Watered down disclosure for climate reporting entities

Branded as ‘commonsense changes’, the Government announced yesterday that it will make significant changes to the disclosure regime for climate reporting entities.  As a result, some commentators have said that this will reduce the number of climate reporting entities by two-thirds, from approx. 164 to 76.

The press statement from the Minister of Commerce and Consumer Affairs, Scott Simpson, said that the changes are necessary to reduce compliance costs – and that this may be a deterrence to (stock exchange) listings.

Changes to climate reporting

A summary of the key changes includes:

• Lifting the mandatory climate reporting threshold for listed issuers from a market cap of $60m to $1 bn, which is described as striking a better balance between the regime’s aims and maintaining a healthy, competitive market.
• Adjusting director and company liability settings to reduce unnecessary risk and cost while preserving robust climate disclosures.
• Removing managed investment schemes (including Kiwisaver schemes) from the climate reporting regime, reflecting feedback from fund managers and investors that these disclosures are not useful for investment decisions in those products.

Some commentators have that the proposed changes to the climate reporting regime will mean that climate reporting entities (and their directors) will not have to show the same level of evidence for climate disclosures as for financial reporting disclosures, on the basis that this recognises that climate reporting is more future-focused and therefore uncertain than is the case for financial reporting, which is largely based on historical financial information.

It appears that registered banks, licensed insurers and other financial institutions that are climate reporting entities will be unaffected by the changes.

The Minister’s press release referred to the need to ensure that the right entities are reporting, that the compliance burden is manageable and the information produced remains robust and useful.

The Government wants legislation to be in place so that affected climate reporting entities will no longer need to report for the financial year ended 31 March 2026 (and onwards), unless they choose to do so voluntarily.  This would point to a very short select committee process for the necessary legislative changes.

Concluding thoughts

It will be interesting to see how the accounting regulators respond to the latest changes.  Equally, we seem to have lurched from a reporting regime that was ahead (at least when first introduced) that of Australia to one which is now substantially out of step.

And for those running export-focused businesses, there is an expectation that their overseas customers will (increasingly) require reporting by those in the supply chain. 

One commonly-cited example is that of the Tesco supermarket chain, which seeks to engage with its supply chain to better support its net zero commitment, by requesting that they disclose carbon data and set net zero ambitions for their business.  Tesco has set a series of targets which are designed to ensure that 80% of its suppliers, by total cost of goods, meet the net-zero ambition.

In short, climate reporting is coming for many businesses, in one shape or another, ready or not.

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