Changes to climate reporting drive complex choices for directors

Last week, the New Zealand Government announced it will be reducing the number of organisations with mandatory climate reporting obligations. Directors of companies that are no longer mandated to report may face complex choices about their future reporting.

While reporting will no longer be mandated for these exempted companies, a wide range of stakeholders are still likely to be interested in their climate and sustainability initiatives –and they now have more options about how to communicate this information to them.

Half of the entities that currently have reporting obligations under the New Zealand Climate Standards (NZCS) will now have them removed. This reduction will be achieved by lifting the market capitalisation threshold for listed issuers from $60 million to $1 billion and exempting all investment scheme managers.

The Government also announced its decision to amend director liability within the scheme. Directors will no longer have personal responsibility if their company breaks climate reporting rules, but will remain liable for misleading or deceptive conduct, or for false or misleading statements.

The Financial Markets Authority subsequently made its own announcement that they would give ‘no action’ relief to the impacted companies. This relief will come into effect for organisations with climate reports due after 1 November 2025, meaning impacted organisations will not have to file a climate report after this date.

A myriad of choices

The directors of companies with this future climate reporting optionality need to consider the extent of their future reporting. While previously the climate standards prescribed the scope, content and timing of their climate reporting, now all these elements are optional.

Directors should approach their decisions about climate reporting by comparing the future value of individual reporting elements with their future production costs. Both aspects may be challenging to assess.

For many companies, the costs they have experienced to date might not be a good reflection of the costs they will face going forward. This is because most companies have spent the last three years expanding their internal climate capabilities, as well as engaging external support for additional capacity-building.

These historical development costs therefore offer only a limited perspective on the costs involved on an annual basis going forward, particularly if they continue with a subset of their previous climate reporting.

Determining the future value of climate reporting will require an involved assessment of the needs of a wide range of internal and external stakeholders. For example, there may be a material overlap between the reporting obligations of NZCS and the internal processes and reporting that these companies already undertake.

They might already need to provide some climate-related information to their customers, banks, insurers, staff, investors, suppliers or other stakeholders. Another source of potential value from the processes established through climate reporting is the internal desire to manage and govern material climate-related risks and opportunities.

Breaking down the decision into pieces

Directors facing these choices may approach these questions by working through the different elements of their existing climate reporting obligations with management. The question of future cost and future value could be considered for each climate reporting component.

For example, components with high value and low cost might be continued, but components with excessive costs and low value might be stopped. Companies with this optionality will be free to customise any climate reporting they carry out in ways that maximise value-for-money for the organisation and its investors.

Future uncertainties

The decisions faced by the organisations released from their mandatory reporting obligations are further complicated by uncertainties about their future reporting requirements.

While the current change reduces climate reporting for many organisations, there is a general expectation that as climate reporting standards develop and international reporting increases, there will be increased regulatory pressure or other reasons for climate reporting by a wider range of businesses.

Their future reporting requirements will be driven by legislative requirements, both in New Zealand and overseas, as well as the shifting needs of their stakeholders. Having spent years building this climate reporting capacity, companies risk facing similar costs again in the future if they let the institutional capacity on this topic fall away over time.

While the easy option for newly exempted companies may appear to be to say “stop it all”, this will not commonly be the best answer. The purpose of the reporting is both to communicate climate exposure to stakeholders and give companies a structured way to consider climate risks and opportunities.  

The article linked below offers a suggested framework for assessing which elements to continue.

For more perspectives on this topic, a report from EY is available here.