Today, the External Reporting Board (XRB) kicked off consultation on important changes to New Zealand's climate-related disclosures regime. Specifically, the XRB proposes to amend the Aotearoa New Zealand Climate Standards (NZ CS) and the related assurance standard to give climate-reporting entities (CREs) an extra year before being required to:
- disclose:
- scope 3 greenhouse gas emissions;
- the anticipated financial impacts of climate-related risks and opportunities; and
- the transition plan aspects of their strategies; and
- obtain assurance of their scope 3 greenhouse gas (GHG) emissions disclosures
(together: Proposed Amendments).
CREs are currently required to report on the above areas of disclosure, however adoption relief exempting CREs from these disclosure requirements has been available for the first year of reporting (financial years commencing on or after 1 January 2023). In addition, CREs are required to obtain assurance of GHG emissions disclosures for financial periods ending on or after 27 October 2024. With this adoption relief now coming to an end and the assurance requirements due to come into effect, the Proposed Amendments would give CREs an additional grace period. This means that CREs would instead be required to report against these requirements and obtain assurance of scope 3 emissions from 2025.
The Proposed Amendments (if implemented) will give many organisations much-needed breathing space to develop their capability before they are required to disclose these more difficult aspects of the climate-related disclosures regime. On the other hand, there are a number of imperatives for organisations to get started on the preparatory work now. In particular:
- In the first year of reporting, most CREs have identified a number of climate-related risks and opportunities that are material to their business. While the Proposed Amendments would reduce the compliance burden over the coming year, in practice there are commercial and strategic imperatives to take immediate steps in response to climate-related risks and opportunities. In many cases, measuring scope 3 emissions, understanding the financial impacts of climate-related risks and opportunities and transition planning will be a critical component of that response.
- As many organisations have found in the first year of reporting, mandatory climate-related reporting is time and resource intensive, with inevitable challenges along the way. Organisations that get started now on these challenging areas of disclosure will be better prepared for when they eventually become mandatory.
- In some cases, a CRE's peers may have already chosen to report on one or more areas of disclosure covered by the Proposed Amendments, and/or stakeholders may be demanding this information. Some CREs may have already made public commitments to, for example, develop their climate-related transition planning. As such, stakeholder expectations are also likely to influence the extent to which organisations take advantage of any additional grace period.
Further detail in relation to key aspects of the consultation is set out below.
What are the Proposed Amendments?
The XRB proposes to amend NZ CS 2 Adoption of Aotearoa New Zealand Climate Standards, by extending the adoption provisions for:
- scope 3 GHG emissions for an additional year (and related extensions to the adoption provisions relating to comparatives for scope 3 GHG emissions and analysis of trends) (66% of CREs have used adoption relief for this disclosure);
- anticipated financial impacts for an additional year (90% of CREs have used adoption relief for this disclosure); and
- transition planning for an additional year (82% of CREs have used adoption relief for this disclosure).
Importantly, no change is proposed for the requirement to disclose the financial impacts of current climate-related impacts, for which adoption relief has been available in year 1.
In addition, the XRB proposes to establish a new adoption provision (adoption provision 8) for the assurance of scope 3 GHG emissions disclosures for accounting periods ending before 31 December 2025, providing an extra year before assurance over scope 3 GHG emissions disclosures is required. Assurance will still be required for scope 1 and 2 emissions for financial years ending on or after 27 October 2024. Consequential amendments are also proposed to NZ SAE 1 Assurance Engagements over Greenhouse Gas Emissions Disclosures to reflect the introduction of adoption provision 8.
The XRB has indicated that it is working on, or intends to release, additional guidance for some of the disclosure areas above. This includes an intention to release specific guidance on assurance, anticipated financial impacts and transition planning in 2025. For those organisations already getting started on transition planning, the XRB just yesterday released a transition planning guide for directors with Chapter Zero New Zealand (here).
The XRB is not considering other points that have been raised in relation to the climate-related disclosures regime such as director liability, which are outside of the XRB's statutory remit.
Why did the XRB introduce the Proposed Amendments?
The XRB introduced these amendments in response to feedback about the challenges faced by CREs in obtaining reliable data (particularly regarding scope 3 GHG emissions), related concerns about obtaining assurance over scope 3 GHG emissions, as well as high compliance costs and a lack of comprehensive guidance on certain topics hindering disclosure.
The Proposed Amendments recognise that the challenges in obtaining sufficient reliable data are "temporary" and will only provide short-term relief to CREs as capability beds in. Therefore, it is important that businesses continue at pace to prepare for climate-related risks and opportunities and develop data collection capabilities in order to support informed planning and decision-making.
How can I provide feedback on the consultation?
The consultation document is available here and the exposure draft of the proposed changes is here.
Feedback on the proposed amendments can be provided on the XRB website. Consultation closes on Wednesday 30 October 2024.
If you would like to discuss the implications of the amendments or would like assistance with submitting feedback, please get in touch with one of our experts below.