Climate-related disclosures

  • Legal update

    17 March 2022

Climate-related disclosures Desktop Image Climate-related disclosures Mobile Image

Climate change is now widely recognised as an economic risk that is likely to impact business’ performance and prospects materially. Climate change risk encompasses physical risks such as volatile weather and events, changes in land uses, and bio-incursions and transition risks such as governmental and market responses to the threat of climate change. Liability risk is a further topic to consider

In its 2017 recommendations, the international Task Force on Climate-related Financial Disclosures (TCFD) recognised a need for better information to support informed investment, lending and insurance underwriting decisions, and improve analysis of climate-related risks and opportunities. They reflect the original objective of the Financial Stability Board in forming the TCFD: to assist financial institutions to understand and plan for the potential impacts of climate change on them, and for disclosure under headings of Governance, Strategy, Risk Management, and Metrics and Targets of how the institutions are preparing.

In October 2021, New Zealand enacted legislation requiring large listed companies and financial institutions to disclose climate-related risks and opportunities affecting their businesses. Although New Zealand claims to be the first to pass such legislation, many other countries have taken or are taking similar steps e.g. France, Switzerland and the United Kingdom.

In this article, we outline the new climate-related disclosure framework and what will be expected of insurers and other climate reporting entities, potentially from as early as financial years ending in 2024.

Climate statements

The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 amended the Financial Reporting Act 2013 and the Financial Markets Conduct Act 2013, introducing a mandatory requirement under new Part 7A of the latter Act for certain reporting entities to prepare climate statements in accordance with the climate-related disclosure framework to be issued by the External Reporting Board (XRB) (the CRD regime).

Who will this apply to?

The new requirements will apply to FMC reporting entities that are considered to have a higher level of public accountability than other FMC reporting entities, which are referred to as “climate reporting entities” (CREs). It is estimated that around 200 large financial institutions will be required to make climate-related disclosures, including:

  • listed issuers of quoted equity securities or quoted debt securities (i.e. entities with a market capitalisation exceeding NZD60 million);
  • large registered banks, licensed insurers, credit unions and building societies (with total assets exceeding NZD1 billion, or, in the case of licensed insurers, where premium income exceeds NZD250 million); and
  • large managers of registered managed investment schemes (with total assets exceeding NZD1 billion).

Insurers (and other financial institutions) who are not caught under the new CRD regime should nevertheless consider the benefit of providing climate-related disclosures to stakeholders and the extent to which they would benefit from voluntary disclosures. All insurers and other financial institutions should be familiar with the requirements of the CRD regime as they may be required to provide such information to entities they deal with as a condition of business. We also think it likely that the CRD regime may expand over time to include other financial institutions, such as all insurers.

What will be required?

CREs will be required to:

  • prepare climate statements that comply with the climate-related disclosure framework;
  • keep proper records that will enable them to ensure that their climate statements comply with the climate-related disclosure framework. These records must be retained by the entity for a period of at least seven years after the records are made;
  • obtain an assurance engagement in relation to statements, to the extent those statements are required to disclose greenhouse gas emissions; and
  • lodge copies of climate statements prepared with the Registrar of Financial Service Providers within four months after the CRE’s balance date.
When will this apply?

CREs may be required to prepare climate statements as early as 2023, as described below. Once the XRB issues the relevant climate standards, CREs are then required to prepare and lodge their first climate statements within four months after the end of the accounting period of the CRE and/or scheme. The requirement to obtain an assurance engagement in relation to statements which are required to disclose greenhouse gas emissions is expected to first apply three years later.

Climate-related disclosure framework

The XRB is in the process of drafting the climate-related disclosure framework, expected to consist of:

  • Aotearoa New Zealand Climate Standard 1: Climate-related Disclosures (NZCS 1).

The XRB is currently revising the first climate standard, NZ CS 1, following consultations on Governance and Risk Management last year, with
the remaining standards, notice and accompanying guidance to follow. The remaining sections, Strategy and Metrics and Targets, are scheduled to be released for consultation in March 2022. NZ CS 1 is expected to be issued in December 2022, meaning that CREs will need to report against these standards for accounting periods starting on or after 1 January 2023.

  • Aotearoa New Zealand Climate Standard 2: Adoption of Climate-related Disclosures (NZ CS 2).

The XRB has indicated that NZ CS 2 will offer various provisions for CREs when the new standards are required to be applied for the first time, including phased adoption, relief from providing comparative information, and practical expedients.

  • Aotearoa New Zealand Climate-related Disclosures Concepts (NZ CRDC): this is an authoritative notice containing climate-related disclosure concepts.

The NZ CRDC will contain climate-related disclosure concepts to which CREs must have regard when preparing climate statements. This notice is expected to outline the objective of disclosures, the broader context of sustainability reporting, qualitative characteristics of useful information and the interconnection between financial statements and climate statements.

The XRB has indicated that the climate standards are supposed to be forward-looking and succinct, focusing on high-level areas for disclosure rather than being overly prescriptive. The climate statements will, in line with the TCFD recommendations, relate primarily to the potential impact of the physical risks and the transition risks of climate change on the CRE, but they may also require disclosure in relation to the greenhouse gas emissions of the CRE.

In addition to the above standards, the XRB will release guidance on an ongoing basis to assist CREs with preparing climate statements. As the standards are currently sector-neutral, we expect that the XRB will use guidance in order to provide further detail on sector-specific requirements.

Insurers should also take note of the TCFD guidance and resources in relation to insurance companies in relation to underwriting and asset owners in relation to investment activities.

"We expect that the XRB will use guidance in order to provide further detail on sector-specific requirements.“


Following the TCFD recommendations, the climate standards will be divided into four sections: Governance, Risk Management, Strategy, and Metrics and Targets.

The XRB has released draft sections of NZ CS 1 in relation to Governance and Risk Management as follows:


The draft section on Governance focuses on the level of oversight and monitoring by boards and senior management on climate-related risks and opportunities. CREs must disclose how the board accesses expertise, performance metrics for climate-related policies, holds the business accountable on climate-related targets, and processes for making decisions on climate-related issues.

Risk Management

The draft section on Risk Management focuses on how climate-related risks are identified, assessed and managed, and how those processes are integrated into existing risk management processes. CREs must disclose the tools and methods used, time horizons considered, and value chain stages covered when describing its processes for identifying and assessing climate risk. The section also requires disclosure of how the CRE determines the significance of climate-related risks compared to other risks and how decisions are made to address this.

This section will combine with the Strategy section to provide a picture of the CRE’s overall risk profile and the robustness of the CRE’s risk management processes.


While the FMA has indicated that it will focus on supporting CREs as they prepare for the new CRD regime, CREs should note the significant range of enforcement actions introduced by the CRD regime:

  • Infringement offence: A failure to keep records or make records available in the prescribed manner, lodge climate statements, or include the prescribed information about climate statements in the annual report is an infringement offence. A CRE that commits an infringement offence is liable to a fine not exceeding NZD50,000.
  • Penalty: A failure to keep proper records, prepare, or lodge climate disclosure statements may give rise to a civil penalty not exceeding NZD1 million (individual) or NZD5 million (in any other case). A failure
  • to keep records may give rise to a civil penalty not exceeding NZD200,000 (individual) or NZD600,000 (in any other case).
  • Criminal liability: The CRD regime introduces an offence for a CRE and its directors that knowingly fail to comply with the climate standards. A director may be liable for a fine not exceeding NZD500,000 or a term of imprisonment of up to five years, or both. A CRE may be liable for a fine not exceeding NZD2.5 million.

CREs should also note that their climate statements, including statements made in the annual report, will be subject to the fair dealing rules in Part 2 of the FMCA. The FMA has indicated that it will focus on ensuring that climate statements comply with the prohibition on false, misleading and unsubstantiated statements.


CREs will be required to make disclosures from the accounting period beginning on or after 1 January 2023 if the XRB’s expected timeline stands. However, they are expected to be preparing now. The FMA has indicated that, from January 2023, it will not hesitate to take enforcement action against CREs that fail to prepare and lodge financial statements.

The XRB has released the draft sections of NZ CS 1 so that CREs have an opportunity to begin preparation ahead of the final standards being published. CREs should ensure that they have the systems in place to prepare climate statements in accordance with the expected standards.

In the longer term, CREs should consider how they uplift their governance and risk management processes, adapt their strategy and align their metrics and targets to meet the ever-increasing exposure to climate change risk. We recommend that CREs start with the proposed governance standards, considering how their governance structures need to adapt before the new CRD regime begins. CREs should then consider their risk management processes and whether they are sufficiently robust to determine risk exposure to climate change and any mitigation strategies employed.

Co-authored by Sarah Jones, a Solicitor in our Financial Services team.