The External Reporting Board - Te Kāwai Ārahi Pūrongo Mōwaho (XRB) has released a consultation document proposing additional relief for climate reporting entities (CREs) from some of the climate standards imposed under the climate-related disclosure (CRD) regime.

With a three week submission window closing on 30 October 2024, the opportunity to influence what has been proposed is limited. In this Financial Law Insight, we outline the whys and whats of the proposals, and offer our thoughts on where this should land.

The additional relief has been proposed following feedback from CREs that many are facing challenges with obtaining reliable data, the high costs of compliance with the standards, and uncertainty as to how disclosures should be made in the absence of comprehensive guidance on certain topics. There are also concerns over the difficulties in obtaining sufficiently reliable data from up and downstream entities to support the required assurance.

Industry concerns around the timeline for implementing the regime are not new. Those concerns have been especially loud in relation to obtaining assurance over scope 3 greenhouse gas (GHG) emission disclosures, with the limited availability of assurance expertise in New Zealand at present adding to that noise.

What changes are being proposed?

The consultation paper outlines proposed amendments to various adoption provisions under Aotearoa New Zealand Climate Standard 2. Consequential consistency amendments to the New Zealand Standard on Assurance Engagements 1 are also proposed. The proposed amendments do not alter the CRD regime’s disclosure requirements themselves, but rather provide CREs with flexibility to further delay the introduction of certain requirements.

The proposed amendments involve:

• extending the adoption provisions for:
  • the disclosure of scope 3 GHG emissions for an additional year, together with related extensions to the adoption provisions relating to comparatives for scope 3 GHG emissions and analysis of trends
  • the disclosure of anticipated financial impacts for an additional year
  • the disclosure of the CRE’s transition planning aspects for an additional year, and
• allowing an additional year before assurance over any scope 3 GHG emissions disclosures is required. This would result in assurance of scope 3 GHG emission disclosures only being required in relation to accounting periods ending on or after 31 December 2025. 

The practical effect of these proposals is that, if a CRE elects to utilise the modified adoption provisions, the only new disclosures required for the CRE’s second disclosure year would be the requirements to disclose the current financial impacts of its physical and transition impacts and to provide comparative data for relevant metrics.

Why were the changes necessary?

The XRB cites a number of reasons for the proposed amendments, including reducing cost, allowing the assurance industry space to mature, and providing time for international best practice to be established. Delaying implementation of the aspects identified would allow New Zealand’s CRD regime to have a greater degree of comparability and interoperability.

These are all issues that have been highlighted by the industry since the legislation underpinning the CRD regime was still at the Bill stage. During the original submission period for what resulted in the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021, key areas of concern raised by industry included scepticism as to the timeline of implementing the regime, the costs associated with compliance, and a lack of standardised data and consistent methodologies.

Based on the proposed amendments in the consultation paper, it appears that concerns raised by CREs will now be addressed, at least in part.

One of the determining factors for providing relief for scope 3 GHG emissions is that the underlying data sits outside the direct control of CREs. Allowing additional time would be valuable for many CREs and data providers to establish and improve internal systems and processes to enable more accurate scope 3 GHG emission disclosures and reduce the cost of obtaining the required information. The proposed changes will allow CREs to hold off on disclosing the required information (and obtaining an assurance engagement in relation to that information) until the third year of climate reporting.

XRB’s 2025 outlook

Buried in the detail of the consultation paper the XRB has also set out a summary of its intended 2025 projects. For the stated purpose of improving CRD in New Zealand, the XRB has committed to the following in 2025: 

• carrying out a post-implementation review of the New Zealand climate standards to determine the effectiveness of the CRD regime
• publishing guidance for the assurance of GHG emissions
• publishing guidance for anticipated financial impacts, and
• publishing guidance for transition planning.

Our thoughts

CREs have been calling for the issues raised in the consultation paper to be addressed since the inception of the CRD regime. On that basis, we expect the proposed amendments will enjoy widespread support from CREs, although some will argue the relief should go further.

Our view? At this stage, any additional relief is welcome, and we are pleased to see the XRB take a pragmatic stance in responding to the practical challenges faced by CREs. Ensuring that required disclosures are underpinned by reliable and accurate data is critical to the credibility of the regime and the useability of disclosures. The proposals mean CREs will not be placed in an impossible position when it comes to the need to reliably disclose scope 3 GHG emissions, and obtain assurance over those disclosures, at least for another year.

While there may be a degree of frustration for those CREs who have already committed resources to ensuring data and assurances would be available to meet the original timeframes, we see the proposed amendments as essential to the orderly rollout of the CRD regime.

Despite the prospect of additional relief being provided by extending the relevant adoption provisions, CREs still face a massive workload over the months ahead. Much is still required to ensure robust systems are in place and sufficient data is available to support year-two disclosures. The full extent of the work required should become clearer when the FMA releases its report on what it has observed from CREs’ year-one disclosures, expected in late November.

Time is running out to have your say

Submissions on the XRB’s consultation paper are due by 30 October 2024. We encourage all CREs to submit their views to the XRB, even if only to support what has been proposed. The consultation process also provides an early opportunity to influence what might be considered in next year’s review.

Start a conversation

If you would like to discuss any aspect of the consultation or the CRD regime, please contact David Ireland on +64 4 498 0840, Tom McLaughlin on +64 9 892 5215, Catriona Grover on +64 4 498 0816, or Mark Schroder on +64 9 375 1120 or email the team at bankingandfinancialmarkets.nz@dentons.com.