Sustainability reporting – consider more than just New Zealand requirements

This article was originally published in August 2023. It has been updated in November 2024 to reference the latest legislative requirements in the various jurisdictions mentioned.

New Zealand

New Zealand has mandatory climate reporting for annual periods beginning on or after 1 January 2023.

The following types of large New Zealand entities must prepare climate-related disclosures under the Climate-Related Disclosures (CRD) regime.

• Registered banks, credit unions, and building societies with total assets of more than $1 billion
• Managers of registered investment schemes (other than restricted schemes) with greater than $1 billion in total assets under management
• Licensed insurers with greater than $1 billion in total assets, or annual premium income greater than $250 million
• Listed issuers of quoted equity securities with a combined market price exceeding $60 million
• Listed issuers of quoted debt securities with a combined face value of quoted debt exceeding $60 million
• Authorised Bodies, that are managers of registered schemes and operate under the licence of another manager, where the total assets under that licensee (including assets of all authorised bodies) exceeds $1 billion.

Although New Zealand climate reporting is only mandatory for the above entity types, it should be noted that certain other jurisdictions also require mandatory climate reporting based on other local requirements, which could impact on New Zealand entities not scoped into the above.

Please refer below for a high-level overview of the current requirements in Australia, Europe and the USA.

Other jurisdictions (other than those mentioned) may also require climate related disclosures, so it is important for all New Zealand entities to have a thorough understanding of where in the world they operate, and what local requirements in those areas are going forward.

It should also be noted that the New Zealand climate reporting standards (Aotearoa New Zealand Climate Standards) (NZ CS) were developed in New Zealand and differ from  requirements elsewhere in the world and the (current) international sustainability-related reporting standards,  IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.

NZ CS have similar requirements to (international standards) IFRS S1 and IFRS S2, however, differences do exist. Therefore any entities required to comply with NZ CS should gain familiarity with the NZ CS as soon as possible, as you cannot rely solely on any globally available guidance on IFRS S1 and IFRS S2 to assist you with your sustainability-related disclosure obligations.

New Zealand operations	Type of relief	Conditions for relief
The foreign exempt issuer does not have significant business operations or investments in New Zealand	Full relief	Must comply with any mandatory home jurisdiction laws or home stock exchange requirements regarding climate-related disclosures
The foreign exempt issuer has significant business operations or investments in New Zealand	Partial relief	Climate reporting only for New Zealand business operations or investments (not global businesses or investments)
Note: Significant business operations or investments in New Zealand means at least one of the following applies: At balance date of each of the two preceding periods, total assets of the New Zealand business or New-Zealand-based investment assets exceeds $1 billion In each of the two preceding accounting periods, annual gross revenue for either the New Zealand business or New Zealand-based investment assets exceeds $250 million.

In addition to the above exemption, the FMA has also granted an exemption notice (Financial Markets Conduct (Climate-related Disclosures—Overseas Banks and Insurers) Exemption Notice 2024) to overseas registered banks and overseas licensed insurers that are climate reporting entities under Part 7A of the Financial Markets Conduct Act 2013. Those entities are exempted from the requirement to have their climate statements, or group climate statements, dated and signed by their directors.

The conditions of the exemption provide for:

• The climate statements or group climate statements to be dated and signed by the exempt entity’s New Zealand chief executive officer, and
• Certain information to be given to the Registrar of Companies.  

The notice commenced on 29 July 2024 and continues until 3 November 2026.

You can read more about the FMA’s requirements for Climate Reporting entities here.

Foreign exempt issuers whose primary listing is on a non-New Zealand exchange (for e.g., the Australian Securities Exchange (ASX)) with a secondary listing on the New Zealand Stock Exchange (NZX) should consider whether any New Zealand operations or assets will trigger climate reporting for 31 December 2023.

 

Other Jurisdictions

Besides New Zealand, Australia, Europe, and the United States (USA) are just a few of the jurisdictions that have already made sustainability reporting compulsory or are about to. If you have a company that operates in these countries or are a parent entity with subsidiaries in these countries, please be aware that you may need to prepare sustainability disclosures soon to operate in these jurisdictions, and as part of this process, measure your greenhouse gas (GHG) emissions.

 

Australia

The Australian Government has passed legislation that mandates sustainability reporting for all large Australian entities (including large proprietary companies lodging financial reports with the Australian Securities and Investments Commission (ASIC) under Chapter 2M of the Corporations Act 2001) according to the following timeframes:

• Group 1 entities - for years ending 31 December 2025 onwards
• Group 2 entities - for years ending 30 June 2027 onwards
• Group 3 entities - for years ending 30 June 2028 onwards.

Please refer to our Australian firm’s article for more information about the criteria for each group noted above.

 

Europe

The European Union’s (EU’s) Corporate Sustainability Reporting Directive (CSRD) came into force on 5 January 2023, and EU member states have 18 months to incorporate the CSRD into their national law. For some European entities, climate disclosures are already mandatory, with reporting required for years ending 31 December 2024 by the largest entities.

What is CSRD?
The CSRD was designed to revise and strengthen the requirements of the Non-Financial Reporting Directive (NFRD). Its scope is much wider than the NFRD, covering more entities, and requiring more disclosures. Entities reporting under the CSRD will have to apply the disclosures contained in the EU Sustainability Reporting Standards (ESRS), which includes one overarching disclosure standard, and eleven topical standards. ESRS was adopted by the European Commission on 31 July 2023.

Timeline for CSRD
The timeline for EU entities to report under the CSRD for the first time is shown on the table below.

 

Type of entity	First reporting year ending
Large public interest entities (listed companies, banks and insurance companies) with more than 500 employees – includes consolidated groups and single entities. These entities are within the scope of the NFRD.	31 December 2024
Listed companies (other than micro listed entities1) not within the scope of NFRD	31 December 2025
Large companies/groups meeting two out of the following three criteria and not within the scope of NFRD: More than 250 employees More than €50 million turnover More than €25 million total assets This includes subsidiaries of non-EU groups.	31 December 2025
Listed SMEs2 Small and non-complex credit institutions, captive insurance and reinsurance undertakings	31 December 2026
A non-EU group that generated more than €150 million turnover in the EU for the last two consecutive financial years and has either: A subsidiary which has securities listed on any regulated EU market Subsidiaries in the EU which meet the threshold for a large company/group as defined above One or more branches in the EU generating more than €40 million turnover in the preceding financial year.	31 December 2028
Notes: Micro entities are those that do not exceed two of the following three thresholds: €900,000 turnover, €450,000 total assets, 10 employees. Listed SMEs are those listed on an EU-regulated market. They can defer their application by two years to the year ending 31 December 2028 if they include a statement in their management report explaining why sustainability information was not provided.

What does this mean for New Zealand entities?

Certain New Zealand entities may need to prepare sustainability reports even though they are not scoped into the New Zealand Climate-Related Disclosures (CRD) regime. For example:

• A New Zealand subsidiary of a large EU public interest entity will have to prepare sustainability disclosures for 31 December 2024 as part of the group’s consolidated sustainability report
• A New Zealand group with a large EU subsidiary will have to prepare sustainability disclosures for that subsidiary at 31 December 2025.  

Non-EU groups (including New Zealand groups) that meet the €-turnover threshold in the EU as detailed above will need to report for 31 December 2028 year ends even if there are no equivalent New Zealand requirements.
The sustainability report for a non-EU entity is required to cover the consolidated group of the ultimate non-EU parent, with the responsibility for publication in the EU being with the EU subsidiary or branch. It must be prepared in accordance with ESRS, which will result in a  New Zealand parent potentially having to prepare two sustainability reports:

• one using ESRS covering numerous sustainability topics, and
• one applying NZ CS if the entity is scoped into New Zealand Climate-Related Disclosures (CRD) regime

Unless included in a consolidated group CSRD report, New Zealand entities will have to comply with the ESRS disclosure requirements, which are far more extensive than NZ CS and /or  IFRS S1 and IFRS S2. Additionally, all of the above sustainability information must initially have limited assurance, to be expanded to reasonable (audit) assurance in future.

In our view, introduction of CSRD and ESRS presents an opportunity for forward-looking New Zealand organisations to get on the front foot with their sustainability reporting. Early adoption will allow entities to identify the reporting requirements that align with their current strategy and existing data and begin incrementally implementing reporting metrics. This could not only create a competitive advantage, but also reduce the workload and risks of facing a significant project when these disclosures become mandatory.  

 

USA

In March 2024, the U.S. Securities and Exchange Commission (SEC) adopted final rules to require climate disclosures in registration statements and annual reports which do not require quantification of Scope 3 emissions.

In April 2024, the SEC paused the rules pending a judicial review, effectively meaning that mandatory climate reporting in the USA is on hold for now. The judicial review is considering whether federal agencies such as the SEC have the regulatory authority to enforce environmental, social and governance (ESG) regulations. The SEC is steadfast in defending its regulatory authority over its climate disclosure rules.

 

Timeline for proposals

The table below shows the proposed timeline for SEC registrants to provide climate-related disclosures, as well as required assurance based on the final rules. These rules are likely to apply to most foreign private issuers, so will affect New Zealand entities with this status.
 

Registrant type	Disclosure and financial effects audit		GHG emissions/assurance			Electronic tagging
	All Reg. S-K and S-X disclosures other than as noted in this table	Item 1502(d)(2), Item 1502(e)(2) and Item 1504(c)(2)	Item 1505 (Scopes 1 and 2 GHG emissions)	Item 1506 – Limited assurance	Item 1506 – Reasonable assurance	Item 1508 – Inline XBRL tagging for subpart 1500
LAFs1	Fiscal year beginning during the calendar year 2025	Fiscal year beginning during the calendar year 2026	Fiscal year beginning during the calendar year 2026	Fiscal year beginning during the calendar year 2029	Fiscal year beginning during the calendar year 2033	Fiscal year beginning during the calendar year 2026
AFs2 (other than SRCs3 and EGCs4)	Fiscal year beginning during the calendar year 2026	Fiscal year beginning during the calendar year 2027	Fiscal year beginning during the calendar year 2028	Fiscal year beginning during the calendar year 2031	N/A	Fiscal year beginning during the calendar year 2026
SRCs3, EGCs4 and NAFs5	Fiscal year beginning during the calendar year 2027	Fiscal year beginning during the calendar year 2028	N/A	N/A	N/A	Fiscal year beginning during the calendar year 2027
Notes 1: Large accelerated filers 2: Accelerated filers 3: Smaller reporting companies 4: Emerging growth companies 5: Non-accelerated filers

For more information on the SEC’s proposed and adopted climate-related disclosure rule, refer to BDO USA’s Preparing for the Proposed SEC Climate Disclosure Rule.
Despite the final rules being on hold for now, New Zealand entities with US parent entities or subsidiaries should be aware of the reporting deadlines that will apply once the stay is lifted.

• New Zealand subsidiaries of US parent entities may need to prepare relevant climate disclosures so that they can be incorporated into the US parent’s climate disclosures.
• New Zealand entities that are foreign private issuers will need to prepare climate disclosures for inclusion in their US filings.

In addition to the SEC climate disclosure rules, New Zealand entities should also be aware of additional climate disclosures imposed by various US state-based laws, such as California and Illinois. These laws may be more onerous than the SEC rules noted above and may require earlier reporting. While these rules apply to US companies (public and private) with total annual revenues of more than $1 billion, small New Zealand subsidiaries may have to provide data to the US parent if they do business in these states.

For more on the above, please contact your local BDO representative.

This article has been based on an article that originally appeared on BDO Australia, read the original article here.