After multiple consultations and drafts over the past 18 months, the New Zealand External Reporting Board (XRB) published New Zealand’s first official Climate Standards on December 15th.
XRB draws from the international Taskforce for Climate-related Financial Disclosures (TCFD) – an international framework for reporting.
XRB has described the aim of the standards as a means to support the allocation of capital in the direction of activities that are in line with our progress towards a low-emission, climate resilient future.
Who needs to report?
Entities that are required by the climate-related disclosures legislation to produce climate statements are referred to as climate reporting entities (CREs). A business is deemed a CRE if they fall into one of the following categories:
- Large-listed issuers with a market capitalisation exceeding $60 million
- Large financial entities with total assets exceeding $1billion. Entities may include:
- Banks, Insurers and Managers of investment schemes
There is expected to be around 200 of New Zealand’s largest entities beginning to report against the standards from 1st January 2023 (when they take affect) and this reporting will provide investors with the information that is already frequently sought after, but often hard to acquire.
What do the standards include?
There are three NZ Climate Standards to report against, referred to as NZ CS 1, NZ CS 2 and NZ CS 3.
The disclosures cover four key pillars based on the Taskforce for Climate-related Financial Disclosures (TCFD) framework: Governance, Strategy, Risk Management and Metrics & Targets.
NZ CS 1 is the guiding framework which entities can use when considering climate-related risks and opportunities. NZ CS 2 provides a number of adoption provisions for cases where some disclosure requirements may be exempt or require a long-term approach to develop the capability to report data to a high standard. NZ CS 3 provides entities with the general requirements and principles to follow when conducting data gathering and reporting.
An overview of some of the inclusions in each standard can be found below:
NZ CS 1
- Strategy: How climate change impacts an entity in its current state, and in the future. These considerations include: a scenario analysis; climate-related risks and opportunities the entity has identified (including anticipated impacts of these), and; the entity’s position during the shift towards a low-emissions, climate-resilient future.
- Risk Management: The nature of how the entity’s climate-related risks are identified, assessed, managed and integrated into existing risk management.
- Metrics and Targets: How an entity will measure and manage climate-related risks and opportunities and what metrics and targets will be used during this process. This includes greenhouse gas (GHG) emissions reporting.
- Assurance of GHG emissions: An assurance engagement is required for reported GHG emissions as it relates to: Scopes 1, 2 and 3 gross emissions (metric tonnes CO2e); the standard the GHG emissions were measured in accordance with; emissions consolidation approach; source of emissions factors and global warming potential rates; exclusions of sources, and; GHG emissions methods, estimation uncertainty and assumptions.
NZ CS 2
- Adoption provision 1: Current financial impacts
- Adoption provision 2: Anticipated financial impacts
- Adoption provision 3: Transition planning
- Adoption provision 4: Scope 3 GHG emissions
- Adoption provision 5: Comparatives for Scope 3 GHG emissions
- Adoption provision 6: Comparatives for metrics
- Adoption provision 7: Analysis of trends
NZ CS 3
- Fair presentation: Disclosures must be presented in a fair manner, with transparency, following the principles of the standard and disclosure requirements.
- Principles: Entities must follow the principles of Information to ensure reported information is helpful to primary users and Presentation to ensure coherence, completeness, objectivity, and balance of information.
- Location of disclosures: Where the disclosure of information as it relates to the NZ climate standards is located within an entity’s documentation (i.e. a stand alone document, within an annual, sustainability or ESG report etc.)
- Reporting entity: Unless a special exemption, financial statements and climate standards reporting must be conducted by the same reporting entity.
- Value chain: An entity’s value chain must also be considered when reporting against the standards.
- Reporting currency: The presentation of currency must be the same in climate-related disclosures as financial statements of the reporting entity.
- Reporting period: Climate-related reporting must match the reporting period used for financial statements of reporting entity.
- Materiality: Materiality is applicable to all disclosure requirements in the climate standards and is entity-specific. The expectation is that disclosure against the climate standards will result in material information.
- Comparative information, consistency of reporting, and restatement of comparatives:
- Unless a new metric is disclosed during the reporting period, comparative information for each metric disclosed must be provided for the previous two years of reporting.
- Consistency of disclosures and/or methods must occur to ensure comparison between reporting periods and metrics (and an explanation and expected changes must be provided if consistency is not able to be achieved).
- If changes to disclosures, estimates used, correction of material errors or other changes occur, a restatement of comparative information highlighting these changes is required.
- Methods and assumptions, and data and estimation uncertainty: Where information is limited or uncertain, the entity must outline the methods and assumptions used when disclosing it to ensure primary users understand the context and accuracy of information provided.
- Statement of compliance: Entities whose disclosures comply with all climate standards must provide a statement outlining this compliance and it must be clearly presented within the climate-related disclosures.
While the XRB climate standards may appear to be a big undertaking for some businesses, it is important to note that entities are not expected to have entirely complete data and information to disclose in the first year of reporting. If there are gaps or limitations to information, reporting entities can state the status or availability of data and reasons behind any limitations. The most important thing to do is to start.
If you or your business would like guidance on your sustainability journey or would like to understand how you can become a leader in the sustainability space, Tadpole can help. Contact Allan Birch on 021 930 992 or allan@tadpole.co.nz for a chat about the sustainability needs of your organisation.