The External Reporting Board (XRB) has released its final consultation document on a proposed framework for mandatory climate-related disclosures under the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 (Act).
The final consultation document relates to the exposure drafts of the three proposed standards that XRB intends to comprise New Zealand's climate-related disclosure framework, collectively known as the Aotearoa New Zealand Climate Standards. The three standards are:
- New Zealand Climate Standard 1: Climate-related disclosures (NZ CS 1) — the main disclosure standard based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
- New Zealand Climate Standard 2: First-time Adoption of Aotearoa New Zealand Climate Standards (NZ CS 2) — an adoption standard to enable entities to begin their climate-related disclosure journey.
- New Zealand Climate Standard 3: General Requirements for Climate-related Disclosures (NZ CS 3) — an authoritative notice containing key concepts, like materiality.
As part of this round of consultation, XRB has also released draft staff guidance documents for all sectors and registered managed investment scheme (MIS) managers. These guidance documents aim to support entities when making their disclosures and to support consistent application of the disclosure requirements.
The staff guidance for MIS managers covers provides a sector-specific approach to the disclosure requirements under NZ CS 1, including scenario analysis and targets. It also provides real-world examples of existing, voluntary disclosure from jurisdictions such as Singapore, Hong Kong and the United Kingdom. The guidance was drafted in a way that acknowledges that the process of disclosure for MIS managers will be different than it is for other entities disclosing under NZ CS 1.
Final consultation document
The final consultation document contains the disclosure framework that climate reporting entities (CREs) will need to comply with. CREs include large listed issuers, registered banks, licensed insurers, credit unions, building societies and MIS managers.
Key points from the final consultation document include:
- First-time adoption provisions — the final consultation document proposes to exempt CREs making their first climate-related disclosure from some reporting requirements. CREs will not be required to disclose current and anticipated financial impacts, a transition plan, scope 3 emissions or provide comparative information. Scope 3 emissions are indirect greenhouse gas emissions that occur in the CREs value chain.
- Increased climate-related scenarios — the minimum number of climate-related scenarios has increased from two to three. These must include a 1.5 degree Celsius warming scenario and a 3 degree Celsius warming scenario.
- Requirement to disclose emission offsets — CREs are now required to disclose the use of emission offsets in achieving their emissions targets, rather than reporting net figures.
The Act expands the Financial Markets Authority's (FMA) remit to regulate climate reporting. Speaking to the Financial Markets Law Conference on 25 July 2022, FMA chief executive Samantha Barrass made the following comments about climate-related disclosures:
At this stage, the first climate statements will be published from 2024 (at the earliest) for accounting periods that start on or after 1 January 2023.
We will issue high-level guidance on compliance expectations to support the market later this year, with further guidance produced over the 2023 calendar year.
We recognise that some companies are already well advanced in their climate reporting; for others, this will be new.
We know this is novel legislation and, again, our approach will be founded on close consultation, setting out expectations and guiding industry as the changes are implemented.
We encourage organisations that will meet the definition of a Climate Reporting Entity to start preparing early to ensure a smooth introduction.
The first-time adoption provisions will be welcome for many CREs, especially those with calendar financial years or those who are less advanced in their climate reporting journey.
We think it is helpful that XRB has issued specific guidance for MIS managers. It seems to us that a coordinated approach across the sector would be useful for MIS managers and would deliver comparable and consistent disclosure outcomes to assist investors to make informed investment decisions.
We expect the FMA to release several rounds of guidance on climate-related disclosures over the next 18 months. We welcome FMA's guidance regarding its compliance expectations for CREs.
Consultation on the disclosure framework closes 26 September 2022, with the finalised framework and staff guidance expected in December 2022. As part of the consultation, XRB will be hosting several events which will cover the detail of the consultation. You can register for these events here.
CREs will need to publish their first climate statements for accounting periods starting on or after 1 January 2023.