External Reporting Board takes next steps towards new climate-related disclosure regime

25 March 2022

The External Reporting Board (XRB) has recently taken another step towards the implementation of the climate-related disclosure regime by opening the second round of consultation on the disclosure standards as they relate to climate change strategy and climate change metrics and targets. This comes in close proximity to the release of feedback on the first round of consultation which concerned climate change governance and risk management. 

In this update, we outline what reporting entities need to know about the second consultation. We also summarise the public feedback on the first consultation. The XRB’s current approach has received broad support but some submitters have called for more prescriptive guidance to enable a clearer understanding of obligations and enhance comparability for investors. The XRB appears to be engaging constructively with submissions, and balancing the competing benefits of principles-based and rules-based regulation, so the latest consultation provides a good opportunity for entities to make suggestions for further refinement.

Climate-related disclosures

The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill came into force in October 2021 (see our previous update). 

Under the new regime, “climate reporting entities” will be required to make public disclosures in accordance with disclosure standards issued by the XRB. The list of climate reporting entities includes large banks, credit unions, building societies, managers of registered investment schemes, insurers and most equity and debt issuers on the NZX. The Climate Change Commission has recommended that the government expand this list (including to cover public entities). The Government is also considering how non-listed companies should consider climate risk.

The XRB’s climate disclosure standards will cover four key areas:

  • Governance
  • Risk Management
  • Strategy
  • Metrics and Targets

Late 2021, the XRB consulted on the “governance” and “risk management” standards (see our update here). This latest round of consultation relates to the “strategy” and “metrics and targets” standards. 

The XRB expects to release a formal exposure draft standard covering all four areas for consultation in July 2022.

Strategy and Metrics and Targets consultation paper


The XRB states that standards relating to “strategy” are likely to be the most difficult for some climate reporting entities because they will only have a limited understanding of the impacts of climate change on their business.

The XRB is proposing standards to enable the public to understand the impacts of climate-related risks and opportunities on an entity’s business model, strategy and financial planning over the short, medium, and long term. The relevant standards are as follows:

An entity must disclose:

(a) a description of the climate-related risks and opportunities it has identified over the short, medium, and long term;

(b) a description of the impact of climate-related risks and opportunities on its business model, strategy and financial planning;

(c) a description of the resilience of its business model and strategy to different climate-related scenarios; and

(d) the methodologies and assumptions underlying the climate-related scenarios used, and the scenario analysis process employed.

The XRB is proposing standards to help identify climate-related risks and opportunities. The relevant standards are as follows:

An entity must include the following information when describing its climate-related risks and opportunities:

(a) how it defines short, medium and long term and how the definitions are linked to its strategic planning horizons and capital deployment plans;

(b) a description of the time horizon over which each climate-related risk or opportunity could reasonably be expected to have a financial impact on the entity; and

(c) whether the risks and opportunities identified are physical or transition risks or opportunities and, where relevant, their sector and/or geography.

The use of climate-related scenarios (where entities assess their strategy against plausible descriptions of the future) is likely to be of particular interest to climate reporting entities, with the XRB proposing specific guidance in relation to the methodologies and assumptions underlying climate-related scenarios.

Metrics and Targets

The XRB has proposed standards to enable the public to understand how an entity measures and manages its climate-related risks and opportunities. The relevant standards are as follows:

An entity must disclose:

(a) the metrics used to measure and manage climate-related risks and opportunities in line with its strategy and risk management processes;

(b) the targets used to manage climate-related risks and opportunities and performance against targets; and

(c) the methodologies and assumptions used to calculate its metrics and targets.

Under the proposed standard, entities must disclose the metrics used to measure and manage climate change-related risks and opportunities at a cross-industry, industry-specific and entity-specific level. 

The XRB has stated that cross-industry metrics will include disclosure for transition risks (risks arising as a consequence of the transition to a lower carbon future), physical risks (risks arising from changes in weather and climate), climate-related opportunities and capital deployment (the amount of capital expenditure and investment directed towards climate-related risks and opportunities). Metrics at industry-specific or entity-specific levels have not been specified. However, guidance from the Task Force on Climate-related Financial Disclosures (TCFD) will be helpful on these matters. 

Standard of assurance and materiality

The XRB is also consulting on the standard of assurance required for climate statements that disclose greenhouse gas emissions. It has expressed a preliminary view that the minimum level of assurance be “limited assurance”, rather than a more onerous “reasonable assurance” requirement.

The XRB is also taking views on the materiality standard for disclosure. According to the XRB’s proposals, information is material “if omitting, misstating or obscuring it could reasonably be expected to influence decisions” made by the public in their assessments of an entity’s enterprise value. 

In assessing what information could reasonably be expected to influence decisions, the entity must consider both “the characteristics” of the primary users and “the entity’s own circumstances”.

Governance and Risk Management consultation feedback

In parallel, the XRB has also recently released a summary of the feedback it received on its first consultation document on the standards relating to Governance and Risk Management. Overall, it states that it received strong support for its proposals, particularly of the principles-based approach and close alignment with the TCFD. 


The XRB says that it is “continuing to challenge” itself to find the right balance between principles-based and rules-based disclosures.

A particular area of focus for submitters was the XRB’s previous decision not to require disclosure of the climate-related skills and competencies of individual board members. The New Zealand Shareholders Association criticized the XRB for taking a “laissez-faire” approach to the disclosure of Board skillsets.  Similarly, the current standards propose a description of “whether and how [climate-related] performance metrics are incorporated into remuneration policies”. There were a number of submissions made against this requirement, with some submitters perceiving it to be “too prescriptive”. The XRB has promised to consider submissions made about this requirement.

One submitter proposed a requirement to disclose the “frequency of meetings and workshops on climate change”. All comments are being considered by the XRB but it has not indicated whether this idea will be pursued.

Risk Management

Most submitters considered that the XRB had got the right balance between principles-based and rules-based disclosures but some suggested that more prescriptiveness was needed to enable investors to more readily compare entities. It was noted that too much prescription may lead to a ‘tick-the-box’ exercise. A number of submissions sought clarity about the application of risk management disclosures to managers of registered investment schemes. The XRB says that it is actively considering the application of the proposed risk management standard to managers of registered investment schemes.

Some submitters expressed concern about how onerous compliance may be. The application of risk management to stages of the value chain also resulted in some feedback. One submitter asked for more guidance about “when it would be appropriate to exclude certain parts of an organisation’s value chain in any disclosure”. The need for any amendments or guidance to ensure more clarity for climate reporting entities is being taken into consideration by the XRB.

Next steps

This round of consultation is open until 13 April 2022, before the formal exposure draft is released in July 2022.  The current consultation, and the exposure draft consultation, provide a good opportunity for climate reporting entities to provide feedback to ensure that the standards strike the right balance without being unduly burdensome. The mandatory disclosure reporting period is expected to begin on 1 January 2023, with the first statements required in 2024. 

Bell Gully is closely monitoring the reforms and will provide further updates. If you have any questions about the matters raised in this article, or would like assistance with preparing a submission to the XRB, please get in touch with the contacts listed or your usual Bell Gully advisor.

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.