New Zealand’s climate-related disclosures: Building a roadmap to sustainable finance

Effective 1 January 2023, New Zealand’s standards require mandatory climate-related disclosures for approximately 200 entities. Those entities include equity and debt issuers with a market exceeding $60 million and large financial organizations such as banks and insurers, with total assets of more than $1 billion.

The new reporting regime aims to promote responsible and forward-thinking consideration of climate issues among reporting entities and help businesses demonstrate their commitment to addressing climate change and its impact. The standards may also facilitate a more efficient allocation of capital and aid in the smooth transition toward a sustainable, low-emissions economy.

During a recent panel discussion moderated by Bloomberg on building a roadmap to sustainable finance, panelists from BNZ Investments, ANZ, Fonterra, and the External Reporting Board, XRB, discussed a wide range of topics related to the disclosure standards.

Adapting to a new way of thinking

With the new standards, organizations should assess climate-related risks and opportunities within the context of their own specific businesses, operations, and physical locations in order to determine potential financial implications.

This means it will require more than the involvement of the sustainability department or the responsible investment team. “It’s going to bring significant change when you make these commitments. When you’re working through the reporting process, really understand the implications for your business,” said Susan Walker, Head of Sustainable Finance and Responsible Investment at BNZ Investments.

“If you’re putting on an emissions reduction strategy, what will that do to the viability of your business in the future? What’s that going to do to revenue? What will that do to your reputation, the market, and consumer demand?” notes Walker.

From Walker’s perspective, compliance requires embedding accountability and responsibility across all aspects of the organization, starting with the board, which then ensures commitment from across the organization.

For example, when the technology team deploys a new system, are they considering the requirements for climate-related disclosures? Similarly, are the investment teams focusing on the implications of the reporting requirements related to commitments and investment decisions?

The disclosures encourage entities to think about their strategic choices and how they align with the risks and opportunities of climate change.

Given their familiarity with the subject matter, the sustainability team can play a critical role in helping departments navigate the new requirements. Additionally, building the internal capabilities to comply with the reporting mandates will likely require third-party assistance, such as data providers and consultants.

Walker recommends taking advantage of the disclosures as they will provide a wealth of information about a company’s strategy, risk management, and long-term viability. Readers of these disclosures can use this data to inform their investment and financing decisions.

The intersection of New Zealand’s standards with others

The new requirements enable two key outcomes: better decision-making by investors—so that they can make more informed decisions about the climate-related risks and opportunities facing the entities and sectors into which they invest. It also encourages better strategy by entities themselves, as these disclosures encourage entities to think about their strategic choices in light of the risks and opportunities of climate change.

How do New Zealand’s standards compare to existing standards? Having paid close attention to the global regulatory environment, which included reviewing existing standards, exposure drafts for legislation under development, and technical discussions with other government regulators, the XRB released a concise standard.

The XRB has already published guidance to help entities interpret and comply with the standards. This includes staff guidance, which is not part of the regulation or secondary legislation, and provides a possible path to comply with the disclosures, which includes specific references to the Task Force Financial Disclosures for an entity to incorporate in its disclosures.

The XRB will issue guidance for all sectors and reissue guidance for fund managers. There are also plans to issue guidance for banks and insurers. “We’re doing our best to make it as easy as possible for both users and reporting entities to know what the differences might be,” said Dr. Amelia Sharman, Director of Sustainability Reporting at XRB. “We want to make sure that we are tackling challenges in as collaborative a way as possible.”

Given how much New Zealand exports, Simon Tucker, Director of Global Sustainability, Stakeholder Affairs, and Trade with Fonterra, focusing on the development of consistent domestic and international standards is vitally important. “We export 95% of everything we do. So how climate disclosures made under a New Zealand context go down overseas is really important,” said Tucker.

In particular, Tucker highlights the importance of carbon reporting as a hot topic that requires a consistent reporting approach. “Our customers are going to be reading our disclosures. We can’t have a situation where we’re disclosing one way, and our competitors overseas are disclosing in a different way, perhaps underselling risks or talking about risks differently.”

The role of data and technology

While the push towards compliance with mandatory reporting is the short-term goal for every climate reporting entity, what are the long-term benefits? “What we’ve seen in the past is that businesses that get on board that change and embrace it are often the ones that succeed, and this will be no different,” said Dean Spicer, Head of Sustainable Finance NZ with ANZ.

Spicer sees a need for more rigorous analysis that may test a company’s capabilities, at least in the short term. Specifically, he sees a greater focus on impact reporting, which will require more high-quality data that some organizations may find hard to come by. Yet, he sees this as a solvable problem, as technology is constantly improving in terms of measurement and capture of data.

“We’re going to find that the expectations of stakeholders will continue to grow. And ultimately, I think the data and the technology to capture impact data will leave nowhere to hide. That’s a good thing for companies that embrace it and do a good job at actually improving their outcomes.”

Paving a path to Net Zero

New Zealand’s mandatory climate-related disclosure standards mark a significant shift in how businesses report and consider the impact of climate change. The XRB, recognizing the importance of alignment and interoperability, crafted a concise and high-level standard while providing guidance for entities to interpret and comply with its requirements.

To ensure compliance, organizations must embed accountability and responsibility across all levels, ensuring that every department considers climate-related implications in their operations and decisions.

As technology and data capture capabilities continue to improve, companies that embrace these changes and focus on delivering better climate outcomes will thrive. Ultimately, the new standards will help New Zealand play an active role in addressing the impact of climate change on the country, the APAC region, and around the globe.