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Reforms to the climate-related disclosures regime have been described by some as ‘practical and sensible’ and others as ‘a step backwards’. Only two years after coming into full force, New Zealand’s world-leading climate-related disclosures law will soon catch less than half of previously eligible investment schemes and listed companies. Now, only 76 businesses of the previous 164 will have to provide mandatory reports on their climate-related risks and opportunities, commerce and consumer affairs minister Scott Simpson announced last week. The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act was passed in 2021. The brainchild of James Shaw, former climate change minister and Greens co-leader, it set up a climate-related disclosure (CRD) regime. Shaw said in 2021 that Aotearoa “simply cannot get to net-zero carbon emissions by 2050 unless the financial sector knows what impact their investments are having on the climate”. So why the changes? Here’s what you need to know. Climate disclosure what-whats in the what now? Huh? Yeah, the legislative jargon doesn’t exactly grab the attention. But the mission of the CRD is pretty simple, on the surface: get companies to report on their greenhouse gas emissions and the risks climate change poses to their bottom lines, and they might be encouraged to adopt more sustainable business practices. And hypothetically, we’ll get to net zero emissions by 2050 (though on that front we’ve already been “veering off course”). But from 2026, when the bill is likely to pass, the threshold for listed issuers will be lifted from market capitalisations of $60m to $1bn, directors will no longer be held personally accountable for false or incomplete reports, and 22 previously eligible investment schemes will no longer need to provide these disclosures. After the first round of disclosures were filed in early 2024, the Ministry of Business, Innovation and Employment began consulting on changes to the law following concerns about the costs of putting these disclosure reports together. The seven-page disclosure by Turners Automotive alone cost the company a million dollars, according to RNZ, though one market survey found the median cost of these reports to be around a quarter of this. That same year, New Zealand also presented its first biennial transparency report under the Paris Agreement, which noted that improved transparency required by CRDs would help Aotearoa’s financial market grow more “resilient”. Was it really not working? It depends on who you ask. Simpson wouldn’t disclose which companies he had spoken with when asked on Wednesday, but said the feedback he received called for “quite significant changes to the scheme”. The minister said that lifting the threshold has “landed [the scheme] in a place that is appropriate, proportionate and relative to New Zealand’s economy”. “We had a lot of feedback from entities, many of whom were spending – in some cases – millions of dollars on audits and consultancy, just to comply with the regime,” Simpson said. “When in fact they could have spent that money on literally reducing climate [emissions] by investing in solar panels or EVs.” Act leader David Seymour, meanwhile, said in a press release that the disclosure regime was simply “virtue signalling” and wanted the changes to go further. “Act will be campaigning to get rid of this rubbish for all entities, including banks and insurers.” Simon Beattie, general manager of corporate affairs and sustainability for the NZX, described the changes as “practical and sensible”, saying that the “significant costs” placed on companies to provide these disclosures would be better spent on “climate mitigation, transition and adaptation”. Lifting the threshold would keep Aotearoa in step with Australia’s legislation, Beattie said, adding that the CRD settings were “prohibitive to listing” and could lead companies to delist. “That is why adjustments to CRD need to be made to balance transparency of reporting with listed companies’ ability to grow, invest, and create more and better paying jobs for New Zealanders”, Beattie said. The Financial Services Council took a similar view, with chief executive Kirk Hope saying, “These reforms are a positive step toward ensuring our capital markets remain vibrant, competitive, and accessible.” A 2024 study of a European Union sustainability reporting initiative, co-authored by the University of Auckland’s professor of accounting Charl de Villiers, found that mandatory CRDs didn’t necessarily translate into improved business practices. “Despite the regulatory push, European companies didn’t exhibit substantial improvements in their social and environmental performance, nor did they improve when compared to US companies,” said de Villiers. Companies can still choose to report voluntarily, and before the 2021 law was passed, some banking and energy entities were already producing these reports in line with the Task Force on Climate-related Financial Disclosures (TCFD). Who’s not pleased with the changes? Greens co-leader Chlöe Swarbrick told The Spinoff the changes were “cooked”. She said she had spoken with a number of NZX-listed companies who had “raised some concerns with the implementation of the system”, and there were “valid critiques around the one-size-fits-all approach”. The Greens were “open to constructive and productive changes”, Swarbrick said, and the party would have been happy to work on changes alongside the minister, had he asked. In a statement, Barry Coates of ethical investment charity Mindful Money said the changes were a “backwards step” while Aotearoa faces growing financial risks caused by climate change. Climate risks and opportunities “affect the financial performance and viability of companies as well as KiwiSaver and other investments”, Coates said, and “providing this information supports company practices to manage their emissions and is necessary for sound financial decision-making”. A Mindful Money survey carried out this year found there had already been big improvements in climate-related decision making for companies, which had made significant investments into setting up systems for climate reporting. Earlier this year, Victoria University of Wellington’s Yinka Moses, a senior lecturer in accounting and commercial law, said the disclosure rules needed to be refined rather than retreated from – for the sake of the businesses themselves. “Any reform that weakens the rules will also make it harder for investors and others to assess climate-related risks, potentially leading to reduced investment confidence and higher financial volatility for firms, especially those operating in high-emission industries or with significant exposure to climate change consequences,” he wrote in a piece for Newsroom. Are we just being lax about our climate obligations? Minister Simpson told The Spinoff he wasn’t concerned the changes may undermine Aotearoa’s climate change responsibilities, as businesses that are no longer required to report will still “have a vested interest” in achieving “climate initiatives that are positive [in] reducing emissions”. Meanwhile, Swarbrick suggested there was no area in which the government has moved forward on climate action, and the CRD changes were “against the direction of travel of our trading partners internationally as well”. Others have raised similar concerns about the CRD reforms putting New Zealand out of step with its trading partners, including Minter Ellison Rudd Watts financial services partner Lloyd Kavanagh and Australia’s professional accounting body, which put out a press release saying the CRD changes “could create systematic knowledge gaps and leave New Zealand professionals less prepared for international market expectations”.
