Climate-Related Disclosures (CRD) NZ

Climate-related disclosures NZ refers to the mandatory reporting framework requiring large financial institutions and listed companies to disclose climate-related risks and opportunities. Governed by the External Reporting Board (XRB) standards, these disclosures aim to ensure that the effects of climate change are routinely considered in business decisions, investment strategies, and financial reporting across New Zealand.

Who Must Report? Climate Reporting Entities (CREs)

The New Zealand government has established a clear threshold for which organizations are legally obligated to provide climate-related disclosures. These organizations are known as Climate Reporting Entities (CREs). The mandate primarily targets the financial sector because of its pivotal role in capital allocation and its exposure to long-term environmental risks.

Currently, approximately 200 entities in New Zealand fall under the definition of a CRE. This includes all equity and debt issuers listed on the NZX with a market capitalization exceeding $60 million. Furthermore, the requirement extends to large financial institutions that meet specific asset thresholds. For instance, registered banks, credit unions, and building societies with total assets of more than $1 billion must comply. Similarly, licensed insurers with total assets under management exceeding $1 billion or annual gross premium income over $250 million are included.

Managers of registered investment schemes (such as KiwiSaver providers) also face these requirements if the total assets under their management exceed $1 billion. By targeting these large players, the New Zealand government aims to create a trickle-down effect where smaller businesses eventually improve their own environmental data collection to satisfy the reporting needs of their lenders and investors.

Understanding the XRB Disclosure Standards

The External Reporting Board (XRB) is the independent Crown entity responsible for developing and issuing reporting standards in New Zealand. To facilitate the Climate-Related Disclosures (CRD) framework, the XRB released three primary standards known as the New Zealand Climate Standards (NZ CS).

NZ CS 1: Climate-related Disclosures

This is the core standard that outlines the disclosure requirements based on four thematic pillars: Governance, Strategy, Risk Management, and Metrics and Targets. These pillars are aligned with the international Task Force on Climate-related Financial Disclosures (TCFD) framework, ensuring that New Zealand’s reporting is consistent with global best practices.

NZ CS 2: Adoption of Climate-related Disclosures

Recognizing the complexity of these new requirements, NZ CS 2 provides a set of optional adoption provisions. These allow entities to phase in certain disclosures over time, such as the analysis of financial impacts or the disclosure of Scope 3 greenhouse gas emissions. This transitional period is crucial for entities that are still developing their data collection capabilities.

NZ CS 3: General Requirements for Climate-related Disclosures

NZ CS 3 establishes the principles and general requirements for the preparation of disclosures. It focuses on ensuring that the information provided is relevant, faithfully represented, comparable, and understandable. It also covers the location and timing of the disclosures, typically requiring them to be part of an entity’s annual report or a separate document published at the same time.

Compliance Deadlines for 2024 and Beyond

The timeline for climate-related disclosures NZ is no longer a future prospect; it is a current reality. The legislation officially applies to accounting periods starting on or after January 1, 2023. This means that for many organizations with a December 31 balance date, the first mandatory climate statements must be filed in early 2024.

For entities with a March 31 balance date, the first reporting period concluded in early 2024, with disclosures due shortly thereafter. The Financial Markets Authority (FMA) is the primary regulator responsible for monitoring and enforcing compliance. During the initial years, the FMA has indicated a focus on guidance and support, but they have also made it clear that entities must show a genuine effort to comply with the XRB standards.

By 2024, most CREs will have completed their first reporting cycle. This involves not just the publication of a report, but the implementation of internal systems to track carbon footprints, assess physical risks (like sea-level rise affecting coastal property portfolios), and transition risks (such as policy changes or shifts in consumer behavior toward low-carbon products).

Governance and Strategy Pillars

Under the Governance pillar, entities must disclose the role of their board in overseeing climate-related risks and opportunities. This includes describing how the board is informed about these issues and the specific processes used to monitor progress against climate goals. Investors want to see that climate change is being discussed at the highest levels of leadership, rather than being relegated to a secondary sustainability committee.

The Strategy pillar is perhaps the most critical for long-term investors. It requires entities to disclose the actual and potential impacts of climate-related risks and opportunities on their business, strategy, and financial planning. A key component here is scenario analysis. Entities must describe how their business model might perform under different climate scenarios, including a 1.5-degree Celsius warming scenario and a scenario where warming exceeds 2 degrees Celsius.

Risk Management and Metrics

Risk Management requires organizations to detail the processes they use to identify, assess, and manage climate-related risks. This includes how these processes are integrated into the entity’s overall risk management framework. For a bank, this might involve assessing the climate vulnerability of its mortgage book; for an energy company, it might involve the risk of stranded assets as the world moves away from fossil fuels.

The Metrics and Targets pillar is where the data becomes granular. Entities are required to disclose their greenhouse gas (GHG) emissions, categorized into Scope 1 (direct), Scope 2 (indirect from purchased energy), and Scope 3 (all other indirect emissions in the value chain). While Scope 3 is notoriously difficult to calculate, it often represents the largest portion of an entity’s carbon footprint. In addition to emissions, entities must disclose the targets they have set to manage climate risks and their performance against those targets.

Assurance and Legal Obligations

To ensure the credibility of the data being reported, the New Zealand framework includes mandatory assurance requirements for GHG emissions disclosures. For reporting periods ending on or after October 27, 2024, the GHG emissions part of the disclosure must be independently assured by a qualified practitioner. This move is designed to prevent ‘greenwashing’ and provide investors with confidence that the reported figures are accurate.

Failure to comply with the disclosure requirements can lead to significant legal repercussions. The Financial Markets Conduct Act 2013 provides the FMA with the power to issue infringement notices, seek civil penalties, or in extreme cases of deceptive reporting, pursue criminal charges. Beyond legal risks, entities face significant reputational risks if they fail to provide transparent and high-quality disclosures, as institutional investors increasingly move capital away from companies that cannot demonstrate climate resilience.

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