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Public reporting of climate risks - what will disclosure look like under the Zero Carbon Bill?

August 13, 2019

Contacts

Partners Gerald Lanning, Andrew Matthews, Sarah Scott
Special Counsel Mark Baker-Jones
Senior Associates Joanna Lim, Victoria Anderson

Climate change (inc Zero Carbon Act and Emissions Trading Scheme)

There is a growing trend internationally, and increasingly here in New Zealand, for organisations to disclose their climate change risk. Such reporting will be a feature of the Zero Carbon Bill, but exactly what form the reporting will take is up for discussion.

The Zero Carbon Bill will allow the Minister for Climate Change to require certain organisations to provide information on climate change adaptation. These reporting organisations include local authorities, council-controlled organisations, and certain other Crown-affiliated companies and ‘lifeline’ utilities. Appropriate disclosure of climate risk will therefore become a priority for these reporting organisations.

The disclosure requirements could be extended to a wider range of companies. The Government has stated that in its view high quality climate-related disclosures will help investors, lenders and insurers make more informed decisions, and indicated that - subject to consultation - listed issuers, registered banks and licensed insurers should be covered by an extended disclosure requirement.

It is therefore timely that the McGuinness Institute (a non-partisan think tank, considering sustainability issues for New Zealand) has released a Discussion Paper on what it refers to as the ‘Climate Reporting Emergency’ (see here).

The Discussion Paper aims to solve three research questions: 

  1. What international protocols does New Zealand currently follow and to what extent do these protocols set standards or guidance for climate reporting? (Section 7)

  2. How might international protocols be influenced or strengthened to improve climate reporting and how likely is it for an international climate reporting standard to be developed in the short term? This question assumes that New Zealand can influence the quality of climate reporting standards through consultation with the international standard-setters. (Section 8)

  3. What direct changes could New Zealand policy-makers and standard-setters make to improve climate reporting in New Zealand? This question assumes that New Zealand actively pursues ways to put in place other ways to strengthen climate reporting. (Section 8)

The discussion paper concludes that, unless the International Accounting Standards Board (IASB) progresses a climate-related disclosure regime in the immediate future, countries like New Zealand will be left with the challenge of developing a regulatory solution to improve climate reporting.

The McGuiness Institute favours a regulatory solution, given that the discussion paper also recognises that the IASB lacks a strong platform for developing non-financial future-focused reporting for “wider users”.

The Institute suggests that any such a solution for New Zealand could be built around the content of an annual report, and filing those reports on the Companies Register (or equivalent public register). This requirement would apply to a wide range of companies, and so expands on current public filing requirements, in a number of ways:

  • A new Statement of Climate Information: A new statement could be required, to include risk identification, risk measurement (eg reporting on the three emission scopes under the Greenhouse Gas Protocol) and risk management.

  • Specific strategic reporting requirements: Relevant rules amended to require companies to report on the impact of climate-related risks on the entity, and the impact the entity has on the climate. It should be clear that this report is strategic, as opposed to operational.

  • Specific financial accounting and audit standards: A domestic financial accounting standard on climate-related disclosures could be issued under the Financial Reporting Act 2013 (financial reporting standards may cover non-financial reporting).

    This could then be accompanied by a domestic auditing and assurance standard on climate-related disclosures to cover the auditor’s report. Both standards could extend the audience to include wider stakeholders (ie beyond primary users or shareholders) with a view to informing stakeholders on climate-related risks faced by the entity and how the entity is contributing to better outcomes for society.

  • Expanded and co-ordinated requirements for reporting against corporate governance standards: Agree on a co-ordinated approach to corporate governance standards applicable to relevant companies in relation to climate change risk disclosure. These requirements could be based on the NZX Corporate Governance Code (currently applicable to listed companies only, on a “comply or disclose” basis). (Click here to read our earlier FYI on climate change-related corporate governance issues Climate Change Risk - The Changing Landscape of Directors Duties).

Government policy on the subject of climate-related reporting seems fairly clear - more disclosure is needed, and will be required. But any new disclosure obligations must also be able to be consistently applied and the resulting information easily understood.

The findings in the McGuinness Institute Discussion Paper will almost certainly feature in the future of climate-related reporting in New Zealand. The various reporting requirements now in effect in the UK, including the Streamlined Energy and Carbon Reporting (SECR) policy, adopted in April 2019 (applicable to listed companies and large unlisted companies) could also be in the mix. We look forward to the continued development in this area.

Simpson Grierson will continue to contribute to the discussion on climate disclosure. If you have any queries or concerns about the reporting requirements for your organisation, please get in touch with one of our contacts above.