Updates on the development of New Zealand’s climate standards
Yesterday, the External Reporting Board (XRB) provided an update on their work in relation to the development of climate standards for the climate-related disclosures regime, which is expected to come into effect from December 2022.
The update includes the XRB’s publication of summary of the feedback received in relation to Governance and Risk Management sections of Aotearoa New Zealand Climate Standard 1: Climate-related Disclosures (NZ CS 1) as well as comments on their approach to the Strategy, and Metrics and Targets section of NS CS1.
Who should read this?
All climate reporting entities (CREs) and their advisers should read this update.
- large listed issuers (entities with a market capitalisation exceeding $60 million);
- large registered banks, licensed insurers, credit unions, and building societies (with total assets exceeding $1 billion, or in the case of licensed insurers where premium income exceeds $250 million); and
- large managers of registered managed investment schemes (with total assets exceeding $1 billion).
In addition, other businesses should monitor developments as it is likely that the CREs they deal with may expect similar disclosure from them as part of the terms of business, and that the list of CREs will be expanded in the future.
XRB’s timeline on the development of NZ CS 1
Source: XRB CRD Update Letter dated 14 February 2022
Feedback on Governance and Risk Management sections in NZ CS 1
The XRB published a summary of the submissions it received following consultation on questions it posed in the proposed Governance and Risk Management sections of NZ CS 1 released on 20 October 2021. You can read them here and our previous alert on the consultation here.
In particular, the XRB also discusses other matters raised in the submission including in relation to the definition of primary users, comparative information, as well as presentation requirements.
This feedback will inform the XRB’s development of the climate-related disclosure framework, which it intends to issue as a formal exposure draft in July 2022.
Consultation on Strategy, and Metrics and Targets sections in NZ CS 1
The XRB intends to publish the consultation documents on the Strategy, and Metrics and Targets sections of NS CS 1 on 16 March 2022.
In relation to the proposed strategy section (which will require CREs to disclose scenarios used to test the resilience of their strategy), the XRB:
- will not provide climate scenarios;
- recommend CREs work with others in their industry or sector to construct sectoral climate scenarios and work together in preparing for compliance with the disclosure requirements;
- are working with relevant bodies for the purposes of facilitating the work described above; and
- are preparing a ‘getting started’ guide for scenario analysis at a sector level and testing this with key stakeholders.
While the XRB’s development of NZ CS 1 appears to be in line with their timeline, there are other factors, such as COVID-19 and the International Sustainability Standards Board’s proposed draft climate standard which is expected to be published in late March 2022, which the XRB will need to consider. These factors have the potential to delay the issuance of NZ CS 1, which mean the main reporting requirements of the regime could also be delayed (as they only come into force on or after the date on which the XRB issues NZ CS 1).
Despite this, CREs should be preparing for the XRB’s anticipated timeline of issuing NZ CS 1 in December 2022, which implies that it will apply for accounting periods starting in 2023, with the first disclosure statements being registered in 2024.
As the XRB notes in its update, industries such as marine, tourism and insurance are already working together to develop climate scenarios. However, there is no indication of large players such as fund managers and banks doing the same, even though compliance with the regime is more likely to be complicated for them.
Separately, we recommend all CREs and their advisers to make the most of the formal and informal opportunities the XRB proposes to hold in developing climate standards as it gives a chance to provide direct feedback on requirements that will affect them going forward.
If you have any questions in relation to the climate-related disclosures regime or would like to know how it may affect your business, please contact one of our experts.
This article was co-authored by Shaanil Senarath-Dassanayake, a solicitor in our Financial Services team.