Two years to prepare: why directors should start AFI work now

Scott Lewis CMInstD

Directors of climate reporting entities should now be familiar with the early requirements of the Aotearoa New Zealand Climate Standards – governance disclosures, scenario analysis, and identifying climate-related risks and opportunities.

That work has, rightly, taken time and attention. The next task is harder, and arguably more consequential: translating those risks and opportunities into financial terms. 

This is the role of anticipated financial impacts (AFIs) – the financial consequences an organisation could reasonably expect if the climate-related risks and opportunities it has identified materialised.

Disclosure of AFIs is part of Climate Standard 1 (NZ CS 1), issued by the External Reporting Board (XRB), which requires entities to disclose these impacts along with the time horizons over which they might occur, and to explain why, if they are unable to disclose quantitative information. 

Quantifying AFIs has proved difficult. The XRB has granted a two-year extension to the original timeframe, so quantified AFI reporting will now be required from the 2027/28 financial year for most entities.  

The extension reflects implementation challenges: the analytical approaches are still developing, data is patchy and there is real uncertainty about how to do this well. The XRB plans to issue further guidance on AFIs later this year.  

Some boards may be tempted to treat that extension as permission to wait. I would encourage them to do the opposite.

AFIs can be viewed as primarily a compliance exercise, but more importantly, they should be seen as a strategy exercise – one that surfaces questions every board should want answered regardless of what the reporting standards require:

• • If the physical risks your organisation has identified actually played out – more frequent severe weather events, supply chain disruption, changes to insurability or asset values – what would that mean for revenue, costs and balance sheet resilience?
  • If the transition to a lower-carbon economy moves faster than expected, where is your organisation exposed to stranded assets or shifting demand and where might it find new opportunities? 

These aren’t hypothetical questions for some distant future. They are questions about how prepared your organisation is, right now, for changes that are already under way.

Boards that start working through this now will understand their exposure far better than those that wait until reporting deadlines force the issue.  

That head start means earlier identification of emerging risks before they become losses and the ability to spot opportunities – new products, markets or efficiencies – that competitors have not yet considered. In an uncertain environment, that clarity could itself be a competitive advantage.

There is also a practical benefit to starting early that’s easy to overlook. The first numbers will not be perfect. The value is learning how different climate futures might play out for your organisation and being able to show how you are preparing for them.  

That kind of fluency takes time to build. Boards that start now will be working through their second iteration by the time quantified disclosure becomes mandatory, while those that wait will be starting from scratch under pressure.

Two resources published in March 2026 are worth reviewing. Financial quantification: from climate risk to value creation, produced by KPMG, Chapter Zero New Zealand and the IoD, sets out how quantification can support better strategic decisions, not just better disclosures, and offers practical steps for organisations wherever they are starting from.  

A companion white paper from the Climate Disclosures Working Group of the New Zealand Society of Actuaries, Identifying and quantifying anticipated financial impacts of climate-related risks and opportunities, provides proportionate, decision-useful guidance for getting started. It is a useful discussion tool for conversations between boards, management and technical specialists. 

Your organisation has two years to prepare for AFIs. That may sound like a long window, but good AFI work will take careful thought, debate and iteration. It will be harder if that work starts close to the mandatory deadline.

My suggestion to fellow directors: don’t mistake the extension for time to spare. Ask management what they are doing to prepare and when the board will see a first cut of AFI measures.

Organisations that move early are the ones that can turn this requirement into real strategic advantage. 

Scott Lewis CMInstD is a Fellow of the New Zealand Society of Actuaries (NZSA) and a Fellow of the Australian Institute of Actuaries. He is a member of the Climate Disclosures Working Group of the NZSA, sits on the board of the Natural Hazards Commission, Toka Tū Ake and is a past president of the NZSA. He is co-founder of Actuate, an actuarial consultancy that provides advice in a range of areas including climate change and artificial intelligence.