Following its consultation in October (Consultation), the External Reporting Board (XRB) has announced its approval of three of four of the proposed amendments to NZ CS 2 Adoption of Aotearoa New Zealand Climate Standards and NZ SAE 1 Assurance Engagements over Greenhouse Gas Emissions Disclosures.
These amendments will provide additional relief for climate reporting entities (CREs) through extending for an additional year the adoption provisions for scope 3 GHG emissions disclosures and anticipated financial impacts disclosures, as well as establishing a new adoption provision allowing CREs to exclude assurance over scope 3 emissions disclosures for accounting periods ending before 31 December 2025.
The proposal to extend for an additional year the adoption provision for transition planning was not approved, with XRB citing strong demand from users for disclosure of this information.
The amending standards are scheduled to be gazetted later this month and apply to accounting periods beginning on or after 1 January 2024.
What has happened?
NZ CS 2 establishes adoption provisions allowing temporary exemptions from, or alternative information disclosures for, climate statements prepared by CREs. NZ SAE 1 sets standards for assurance engagements over GHG disclosures. The amending standards will amend NZ CS 2 and NZ SAE 1 with the following effects.
Amending Standard 1: Delaying mandatory scope 3 GHG emissions disclosure
The term of the adoption provision for scope 3 GHG emissions will be extended from one accounting period to two accounting periods.
Amending Standard 2: Delaying mandatory scope 3 GHG emissions assurance
A new adoption provision will be established to allow a CRE to exclude its scope 3 GHG emissions disclosures from the scope of the assurance engagement for accounting periods ending before 31 December 2025. This amendment reflects feedback from the Consultation that systems are improving rapidly as more entities capture and report scope 3 GHG emissions, with improvements from external data providers expected within the year.
The XRB is in discussions with the Financial Markets Authority (FMA) regarding the possibility of a class exemption to support the optional delay of assurance over scope 3 GHG emission disclosures. The FMA intends to consult on this before the end of this year.
Amending Standard 3: Delaying anticipated financial impact disclosure
The availability of Adoption Provision 2: Anticipated financial impacts will be extended from one accounting period to two accounting periods. This adoption provision relates to the requirement to disclose anticipated financial impacts under NZ CS 1.
Proposal 4: Delaying transition planning disclosures (not adopted)
The XRB Board has decided against proceeding with the proposal to provide an additional year for transition planning on the basis the XRB has heard strong user demand for this information.
XRB noted a number of Consultation submissions mentioned transition planning as being a "key conversation starter", both internally within CREs and with users. The XRB also highlighted the importance of transition planning in supporting business decision making and capital allocation, thereby contributing to the purpose of the climate reporting regime. The XRB also notes that the disclosure does not required a "fully fledged, certain and finished plan'", and will be a "work in progress for the foreseeable future".
The XRB has published guidance on getting started on transition planning in August 2023 and a guide for directors on transition planning in October 2024. XRB also intends to publish guidance for assurance of GHG emissions disclosures, anticipated financial impacts and transition planning in December 2024 and beyond.
Our view
It is positive to see that the XRB has taken into account CREs' concerns and Consultation feedback and implemented the amendments to NZ CS 1 and NZ SAE 1 accordingly. As discussed previously, our CRE clients have expressed concerns with obtaining timely scope 3 GHG emissions data, practical costs and challenges with appointing assurance practitioners and the impacts of these on scope 3 disclosures and assurance reports. It is therefore understandable that the XRB has chosen to address these requirements in particular.
What do I need to consider?
All CREs should keep an eye out for the guidance that is intended to be released in December 2024, in particular guidance to support the reporting and assurance of GHG disclosures and scope 3 GHG emissions, followed by guidance for users and preparers on navigating assurance reports and understanding assurance engagement. In addition, the XRB intends to publish guidance on transition planning in conjunction with the Sustainable Business Council in December 2024.
If you would like assistance with understanding the amending standards, or have any questions about any aspect of the mandatory climate-related disclosures regime, please contact a member of our financial services team.
This article was co-authored by Andrew Suggate (senior associate) and Nicole Tan (solicitor).
