The Government is establishing a standardised approach to climate-related reporting for certain entities to disclose their governance, plans and progress on emission reduction in a way that’s transparent and consistent. It has introduced an amendment to the Financial Markets Conduct Act (2013) to make climate-related reporting mandatory for many New Zealand organisations. These requirements come into effect from 1 January 2023, and an initial partial draft of the proposed standard was released for public comment today.
“Climate change is a clear and present danger to businesses everywhere, and this poses a major risk to the stability of financial systems globally,” says David Pacey, National Technical Partner at Grant Thornton New Zealand.
“For example, a business might experience supply chain disruptions due to adverse weather events, or consumers’ buying behaviour might change as their preferences shift to more sustainable, environmentally friendly products and services. And there’s the increasing cost of obtaining insurance for climate risks to consider as well,” says Pacey.
Therefore, the pressure on organisations to be more transparent about their exposure to climate-related financial risk is increasing.
Pacey says, “New Zealand businesses currently provide little or no information about the implications of this risk, and where disclosures are actually made, the outputs and reports are often delivered inconsistently; this reduces transparency for investors and makes accurate reporting about the country’s progress towards a zero-carbon future difficult”.
In addition to greater transparency, standardised climate related financial disclosure is also expected to enable climate risk to be adequately priced in capital markets and help the Government achieve its zero-carbon target by 2050.
It's expected that regulated institutions will be mandated to report on their levels of climate related risk, including:
Privately owned businesses and other organisations are currently exempt from the proposed disclosure requirements. However, Pacey says that having a consistent method of reporting climate related risk against emission reduction targets is a compelling value proposition for forward-thinking entities to jump on board. There is an increasing demand from suppliers, employees and customers for businesses to be transparent about how they are managing their impact on the climate.
“Private businesses reporting their impact on the environment against a robust framework will have a competitive edge and positive engagement with their brands”, says Pacey.
The External Reporting Board (XRB) is tasked with developing the standard for climate-related disclosures. The standards are being developed in line with the Task Force on Climate Change-related Financial Disclosures (TCFD) recommendations. The standard will also require organisations to assess the risks and opportunities of climate to their business across four themes including governance, strategy, risk management, and metrics and targets.
The initial draft of this new standard has been released for a four-week consultation period. Submissions close on Monday 22 November 2021.
“Although impacted businesses can have their say about the proposed disclosure regime, the time to start preparing for the reporting process is now, as mandatory reporting will start in just over a year. Organisations’ short-term focus should be gap analyses of their current climate reporting and assessing assurance options regarding the proposed disclosures,” says Pacey.