The External Reporting Board (XRB) has suggested the International Financial Reporting Standards (IFRS) S2 climate-related disclosure standard be adopted as New Zealand's future climate reporting framework. The aim of the proposal is to integrate New Zealand's climate disclosures into a global reporting framework and to progressive displace the current NZ Climate Standards (NZ CS) during a staged period.

The proposed transition towards IFRS S2 climate reporting, sustainability disclosures, climate-related financial disclosures, the ISSB standards, and reporting on greenhouse gas emissions is part of a consultation initiated by the XRB. The plan is that NZ companies will need to report in the usual NZ CS (or switch to IFRS S2 reporting) until 2033, and then report in IFRS S2 reporting.

The NZ Climate Reporting Framework is currently in its early stages.

In 2024, New Zealand has mandated climate-related disclosures for selected financial institutions and listed companies. The current reporting framework is aligned with the TCFD recommendations and was designed and developed by the XRB using the New Zealand Climate Standards prior to the launch of the global sustainability standards by the ISSB.

The current country climate reporting requirements only apply to financial services entities and publicly listed companies with certain thresholds. The government has suggested a higher level for disclosures, with only companies with NZ$1 billion or more in market capitalisation or debt face value required to report on climate change.

Proposed Transition to IFRS S2

The XRB said that transitioning to an IFRS S2-based standard may help achieve better international alignment and consistency with other markets' climate reporting frameworks. The proposal would also align with the AASB S2 standard, which is issued by the Australian Accounting Standards Board (AASB) in accordance with IFRS, to lessen the duplication of efforts for companies with operations in Australia and internationally.

There is a potential to make the information more comparable to investors and other users of the information through a common reporting approach, according to the XRB. The organisation also recognised, however, that there may be implementation issues and costs to reporting entities during the transition.

There are some differences between NZ CS and IFRS S2.Some differences exist between NZ CS and IFRS S2.

The XRB pointed out that both NZ CS and IFRS S2 are built on the same basic TCFD pillars - Governance, Strategy, Risk Management and Metrics and Targets. Both frameworks also address information on climate related material and the effects of climate risks and opportunities to businesses.

IFRS S2 requires more detailed and specific disclosure requirements, however, than the current New Zealand disclosure requirements. The international standard also offers more guidance on various aspects, such as connected information, key judgements, value chain and assumptions around transition plans.

One of the main differences is the increased disclosure of metrics and targets under IFRS S2. It also mandates that companies report greenhouse gas emissions according to the GHG Protocol, providing a more uniform way of reporting emissions.

Adoption of IFRS Standards: Global Adoption of IFRS Standards

In June 2023, the ISSB presented the first-ever global sustainability and climate reporting standards. Since then, over 40 jurisdictions have either adopted the standards or started to integrate the standards into their reporting systems.

The implementation of the IFRS Sustainability Reporting Standards has raised expectations for countries to harmonise their climate disclosure standards with IFRS. This is part of a broader trend towards more similar sustainability reporting practices, evident in New Zealand’s proposed transition.

Long Transition Period Proposed

For the change, the XRB has provided draft climate reporting roadmap, which allows companies several years to prepare. Until 2033, businesses would be given a choice between the standard and the NZ CS framework.

Once the transition period is over, IFRS S2 would be the disclosure standard that companies covered by the country's disclosure regime would have to comply with. The approach is designed to achieve international alignment with the understanding of New Zealand's domestic reporting environment, the XRB said.

The proposed direction is designed to ensure New Zealand remains aligned with international developments, is harmonised with the approach to reporting taken in Australia, and meets local needs, the XRB said.

The consultation process on the proposed climate reporting roadmap will continue until 30 September 2026, and feedback will be considered when deciding what the New Zealand climate disclosure framework will look like in the future.