New Zealand's professional bodies and associations say Scope 3 emission requirements in the country's climate disclosure standards could make compliance challenging.
Professional bodies and associations expressed concerns that requiring disclosures on Scope 3 emissions in the Aotearoa New Zealand Climate Standards (NZ CS) would make it difficult for entities to report in accordance with the standards.
These concerns were expressed in comment letters to the External Reporting Board (XRB), responsible for developing the standards, during the consultation period which ended on September 27.
- Climate disclosures will be mandatory for large, listed companies with a market capitalisation of more than $60 million and for large-licensed insurers, registered banks, credit unions, building societies and managers of investment schemes with more than NZ$1b in assets.
- The Standards are formed of three parts:
- NZ CS1: Main disclosure standard based on TCFD framework
- NZ CS2: Provisions for first-time adoption
- NZ CS3: Authoritative notice with key concepts
- XRB intends to issue standards in December 2022 with entities required to report according to the standard for accounting periods starting on or after 1 January 2023
All the comment letters Corporate Disclosures analysed were generally positive on the draft standards. For example, they all agreed that they would "meet primary users' needs" and praised XRB for aligning as much as possible with the TCFD framework.
However, they offered a range of concerns on the feasibility for entities to prepare the required disclosures.
The New Zealand Bankers' Association's (NZBA) biggest concern was the requirement to disclose Scope 3 emissions.
Scope 3 is the indirect emissions of business activities throughout the value chain, including investments, transportation and distribution. NZ CS2 provides an exemption from reporting on these emissions for first-time adopters.
However, the NZBA said that the collection of Scope 3 emissions would be a "challenging process in the initial reporting periods", even after the provision for first-year adoption are applied.
This concern was shared by the Chartered Accountants Australia and New Zealand which said: "Some sectors are not yet sufficiently mature to be able to make these disclosures appropriately and accurately."
The Institute of Finance Professionals New Zealand said it was most concerned with the ability of Managed Investment Schemes, schemes funded by a pool of investors that are operated by a fund manager, to disclose in compliance with the standards.It argued that the standards did not give enough focus to these schemes and said they should follow the example of the EU's CSRD which better accounted for them.
The New Zealand Society of Actuaries said that comparability, a principle stated in NZ CS2, would be difficult to achieve in the first few years as different entities settle on different forms of disclosure to meet the standards. It did, however, say that it predicted the disclosures would become more comparable over time.
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