Updated [18/12/24]

As the first country to mandate climate reporting standards, New Zealand set its own path in designing its climate-related disclosures (CRD) regime. The Government wants to ensure that the CRD regime is encouraging the transition to a low-emissions economy without becoming a barrier to doing business in New Zealand or impacting the competitiveness of New Zealand’s capital markets, particularly when compared to Australia.

The Ministry of Business, Innovation & Employment (MBIE) is consulting on potential changes to New Zealand’s CRD regime, with submissions closing on 14 February 2025.

Key issues prompting reform

Climate-reporting entities and wider stakeholders have raised concerns about the current framework. The Australasian Investor Relations Association surveyed NZX 50 companies and revealed substantial compliance costs, with median expenses of $250,000 - $300,000 for published climate statements (excluding internal time)- a figure that may initially increase with mandatory greenhouse gas emissions assurance.

There are also concerns that:

• Misalignment with the Australian reporting regime is putting New Zealand at a competitive disadvantage, and
• Director liability concerns are causing overly cautious reporting approaches.

Proposed changes

MBIE is proposing adjustments to reporting thresholds to align more closely with Australia.

Issuers

Australia’s reporting thresholds for issues are:

First annual reporting periods starting on or after	Large entities and their controlled entities meeting at least two of three criteria:
	Consolidated revenue	Consolidated revenue	EOFY employees
1 January 2025 Group 1	$500 million or more	$1 billion or more	500 or more
1 July 2026 Group 2	$200 million or more	$500 million or more	250 or more
1 July 2027 Group 3[1]	$50 million or more	$25 million or more	100 or more

Small Australian issuers potentially face vastly reduced reporting requirements compared to New Zealand issuers, at least until Australia’s lower thresholds kick in. MBIE is concerned this could encourage listing on the ASX instead of the NZX.

MBIE is consulting on three options for adjusting market capitalisation thresholds:

Option 1: Status quo	The current $60 million threshold remains unchanged.
Option 2: Raise the threshold	From early 2026 (approx), threshold increases from $60 to $550 million market capitalisation
Option 3: Staged approach	From early 2026 (approx), threshold increases from $60 to $550 million market capitalisation From 2028 (approx), threshold reduces from $550 million to $250 million market capitalisation

Option 2 would reduce the number of climate-reporting issuers from 107 to 54, or 81 under Option 3. However, Option 3’s “stop-start” reporting could be confusing and cause additional costs as issuers leave and rejoin the reporting regime. Notably, none of the options include the capture of an equivalent to Australia’s group 3, meaning that the Government is only looking to reduce the capture of the regime, and not to eventually extend it to smaller (but still significant) New Zealand businesses in full alignment with Australia.

Apart from changing thresholds, another way to address the compliance burden for smaller climate-reporting entities would be for the XRB to introduce different reporting standards depending on size of the entity. This is acknowledged in the consultation and is an important consideration to bear in mind when submitting on whether disclosure thresholds should be changed to remove some current climate reporting entities from the regime completely.

It may be that differential reporting could be an effective way to achieve the right balance. Following the release of the consultation document, the XRB has announced that it is bringing forward work on differential reporting standards to take into account cost-benefit, reporting entity type and international developments. The intention is that differential standards would begin to be available in December 2025 for accounting periods that had commenced but not ended by that date.

Investment scheme managers

The threshold for investment scheme managers in Australia is $5 billion in assets per scheme compared to New Zealand which sets the threshold at total assets under management of $1 billion calculated across all schemes under management. MBIE has proposed three options:

Option 1	Status quo: $1 billion total assets under management
Option 2	$5 billion total assets under management (ie per-manager calculation)
Option 3	$5 billion per scheme

MBIE estimates that changing the threshold would have the following impact on schemes and funds under management:

Threshold	Option 1	Option 2	Option 3
Number of managers	23	12	9
Number of schemes	119	56	10
Number of funds (approx)	956	690	136
Value of funds under management (approx) as at 30 September 2023	$185 billion	$150 billion	$90 billion

Both Option 2 and 3 would have a significant impact on the numbers of managers and schemes subject to the CRD regime, limiting the climate information available to investors. MBIE also raises concerns that Option 3 could encourage structuring of funds to avoid reporting obligations.

Director liability 

Directors can face penalties of up to $1 million or 5 years’ imprisonment under the Financial Markets Conduct Act 2013 (FMC Act) for failures in an entity’s climate reporting. MBIE reports that directors are concerned about facing personal liability for incorrect statements, particularly as climate reporting is inherently qualitative and uncertain. These concerns are said to be increasing legal and consultancy costs for producing climate statements, resulting in less detailed climate statements, and contributing to a disincentive to list on the NZX.

Although defences are available, directors are concerned that they cannot use them unless they have personally had a high level of involvement in the preparation of the climate statements and surrounding due diligence processes. MBIE is considering four approaches to address the perceived burden on directors:

Option 1	Status quo (no change to liability settings)
Option 2	Amend the FMC Act so that section 534[2] no longer applies to climate-related disclosures
Option 3	Amend the FMC Act so that section 534 no longer applies to climate-related disclosures; and Amend the FMC Act so that directors can no longer be liable for aiding and abetting an unsubstantiated representation
Option 4	Introduce a temporary safe harbour provision, as in Australia, to protect climate reporting entities and their directors from civil actions for a certain period of time.

MBIE is not convinced that Option 4 would create a significant change for directors or meet the Government’s objective to ensure that directors have the right incentives to encourage robust and useful reporting in New Zealand.

Voluntary filing by multinational subsidiaries

The consultation document suggests that New Zealand subsidiaries of multinationals could be encouraged to file their parent company’s climate statements, either on a voluntary register or a designated webpage. However, these would be prepared under the climate reporting regime of the parent company’s home jurisdiction, potentially leading to confusion. MBIE also raises concerns about recovering any associated register costs for voluntary filing.

Impact of proposed changes

Any changes to the CRD regime require a delicate balancing act. While higher reporting thresholds could reduce compliance burdens for smaller entities, they might simultaneously limit the availability of critical climate risk information for investors, reduce investment opportunities, and leave New Zealand companies more exposed to climate-related risks due to removal of an important incentive for them to prioritise this area. The Government will be trying to find the best balance to:

• Support businesses in their sustainability journey
• Provide meaningful climate risk information
• Maintain New Zealand's commitment to climate transparency
• Maintain New Zealand's global market competitiveness

Get in touch

Climate-reporting entities, stakeholders, and interested parties are encouraged to review the detailed consultation document and the XRB elease on its plan to develop differential reporting, and submit their perspectives. If you need help making a submission on the proposals or want to know how they might affect your business, contact one of our experts.