this series, we’ve covered key learnings and observations across the four Aotearoa New Zealand Climate Standard (NZ CS) 1 disclosure categories of governance, strategy, risk management, and metrics and targets. However, climate reporting entities (CREs) must also comply with the requirements in NZ CS 3 (primarily the fair presentation requirements) and can obtain some reporting relief by relying on exemptions from certain requirements in the adoption provisions in NZ CS 2. 

This article gives guidance on the key elements of NZ CS 3, preparation for year two and subsequent years once adoption relief is no longer available and the full reporting requirements are in force.

Fair presentation 

Fair presentation is a key requirement of climate reporting. All disclosures must be presented fairly and in context. CREs should not include superfluous or ‘marketing’ information that may overshadow or unbalance relevant disclosures or hinder interpretation.

Some disclosures require a future focus, so forward-looking statements are unavoidable, but they must be based on reasonable grounds and make material limitations and assumptions clear.

Other fair presentation steps include: 

• Limit disclosures to factual statements where possible and present all information objectively, avoiding promotional language. This will also reduce the risk of greenwashing claims.
• Minimise general ESG and sustainability information not directly related to a specific disclosure requirement.
• Avoid minimising risks and uncertainties or overemphasising benefits.
• Ensure coherency and consistency between different sections of climate statements, particularly scenario analysis. For example, if a particular risk appears in one scenario, it should appear in other scenarios and if not, the CRE should explain why.
• Be consistent between climate statements and financial statements (and other external information), particularly once CREs are required to quantify the financial implications of their current and future climate-related impacts, risks and opportunities (currently required in year two, but likely to be deferred to year three). Financial auditors are likely already focusing on ensuring consideration of climate impacts in financial statements, and the International Accounting Standards Board is currently consulting on guidance about how climate-related factors can affect accounting disclosures.^[1]
• CREs must disclose methods and assumptions, and any associated uncertainties and limitations, in order to present their disclosures fairly. While methods and assumptions were generally clear for the metrics and targets sections, there was less disclosure in the other categories, particularly, current climate-related impacts, scenario analysis, and risks and opportunities. 

Adoption relief 

Unsurprisingly, most of this year’s climate statements relied on one or more adoption provisions in NZ CS 2 - most commonly, adoption provisions 1 and 2 (current and anticipated financial impacts), and adoption provision 3 (transition planning).

The adoption provisions are designed to offer entities a framework for transitioning into the new climate reporting requirements, ensuring that the first disclosures are achievable and relevant. 

In year two (or year three, if the XRB extends the availability of adoption relief, as seems likely), CREs will only be able to rely on adoption provisions 5 and 6, so CREs will need to disclose: 

• Financial impacts of current climate-related physical and transition impacts that they have identified
• Anticipated financial impacts of the climate-related risks and opportunities identified during scenario analysis
• Transition planning efforts
• Scope 3 GHG emissions
• Comparative information for metrics (other than scope 3 GHG emissions) disclosed in year one that are still applicable in year two, and 
• An analysis of the main trends evident from comparing each metrics (other than scope 3 GHG emissions) across the two reporting periods.

Even if timeframes are extended, CREs should still map their path to full compliance early so they can break it down into manageable steps.

Here are some steps CREs can take to prepare: 

Disclosure	Recommended actions
Current financial impacts	Develop a framework for quantifying financial impacts to ensure consistency from one reporting year to the next. Consider how the framework will interact with financial reporting - a requirement of NZ CS 3. Consult with their assurance provider to ensure appropriate methods and controls are in place to identify and quantify financial impacts.
Anticipated financial impacts	As above for current financial impacts with the addition of: consider how anticipated financial impacts will align with the requirement to disclose how assets and business activities are exposed/aligned to transition risks and physical risks and opportunities (paragraph 22 of NZ CS 1) develop models to estimate potential financial impacts under various scenarios. Consider factors like revenue changes, cost increases, and capital expenditures.
Transition planning	Review the outputs from the year one scenario analysis process to ensure it portrays the CRE’s full vulnerability to climate risks. Identify key assets, operations, and supply chains that may be affected. Involve stakeholders - employees, customers, suppliers, and local communities - in early discussions about transition planning and strategies. Their insights can inform more effective planning. Establish clear, measurable goals for transition planning and key focus areas so that expectations are clear from the outset.
Scope 3 GHG emissions	Plan how data will be obtained. Engage with assurance providers early to ensure systems and controls for measuring GHG emissions (eg data collection and analysis methods) will be consistent with assurance expectations. Methods and assumptions are a key consideration for scope 3 GHG emissions. CREs must understand the limitations that apply to their scope 3 emissions.  Ascertain what the CRE can exclude from its scope 3 GHG emissions reporting based on the GHG standard used for measurement (eg the GHG Protocol) and the CRE’s materiality framework. Record decisions and rationale and report them to the CRE’s governance body.
Comparatives for metrics	Present information the same way each year and disclose any changes to allow accurate comparison.

Assurance

Finally, entities reporting in year two will need to obtain an assurance engagement over their GHG emissions (except Scope 3 emissions, if adoption relief is extended and then relied on by the CRE). CREs must obtain a limited assurance engagement over the following disclosures:^[2]

• Measurement of scope 1, 2, and 3^[3] GHG emissions
• Description of the standards used to measure GHG emissions
• Description of the consolidation approach used to measure GHG emissions (ie equity share, financial control, or operational control)
• Source of emission factors and the global warming potential
• Summary of specific exclusions of sources
• Description of the methods, assumptions, and estimation uncertainty in respect of the measurement of GHG emissions. 

Although assurance is largely external, to streamline the process CREs can: 

• Build it into the existing audit timetable and processes, overseen by the audit and risk committee
• Find a suitably qualified assurance practitioner, based on the requirements of the NZ Standard on Assurance Engagement over GHG Emissions Disclosure requirements
• Conduct a trial assurance process on a part period (if not done voluntarily in year one). This helps CREs identify required information, necessary processes and timeframes, and potential areas of concern before the first mandatory audit.

This article is the last in our climate-related reporting series. If you have any questions in relation to what has been covered in the series, please get in touch with one of our experts. 

Special thanks to Isabel van Tuinen for her assistance in writing this series. 

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