Climate-related disclosures: FMA and Chapman Tripp analysis and outlook for 2025

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Nicola Swan

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Roger Wallis

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Kate Wilson Butler

Director - Climate, Sustainability & ESG

As New Zealand’s first year of implementing its mandatory climate-related disclosure (CRD) regime draws to a close, we cover: the Financial Markets Authority's (FMA's) just released CRD monitoring report, our analysis of CRDs published to date, recent changes to the Climate Standard adoption provisions, overseas trends and areas for focus in FY25.

The FMA's stocktake of Year 1 reporting published on 4 December provides practical insights and guidance from the regulator’s review of the first 70 climate statements published to end March 2024. We summarise the key feedback, as well as the incoming changes to the regime – including extensions to adoption provisions and possible amendments to director liability provisions. We also outline key CRD developments overseas, as well as what to expect in 2025.

First year of mandatory reporting: key takeaways

Regulator report card: passing grade, with room for improvement

We acknowledge that CREs have put in an enormous effort to ensure their first mandatory climate statements were prepared on time

Financial Markets Authority | Te Mana Tātai Hokohoko Climate-related Disclosures: Insights from our reviews (4 December 2024)

The first year of mandatory CRD has been a significant undertaking for many climate reporting entities (CREs). Key challenges cited include the effort involved in standing up scenario analysis and climate-related risk assessment processes, difficulties in obtaining accurate or complete data, and navigating an emerging assurance landscape. Entities have, however, risen to the challenge, and although there are areas for improvement in 2025, the FMA’s stocktake has indicated that it was “generally pleased” with compliance in the 2024 reporting period and is conscious of the effort and challenges involved in preparing CRDs.

The below table summarises the key areas identified by the FMA in its monitoring report Climate-related Disclosures: Insights from our reviews for CREs to focus on in Year 2.

Key points from FMA monitoring report

Materiality	Avoid obscuring material information by over-disclosing information that is not material Ensure that material information is not omitted The application of the disclosure requirements is presumed to result in material information. If a required disclosure is determined to be immaterial – which will be “unusual” – ensure that the process to determine materiality is robust and assessments documented and retained If information is omitted because the CRE is unable to comply with the disclosure requirements, ensure clear documentation of the fact that compliance was not possible, the reason why, and an explanation of progress toward meeting the disclosure requirement
Fair presentation	The FMA has emphasised the importance of fair representation for CREs, as required by New Zealand Climate Standard (NZ CS) 3 and outlines key issues that may undermine fair presentation, with specific examples: Presenting information in a way that over-emphasises the positive, including via formatting or graphics Presenting information in a way that is not understandable or complete, eg omitting legends or axes labels on graphs Providing disclosures that are unclear or lack relevant context, eg lack of clear explanation of the scope and nature of climate-related targets and how ambitious or realistic they are Omitting information that may be expected by a primary user, eg information to contextualise anomalies such as major drops or increases in particular sources of GHG emissions Using vague terms and descriptions when describing third party services, certification etc, such as misuse of assurance-related terminology like “independent”, “verification”
Methods, assumptions, data and estimation uncertainty	The FMA recognises that uncertain data and making reasonable estimates based upon them is an essential part of CRD. CREs must disclose all material information relating to underlying methods and assumptions relevant to CRD disclosures, as well as any data and estimation uncertainty.
Application of disclosure requirements	The FMA provided the following guidance in relation to the disclosure requirements, suggesting that CREs should: Describe how processes (eg scenario analysis) were undertaken, not just the fact that the process occurred Disclose more information about the frequency of processes, such as the actual frequency in which processes took place during the reporting period Explain how climate-related matters are connected to other activities within the organisation, eg how the board considers climate-related risks and opportunities when overseeing and developing the entity’s strategy Understand that “current climate-related impact” requires CREs to disclose not just that an event occurred in the reporting period, but also the impact it had on the organisation Be more specific when describing their identified climate-related risks and opportunities. Climate-related risks and opportunities need to be entity-specific and linked to time horizons. CREs should “robustly” assess the materiality of climate-related risks and opportunities, and only disclose those which are material to primary users Disclose all material information to describe GHG emissions targets (including net zero targets) and be clear and transparent when disclosing their views as to how targets are aligned with 1.5 degrees of warming (eg when using terms like “science-based” or “-aligned”)
Scenario analysis	CREs should: Disclose the process undertaken to analyse climate-related scenarios, not just how the scenarios were constructed Disclose scenario narratives, to ensure the description of how the future may develop is meaningful and useful for primary users Consider whether scenarios are sufficiently plausible, challenging, and distinct from one another Clearly disclose the extent to which scenario archetypes (national or global pathways and projections) have been used to develop entity-level scenarios
Other disclosure matters	If CREs integrate CRD into another document (eg an annual report), they must include a table that identifies the location of all disclosures required by NZ CS 1, 2 and 3 When cross-referencing to other documents in order to comply with the NZ CS, entities need to comply with the cross-referencing requirements in NZ CS 3 and ensure the cross-referenced information is lodged with the CRD Register alongside the CRD CREs should clearly disclose a complete list of adoption provisions relied on in conjunction with the Statement of Compliance Be clear about whether the cross-referenced document is being used to provide context or to meet a disclosure requirement
Consistency and coherence with other information	CREs should ensure that disclosures are consistent with other published statements, including financial statements, annual reports, sustainability reports, market announcements, public statements, and website content. Material information which a CRE has disclosed in other documents should be captured in the CRE’s climate statements CREs should present climate-related information consistently and coherently across their publications

The FMA’s monitoring report includes commentary on legislative requirements relating to CRDs, including information required to be included in CREs’ annual reports, signing and dating of climate statements by directors, and on-time lodgement of climate statements with the CRD register. It also touches on assurance requirements, including the need to ensure independence of CRE assurance, a reminder that limited assurance over GHGs is mandatory from 27 October 2024 (subject to an extension of adoption relief for assurance of scope 3 GHGs, discussed further below), and guidance regarding publishing any voluntary assurance obtained over climate statements.

Finally, the FMA identified issues with inconsistencies as between CRD and other published material, including:

Financial statements disclosing that the CRE had contingencies concerning climate-related issues, which were absent from CRD.
Narratives around GHG emissions disclosed in the annual report were different to or not included at all in CRD.
Climate related initiatives were disclosed in other publications but were absent or framed differently in CRD.

Chapman Tripp analysis

Our review of CRDs published to date shows a wide range of reporting styles, and significant variation in the depth of reporting content. The banking and financial services sector has tended to produce more detailed reports, alongside detailed reporting from the energy sector. Listed issuers range significantly depending on the significance of climate change for the relevant business, with some issuers presenting less sophisticated reports and omitting mandatory reporting requirements, including metrics.

Our analysis shows that CRD published by late November (representing 90% of all CREs) demonstrated strong uptake of adoption provisions across the board, even where relevant content could be (or was) provided. Unsurprisingly, the highest use of any adoption provision was in relation to AP 2 to defer disclosure of anticipated financial impacts (see Figure 1). There was also strong uptake of the adoption provision relating to transition planning (with 84% of CREs utilising adoption relief for this disclosure requirement), which reflects the lack of detailed NZ-specific guidance on this key topic in FY24. The average length of first year CRD reports was just over 41 pages – in general, mandatory CRD reports were shorter and more concise than voluntary climate reports published in FY23.

CREs have generally published their CRD separately to their annual reports or sustainability reports, and many CREs took the full four-month period beyond their annual report publication date to publish their CRD.

Some general themes emerge from a survey of published FY24 CRDs:

For the Governance section of NZ CS 1, CRDs showed a tension between processes and mechanisms set out in Board or Committee Charters (ie what ‘usually’ happens, or is mandated to occur), and actions that actually took place in the relevant reporting period – reflected in the FMA’s feedback on this point above.
Strategy disclosures demonstrated a stronger and more granular understanding and analysis of physical risks and impacts relative to transition risks and impacts, which demonstrated variability, particularly in relation to emerging risks. Scenario analysis disclosures showed sophistication, which reflected the work many CREs had undertaken to prepare for earlier voluntary disclosures, and scenarios constructed at the sector level. While the focus in Year 1 was on conducting a scenario analysis for the first time, we expect that going forward CREs will need to ensure their scenarios are appropriately challenging, in line with FMA indications, and that insights from this process are integrated into business planning, not left to one side.
Risk Management disclosures showed that the maturity and integration of climate risk was highly variable between CREs, with many reporting standalone climate risk identification and assessment process that are not yet integrated into broader risk management reporting or outputs – such as asset management and business planning.
In Metrics and Targets disclosures, many CREs experienced challenges with disclosing vulnerability metrics, in part due to “vulnerability” not being defined in the NZ CS, and challenges related to commercial sensitivity. CREs are communicating GHG emissions targets in increasingly nuanced ways, including by differentiating between near-term targets and longer-term (2050) aspirations or ambitions. This in part reflects the changing risk environment relating to climate targets (see our separate publication on this point here).

Primary user feedback

The FMA’s monitoring report is accompanied by primary user feedback starting to enter the market. Forsyth Barr has taken the lead in publishing sectoral analyses of climate statements, to date covering the aged care and electricity sectors, which have identified a number of key areas for improvement in FY25, including the need for CREs to provide information about issues which have the potential to impact shareholder value over time. In particular, Forsyth Barr noted that robust quantification of impacts will be most useful for investors to make assessments between entities and over time. Forsyth Barr also noted that CREs could improve disclosures on business continuity planning in the context of identified climate related risks. Forsyth Barr encouraged “evolution towards emerging best practice where transition plans include time bound, [quantitative] data designed to show how a company plans to deliver on its emissions reduction targets”.

Changes to CRD adoption provisions

In November, the External Reporting Board (XRB) approved amendments to NZ CS 2, permitting additional transitional relief for Year 2. The amendments are:

The XRB has extended AP 2, which exempts CREs from disclosing the anticipated financial impacts of climate-related risks and opportunities for first and second reporting years. CREs must still disclose the current financial impacts of climate change in their second year of reporting.
The XRB has extended AP 4, which exempts climate reporting entities from disclosing their scope 3 GHG emissions for first and second reporting years. There are consequential amendments to APs 5 and 7 which relate to disclosure of comparatives and analysis of trends.
The XRB has introduced a new adoption provision, AP 8, which allows CREs to exclude scope 3 GHG emissions from the scope of the assurance engagement required by the FMCA. The adoption provision applies to accounting periods ending before 31 December 2025. The XRB has also made consequential amendments to NZ SAE 1. CREs will still need to seek assurance over Scope 1 and 2 disclosures in most cases for Year 2. The FMA has also indicated that it intends to consult on a possible class exemption for assurance of Scope 3 emissions before the end of 2024.

The FMA’s Monitoring Report notes that 39% of the 70 climate statements that they reviewed stated that the CRE had obtained voluntary assurance over their Scope 1 and 2 emissions inventory. Over half of these (51%) stated they obtained a reasonable level of assurance. 20 CREs identified by the FMA stated that they had obtained voluntary assurance over all or part of their Scope 3 emissions.

Transition planning

Importantly, the XRB did not make any amendments to the disclosure requirements regarding transition planning. CREs will therefore be required to make disclosures regarding transition planning in their second reporting period, as AP 3 will continue to only apply to their first reporting period. The XRB has, however, acknowledged that transition planning is “an iterative and dynamic planning process”, and noted that “this disclosure does not require a fully-fledged, certain and finished ‘plan’”.

The XRB has published initial guidance on transition planning, and has signalled it will be publishing further guidance in conjunction with the Sustainable Business Council in December 2024. This guidance will sit alongside international guidance and frameworks on transition planning, such as the Transition Plan Taskforce Disclosure Framework. With emissions reduction targets – and whether entities have credible plans to achieve them – increasingly in focus for climate litigation, research shows that only a small proportion of public companies have robust transition plans to meet their emissions reduction goals. Our assessment earlier this year of CRD published to mid-August showed that that 77% included some kind of an emissions reduction target, but less than 20% included a transition plan.

Lenders and investors are increasingly requiring the disclosure of transition planning with expectations benchmarked to these global frameworks. New Zealand CREs would therefore be well advised to look to both global and local guidance when preparing their transition plans. For more information on these developments, see our separate publication here.

Looking ahead to 2025, key developments on the horizon include potential changes to the liability regime for CRD, in particular as it applies to directors, which responsible Minister Hon Andrew Bayly indicated in September could be adjusted. 2025 is also the scheduled year for the XRB’s post-implementation review of the NZ CS.

Global developments

Panning out to a global view, the climate reporting landscape continues to evolve. The International Sustainability Standards Board (ISSB) estimates that 55% of global GDP is now covered by ISSB-aligned standards, whether in force or proposed.

Mandatory CRD on the rise in New Zealand’s key export markets

Our April report for The Aotearoa Circle identified that c. 80% of New Zealand exports by value are going to countries with mandatory CRD in force or proposed. This figure increased to 85% for the June 2024 quarter, driven in part by new export partners introducing ISSB-aligned disclosure requirements, including the Republic of Korea.

New Australian CRD regime effective 1 January 2025

Australia’s Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 received Royal Assent on 17 September 2024, amending the Corporations Act 2001 to require sustainability reporting. The mandatory climate-related disclosures are set out in Standard AASB S2 issued by the Australian Accounting Standards Board (AASB). The Board has also issued a voluntary standard for sustainability-related disclosures, AASB S1. These are respectively aligned to the ISSB Sustainability Disclosure Standards IFRS S2 and IFRS S1, with some modifications to reflect the Australian context.

Sustainability reporting requirements for the largest entities will come into force for financial years commencing from 1 January 2025. The reporting requirements will then be implemented on a staged basis through to FY28.

Key differences between the Australian and New Zealand CRD requirements are below:

Scope: Australia’s regime applies to all large entities required to prepare financial reporting under the Corporations Act 2001, with ‘Group 1’ entities (captured from 2025) being those meeting two of three of ≥$AU500m in consolidated revenue; ≥$1b EOFY consolidated gross assets; or ≥500 employees. The Australian scheme will therefore capture large private entities as well as the large listed issuers, fund managers, banks and insurers that are within scope of the New Zealand regime.
Assurance: The Australian regime will require assurance over the whole of a sustainability report by 2030, which is much more extensive than the New Zealand requirement to assure solely the GHG emissions disclosures. The assurance requirements will be phased in, with the timeframe to be confirmed. The Australian Auditing and Assurance Standards Board has issued an exposure draft of a proposed standard on the timeline for audit and review of sustainability reports and is currently considering feedback from submitters.
Liability regime: Unlike the New Zealand regime, there is no deemed liability for directors for failure to comply with the mandatory reporting requirements. In addition, for the first reporting year, CREs and directors have a limited immunity in respect of all “future” climate-related statements. For the first, second and third reporting years, CREs and directors have a limited immunity in respect of scope 3 GHG emissions, scenario analysis and transition planning disclosures. The immunity does not apply to criminal proceedings, or proceedings brought by the Australian Securities & Investments Commission.
Smaller entities are able to disclose that they have no material financial climate-related risks or opportunities, rather than producing a full sustainability report.
The Australian legislation requires analysis of two scenarios, rather than three.

Possible changes ahead for disclosure rules in the EU and US

The EU’s Corporate Sustainability Reporting Directive (CSRD), in force since earlier this year, is requiring thousands of European companies to report their climate-related risks and opportunities alongside a suite of other sustainability measures. As we reported in April, this regulation will impact New Zealand companies which form part of international supply chains selling to European multinationals, who are required to report on climate and nature related risks in their value chain. Of interest, the European Commission indicated four weeks ago that it is considering streamlining the CSRD and other sustainability reporting (the EU Taxonomy Regulation, and the Corporate Sustainability Due Diligence Directive) to reduce overlap while maintaining the substance of reporting requirements. It is unknown the extent to which this proposed integration will impact the content of the regulations themselves.

Across the Atlantic, the impact of the US Federal election on the US Security and Exchange Commission’s climate disclosure rule remains unclear. The rule is currently on hold following the launch of litigation launched in early 2024. State-level regulations continue to be implemented however, including California’s ‘Climate Accountability Package’, which requires biennial climate-related financial risk reporting for large businesses doing business in California.

Meanwhile, in the Asia Pacific region, a key development in 2024 (since the publication of our Protecting Competitive Advantage report in April, which details a range of earlier disclosure developments in Asian markets) has been China’s signalled introduction of national-level ESG disclosure requirements from 2030, as well as new ISSB-aligned disclosure requirements being developed in Japan and Singapore.

Guidance for 2025

Against this evolving landscape, in FY25, New Zealand CREs should:

Reflect on whether governance processes for preparation, review and approval of CRD are fit for purpose for Year 2, reflecting both increasing maturity in internal systems, and also more complex financial disclosures that are required for FY25.
Integrate insights from CRD in Year 1 into business and strategic planning, including making sure that identified risks and opportunities are reflected in budget allocations and financial reporting.
Prepare for the requirement to identify and report financial impacts for Year 2 (which are not subject to adoption provisions) and consider planning for the requirement to disclose anticipated financial impacts from Year 3 (which for most CREs is FY26).
Consider how to prepare for transition planning disclosures, including ensuring these critical disclosures are ‘right-sized’ to manage legal risk whilst meeting regulator, investor and lender expectations.
Ensure that any commitments to take action disclosed in Year 1 CRD have been followed through. The FMA emphasised that where it has not been possible to do so, CREs should disclose that, and provide an explanation.
Consider where their Year 2 CRD might diverge from Year 1 disclosures, with the FMA noting that any material differences will need to be disclosed and explained.
Plan for mandatory assurance processes, and ensure that assurance practitioners are sufficiently independent from advisers to date (a focus in the FMA’s Monitoring Report).