Climate-related disclosures and reporting – one to watch for the SMB community

COP26 is in full swing and all eyes are on how world leaders will take meaningful action to keep the planet’s global warming down to 1.5 degrees. This figure is the absolute maximum warming the earth can bear without causing severe damage to our planet and the people who live on it.

To achieve this goal, the science dictates that by the second half of this century, we should be producing less carbon than we take out of the atmosphere, thereby achieving net zero. But how do we get there?

Governments around the world have been criticised for being all talk and no action. New Zealand has not been immune to that criticism either. While Aotearoa has done much to put climate change on the agenda, and the Climate Change Commission has made a long list of recommendations to help us achieve our goal of net zero greenhouse gas emissions by 2050 (with methane excepted from that target), we still have much to do to turn policy into meaningful action.

Even our most recent announcement that we will halve emissions by 2030 has raised eyebrows, with much of this being done through offshore mitigation rather than domestic reductions.

Disclosing climate risks and opportunities

One area where we have led the way however is the recent Government announcement that climate-related disclosures will be part of the financial sector’s reporting requirements from 2023.

The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill establishes a climate-related disclosure framework for New Zealand and applies to around 200 of the largest financial firms in Aotearoa.

It applies to banks and credit unions with total assets of more than $1 billion, large insurers, large equity and debt issuers listed on the NZX as well as sovereign financial institutions with more than $1 billion total assets.

The law requires these firms to disclose information about the risks and opportunities climate change presents to their business, thereby making climate change a central pillar of their decision making.

The External Reporting Board (XRB) has released its first consultation document on the proposed changes. Once the Bill is passed, disclosures will be mandatory for affected entities from FY23.

Climate-related disclosures – one to watch for the small business community

While this currently only applies to a defined group of larger organisations, it is highly likely that we will see more climate-related reporting requirements trickle down to the wider business community in New Zealand.

The agriculture sector is already facing disclosure obligations under He Waka Eke Noa (the Primary Sector Climate Action Partnership); 25% of all farmers and growers must know their annual total on-farm Greenhouse Gas (GHG) emissions and have a written plan to manage emissions by 31 December 2021, scaling up to 100% by 31 December 2022. Read more here.

Small-medium businesses (SMBs) will also need to start thinking about their climate-related risks and opportunities. While climate change is the greatest threat to our species’ existence we have ever faced, it also presents some significant opportunities for those who can be innovative in the way they do business. Climate-related reporting will enable organisations to more easily identify these opportunities.

For more on this important topic, our global BDO team has released a snapshot into sustainability frameworks and provides a good summary of existing frameworks and regional developments.