New Zealand, known for its natural landscapes, rich cultures, and commitment to environmental stewardship, has made significant strides in making sustainability a cornerstone of its national identity through proper governance and transparency. The country has recently intensified its focus on sustainability reporting, recognizing it as a vital tool for businesses to demonstrate their commitment to sustainability. As New Zealand aims for net-zero by 2050, the evolving regulatory framework and growing public expectations highlight the importance of sustainability reporting in New Zealand’s transition to a low-carbon economy.
In 2020, the Carbon Neutral Government Programme (CNGP) was established in order to accelerate emissions reduction in the public sector. 2021 then showed developments in sustainability legislation through the development of mandatory Climate Related Financial Disclosures under the Climate-related Disclosure (CRD) regime. The Climate Change Response (Zero Carbon) Amendment Act of 2019 also required organizations that provide public services to disclose climate change adaption information.
New Zealand is not unfamiliar with strengthening sustainability through policies and regulation. In 2022, the External Reporting Board issued the Aotearoa New Zealand Climate Standards to support the implementation of The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021. In this act, large publicly listed companies and large insurers, banks, non-bank deposit takers and investment managers will be required to report climate-related disclosures, taking effect in January 2023.
Who is required to publish sustainability reports in New Zealand? Reporting entities include large publicly listed companies and some financial services institutions. These include registered banks, credit unions, and building societies with total assets worth more than 1 billion NZD. Managers of registered investment schemes with greater than 1 billion NZD in total AUM are also required to report. Lastly, affected as well are licensed insurers with greater than 1 billion NZD in total assets or annual premium income greater than 250 million NZD.
Organizations that are incorporated overseas may also be required to report if their entity in New Zealand has a market price of all equity securities worth more than 60 million NZD and a face value of quoted debt worth more than 60 million NZD.
As large listed companies and financial institutions get ready for sustainability reporting, companies that are linked to their value chains should also be ready for sustainability reporting in New Zealand as they may also have to provide information such as emissions data in order to support these companies that they may be suppliers or customers to.
The Aotearoa New Zealand Climate Standard is divided into three standards. The first, the Climate-related Disclosures (NZ CS 1), covers the reporting framework for entities to use in their reports. NZ CS 2 or the Adoption of Aotearoa New Zealand Climate Standards lists optional adoption provisions. Lastly, the NZ CS 3, the General Requirements for Climate-related Disclosures contains the principles and general requirements for sustainability reporting.
Sustainability reporting in New Zealand follows four pillars based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, splitting the disclosures into governance, strategy, risk management, and metrics and targets disclosures. When reporting, entities must also consider their materiality and value chain in order to ease data gathering and strengthen transparency across business operations.
Governance disclosures help readers understand the entity’s governance body and management and the role it plays when overseeing, assessing, and managing these climate-related risks and opportunities. Here, entities must disclose the identity of the governance body responsible and the considerations, processes, and strategies set in place for the governance body oversight. Entities must also disclose how management assesses and manages climate-related risks and opportunities, including processes and how they engage with the governance body.
Strategy disclosures explain how an entity is currently impacted by climate change and how it may also affect them in the future. Entities will need to disclose the short, medium and long-term climate-related risks and opportunities. Additionally, entities have to disclose the current and foreseeable impacts of these risks and opportunities, providing as well the financial implications.
Given that anticipated impacts are to be disclosed, entities also have to describe the scenario analysis undertaken to identify the risks, opportunities, and resilience of the business. Entities have to do a minimum of three climate-related scenarios, with one being a 1.5°C scenario and another being a 3°C scenario.
Lastly, entities also have to disclose their transition plan explaining how they will position themselves during the transition to a low-emissions, climate-resilient future. This area explains the current business model and strategy, the transition plan and how it might change the business, and how it aligns with internal capital deployment and funding decision-making processes.
Risk management disclosures cover the processes undertaken to manage climate-related risks. For both transition risks and physical risks, the entity has to disclose the processes for identifying, assessing and managing climate-related risks and how these are integrated into the business’ overall risk management strategy.
When disclosing the processes, the entity must also include the tools and methods used, the considered timeframes, the frequency of assessment, and how they also prioritize climate-related risks over other types of risk. If parts of the value chain are excluded, this must also be disclosed in the report.
The last requirement of the report are the metrics and targets of the entity. For the metrics, entities are required to report their greenhouse gas emissions (GHG) and emissions intensity. The report should also include the amount or percentage of assets or business activities vulnerable to transition risks and physical risks, and those that are aligned with climate-related opportunities.
Businesses also need to report the amount of capital deployed towards climate-related risks and opportunities. The internal emissions price and management remuneration linked to climate-related risks and opportunities are also included in the report. Aside from the aforementioned requirements, reporting entities also need to disclose industry-based metrics relevant to its industry and any other key performance indicators.
For targets used to manage the risks and opportunities and the performance against these targets, entities also need to detail on the timeframe, any interim targets, and the base year from which progress is measured.
Since reporting entities now also have to measure their GHG emissions, details on the standards used, the consolidation approach, emissions factors and global warming potential rates, and reasons for exclusions are also part of the report. Each GHG emission target should also detail on how it contributes to limiting global warming to 1.5 °C and its basis, including reliance from third party opinions and methods. The entity also has to explain the extent of the target’s reliance on offsets and the schemes and verification or certification of these offsets.
Climate-related disclosures are prepared during the same reporting period of an entity’s annual financial statements. Changes in the reporting period are also to be disclosed in the report.
The act took effect in January 2023, with the first mandatory climate-related disclosures released at the end of March 2024. In its second year of reporting, entities are now required to conduct mandatory assurance starting October 2024, with limited assurance for GHG emissions.
Spearheaded by mandatory climate-related disclosures, the new sustainability landscape positions New Zealand as a leader in ESG integration. However, achieving widespread and effective adoption will require overcoming challenges, fostering collaboration, strengthening supplier relationships, and ensuring that sustainability reporting translates into meaningful action. As businesses rise to these demands, they play a critical role in shaping a resilient and sustainable future for New Zealand and the world.
At Keslio, we are deeply passionate about sustainability, equipping us with the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios. To learn more about how Keslio can assist your organization in its sustainability journey, reach out to us here or through hello@keslio.com
