Timeline for developing climate-related financial disclosures issued by XRB

XRB, the External Reporting Board, has issued a timeline for the development of financial reporting Standard for climate-related financial disclosures (CRD).

Work on CRD is in response to the Government’s announcement, last September, of its intention to implement mandatory reporting on climate risks.  Reporting will be on a “comply-or-explain” approach – and will be mandatory for listed companies, Crown financial institutions, large insurers, registered banks and managers of investment schemes with more than $1 billion in assets.

The steps in the XRB timeline include:

Focused engagement	April – September 2021
Work on the draft standard	October 2021 – January 2022
Consultation on the draft standard	February – May 2022
Publication of the standard	September 2022
Starting to report	2023

Whilst the initial catchment of entities that will be subject to the CRD regime appears to be quite narrow, it seems likely that the boundary lines will be examined quite closely.  At a glance, there doesn’t appear to be any logical reason why a range of other entities that compete with the initial catchment and/or have a similar economic footprint, should be excluded.

Additionally, once CRD becomes established, it is conceivable that some other businesses in similar industries to those which are required to report – may wish to report as well.  They may also find that there is pressure to report – such as where they are in the supply chain for an entity that is subject to the CRD regime.

XRB’s announcement about the developing of CRD refers to a process of engagement with a broad range of stakeholders, including entities that will be subject to the new regime as well as the investors who will benefit from it, and Māori – with the aim of applying te ao Māori (a Māori world view) to this work. 

A legislative amendment is also required to legislation is also required, amongst other things, to extend the XRB’s mandate to undertake this work.  This was announced by MBIE, yesterday.

The XRB continued by noting that CRD will build on and align with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) while also taking account of international developments.  New Zealand is one of a number of countries that are considering how to implement TCFD’s recommendations.

Comments

The development of climate-related disclosures is a significant sea-change (pun intended) in financial reporting. 

Whilst some businesses have started reporting on the potential impact of climate change on a voluntary basis, the CFD regime will require both a business-wide review of the implications of climate change (and associated governance platforms to manage the risks) and changes to reporting systems.  Both XRD and MBIE are expecting to publish further navigational material to help with that transition process.

More detail will also be available as the associated legislation (to be introduced into Parliament this week) moves through its Parliamentary stages.

Further information

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