Climate-related disclosure webinar series

There are minimal substantive differences between the two sets of standards because the foundational aspects of both sets of standards have their origins in the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). 

However, we should remember that the standards set out disclosure requirements only, i.e. “what” should be reported. The work needed to report effectively (i.e. the “how to do this”) is largely the same. So entities operating in both jurisdictions should be able to implement consistent base processes.

The XRB indicated that they will be do a post issuance review in the basis for conclusions to the standards. However, even if changes are made to the disclosure requirements to remove some of the differences, the expectation is that it will have little impact on the work that is required.

The key is not to think about these two aspects as two entirely separate streams of work; they are interconnected. That is one of the reasons why the New Zealand definition of “transition plan” refers to both aspects. So in developing the transition plan the reporting entity bring together targets, metrics and actions that are aligned in achieving the stated ambitions.

The disclosures do not require a set level of detail. The disclosures effectively require the entity to disclose what it has done and/or planning to do; and the entity should consider the information needs of the primary users of its report in determining the level of detail to present.

It is an iterative process that requires the entity to determine its ambition for the future and the changes to business model and strategy that are needed to remain resilient. The key is that it is not a static, set-and-forget activity, but should become part of the annual planning/review processes.

The transition plan is not a “separate document” or artifact that needs to be produced. The New Zealand standard requires for it to be part of the strategy and to describe targets, metrics and actions.

The key is for entities to consider how they can most usefully “connect the dots” for the users of their climate statements between the risks and opportunities identified, the planned changes to business model and strategy, the metrics and targets that they are looking to achieve and the actions they plan to take.

Most entities have focused on the identification of risks and opportunities in their first climate reports. We expect that the second climate reports will start to describe the planned actions and how these will be measured.

Yes. Collaboration can help to achieve objectives faster and address shared issues more effectively. The solutions and resources needed to address the impacts of climate change require systems thinking.

Unfortunately there is no easy answer to this and a big part of the work needed is develop a mindset that is reasonably comfortable to live with the uncertainty because one thing we know is that change is constant. This learning is required not only by the reporting entity but also by the regulators and the users of reports.

That is why this work requires the use of scenario analysis – not to try to forecast the future, but to prepare the entity for a number of possible futures. This should allow the entity to plan flexible strategies to remain resilient.

It is also important to develop effective communication strategies to keep the users of the reports (and by definition those that are looking at the targets) informed about the assumptions, the challenges, the uncertainties and the interim targets. Also to flag early when aspects are not turning out as expected that may require a change in direction. 

Most importantly is to document the process followed, the evidence considered and the rationale for the decisions and/or changes agreed and reported.  

Raw materials are typically categorised under purchased goods and services. It is up to each entity to decide on the level of detail they deem material for external reporting purposes and balanced with the resources required to maintain data collection processes that are still being refined.

Even if an emission source like employee commuting is considered non-material, you must disclose the exclusion and provide the rationale. Standards require reporting on exclusions and the reasons behind them, especially if the source is not significant or one where you believe your organisation has little influence over. 

It’s essential to thoroughly document your decisions, choices, and assumptions, especially as the entity matures and the quality of information evolves. Clear and verifiable documentation is crucial for assurance providers.

A description of the data quality of reported emissions data for each source is required to be reported if reporting in accordance with the Corporate Value Chain (Scope 3) Accounting and Reporting Standard. Please note the standard includes guidance on data quality and how to apply criteria to evaluate data quality indicators. 

In developing the Aotearoa New Zealand Climate Standards, the XRB notes that data quality scores could be disclosed depending on an entity’s choice of measurement standard, noting that if an entity employed the PCAF method, it would disclose a data quality score. 

You should individually track emission factor updates. There are many emission factor databases, however no centralised global source exists. Staying informed through resources like subscribing to the KPMG reporting news is advantageous as it provides updates on emission factors when relevant.

The standards helpfully suggest that an entity not only set long term “ultimate” targets, but also include interim targets. Regardless, all targets, metrics and supporting calculations/information should be regularly reviewed for early warning signals that a change may be required. This can be communicated through the estimation and uncertainties types of disclosures so that it is not a surprise to the reader of the report when an update is required. The issue is not that the target is changing, it is about the timing of communicating a change.

Target-setting decisions are entity specific and therefore sub-scope targets are acceptable

Maintain a recalculation policy to guide updates. Significant methodological changes require either recalculation of base-year data or a thorough explanation for the changes to ensure clarity and consistency in future emissions reporting.

We suggest looking at this exercise in similar way as one would for determining estimates for financial statement purposes. There is currently no audit requirement, but sufficient supporting information should be maintained not only for future reference but also to support the required disclosures around estimation uncertainty.

The key is to make it clear who are deemed to be the primary users for the purposes of the disclosures. Some entities include also a “health warning” stating that the disclosures are not meant to provide all the information that specific users might require.

Quantification is a critical input into decisions about the actions that the entity will or will not take in respect of the identified risks, opportunities and impacts. The disclosures are all interconnected and understanding the investment and capital budgeting decisions of the entity can inform readers about the achievability of targets.

It is important that materiality for the purpose of these disclosures is not limited to quantitative thresholds. The key is therefore to consider whether the information is relevant to users – even a small dollar amount could have information value. Given that the standard deems these disclosures to be material, detailed documentation will need to be maintained if the entity determines that no disclosure is required as it is highly likely that the lack of disclosure will raise interest.

The purpose of scenario analysis is to identify the climate related risks that an entity may be exposed to and the opportunities that an entity may be able to capture and exploit, and to test the resilience of the organisation. 

CS1 requires quantification of the anticipated financial impacts of climate-related risks and opportunities reasonably expected by an entity.

The words “reasonably expected” acknowledges there is inherent uncertainty in the information set and impact of climate risks and opportunities on the entity. It is meant to limit the disclosure to those aspects that are being considered in the entity’s decision-making processes rather than going beyond and requiring the entity to provide information about risks, opportunities and impacts that the entity currently determines to be unlikely.

The standards set out the requirements of the “types” of information to be disclosed, not “how” this should be presented. Each entity should consider the approach that would be most relevant to the users of its information – how best to tell the “story”.