Navigating the New Landscape of Climate Reporting: Lessons from New Zealand

Australian organisations are entering a new era of corporate reporting, with mandatory climate disclosure laws now in effect. As pioneers in this space, New Zealand offers valuable insights for navigating these uncharted waters. In particular, it is clear that directors and advisors experienced a steep learning curve in the first year of the New Zealand climate disclosure regime even if those people had been involved in voluntary climate reporting for a number of years. Australian directors and their advisors should not assume that they are well prepared to comply with mandatory climate disclosure requirements just because they have been TCFD compliant.

The Australian Regime in a Nutshell

The Corporations Act 2001 (Cth) (Corporations Act) requires entities that:

• lodge financial reports under Chapter 2M of the Corporations Act; and
• meet certain minimum size thresholds; or 
• have emissions reporting obligations under the National Greenhouse and Energy Reporting scheme,

to make disclosures relating to climate in accordance with sustainability standards published by the Australian Accounting Standards Board.

The new obligations are phased in over a period of three years depending on the size of the relevant entity, with the largest entities (essentially the ASX 300) being required to report for the first full year ending after 1 January 2025.

Climate disclosures will be subject to similar assurance requirements to those currently required by the Corporations Act for financial reports and will require entities to obtain an assurance report from their financial auditor. 

Whilst the New Zealand regime and the Australian regime are slightly different, there are certainly lessons that can be learnt from our Kiwi colleagues. 

Key Challenges and Opportunities Evident from the New Zealand Regime

A number of key challenges and opportunities emerged from the first year of New Zealand climate reporting:

• Greenwashing and Greenhushing Concerns: Fear of greenwashing led some organisations to under-disclose in their mandatory climate report, a trend known as "greenhushing." This approach can add cost and complexity to the process of preparing the required disclosures, and can prove distracting. Hopefully, increasing familiarity and involvement with the process will reduce fears of greenwashing over the coming years.
• Resource Constraints: Developing robust climate disclosures requires significant time and resources, diverting attention from other strategic initiatives. In particular, there appears to be a view that the investment in resourcing and upskilling to enable compliance with the new mandatory climate reporting regime and the benefits gained from this are disproportionate. Integration of climate reporting into existing functions and processes will hopefully introduce efficiency, requiring less time and resources in future years.
• Emerging Benefits: Despite the challenges, mandatory climate reporting appears to have fostered deeper organisational focus on climate and improved governance alignment. Further, the potential to drive positive cultural change, improve cohesion between governance and management and lift capabilities across the topics of climate, risk, reporting and strategy should not be understated.

Key Takeaways for Australian Directors

So what can Australian directors learn from their New Zealand counterparts?

• Start now: Establish clear governance structures, roles, and responsibilities within your organisation early and ensure that climate is a recurring item on your board agenda. Understand any additional resourcing you may require, identify any gaps and ensure the board understands these gaps. Importantly, understand what you, as a director, are required to sign-off on. Better prepared boards will find the disclosure process simpler.
• Ensure you have internal stakeholder alignment: In New Zealand, many directors were surprised at the capability growth required to complete year one reporting and the impact on what could then be reported with confidence. Within some boards, the regime exposed poor alignment within boards (and management) around the entity’s climate ambition. In other instances, boards were not involved early enough resulting in substantial work needing to be redone. It is key that differences in approach and understanding of the purpose of climate reporting are resolved early or agreed before data collection for reporting commences.
• Consider your internal structures: Review your existing board committee structure and charters. Clarify roles and responsibilities and if appropriate establish a separate reporting committee.
• Consider your systems and processes: Assess your current systems and processes and understand the gap between where your systems and processes are now, and where they need to be. The commencement of any new regime always requires a large investment of time, resources and capital. Climate reporting needs to evolve quickly and directors do not have the time available that was provided for financial reporting refinement. 

Designing and building the systems and processes capable of generating high-quality and verifiable assumptions is a difficult and expensive challenge. It is something that may require more involvement from directors than existing reporting does. Directors need to be asking the right questions and seeking appropriate assurances.

The New Zealand experience underscores the importance of proactive planning and robust preparation for mandatory climate reporting. By learning from New Zealand's challenges and successes, Australian organisations can navigate this new landscape more effectively, enhance their climate resilience and unlock new opportunities.

Author: Miriam Kleiner.