NZ CS 2

1. In recognition that it may take time to develop the capability to produce high-quality climate-related disclosures, and that some disclosure requirements, by their nature, may require an exemption, this Standard provides a limited number of adoption provisions from the disclosure requirements in Aotearoa New Zealand Climate Standards.

1.1 This Standard also provides an adoption provision relating to the assurance of scope 3 GHG emissions disclosures. This adoption provision recognises the temporary challenges in obtaining sufficient reliable data to support the disclosures subject to an assurance engagement and to enable increased consistency across the assurance market.

2. The ultimate aim of Aotearoa New Zealand Climate Standards is to support the allocation of capital towards activities that are consistent with a transition to a low-emissions, climate- resilient future.

3. This Standard applies to entities that are required by the Financial Markets Conduct Act 2013 to prepare climate statements or group climate statements that comply with the climate-related disclosure framework.

4. Any entity that elects to or is otherwise directed to prepare climate statements or group climate statements is encouraged to apply all the requirements of Aotearoa New Zealand Climate Standards.¹

5. This Standard does not apply to an interim period.

6. An entity may elect to use one or more of the adoption provisions contained in this Standard. Some of the adoption provisions exempt certain disclosures whereas other adoption provisions require alternative information to be disclosed

7. Adoption provisions 1 and 3 are only available to an entity when preparing and presenting climate statements or group climate statements for its first reporting period.

8. Adoption provisions 2 and 4 to 7 are available to an entity when preparing and presenting climate statements or group climate statements for its first reporting period, second reporting period, third reporting period or fourth reporting period.

8.1 Adoption provision 8 is available to an entity when preparing and presenting climate statements or group climate statements in relation to accounting periods ending before 31 December 2025.

9. An entity that has prepared and presented climate statements or group climate statements in a previous reporting period, but not in its immediately preceding reporting period, is permitted by this Standard to use adoption provisions 6 and 7 again. This paragraph applies despite paragraph 8.

10. Paragraph 12(b) of NZ CS 1 Climate-related Disclosures requires the following disclosure:

the current financial impacts of its physical and transition impacts identified in paragraph 12(a).

This Standard provides an exemption from this disclosure requirement in an entity’s first reporting period.

11. If an entity elects to use the adoption provision in paragraph 10, this Standard also provides an exemption from paragraph 12(c) of NZ CS 1:

if the entity is unable to disclose quantitative information for paragraph 12(b), an explanation of why that is the case.

12. Paragraph 15(b) of NZ CS 1 requires the following disclosure:

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

This Standard provides an exemption from this disclosure requirement in an entity’s first reporting period and second reporting period.

13. If an entity elects to use the adoption provision in paragraph 12, this Standard also provides an exemption from paragraph 15(c) of NZ CS 1:

a description of the time horizons over which the anticipated financial impacts of climate- related risks and opportunities could reasonably be expected to occur.

14. If an entity elects to use the adoption provision in paragraph 12, this Standard also provides an exemption from paragraph 15(d) of NZ CS 1:

if the entity is unable to disclose quantitative information for paragraph 15(b), an explanation of why that is the case.

15. Paragraphs 16(b) and 16(c) of NZ CS 1 require the following disclosure:

the transition plan aspects of its strategy, including how its business model and strategy might change to address its climate-related risks and opportunities; and the extent to which transition plan aspects of its strategy are aligned with its internal capital deployment and funding decision-making processes.

This Standard provides an exemption from these disclosure requirements in an entity’s first reporting period.

16. If an entity elects to use the adoption provision in paragraph 15, it must provide a description of its progress towards developing the transition plan aspects of its strategy, in its first reporting period.

17. Paragraph 22(a)(iii) of NZ CS 1 requires the following disclosure:

greenhouse gas (GHG) emissions: gross emissions in metric tonnes of carbon dioxide equivalent (CO₂e) classified as scope 3.

Although disclosure of scope 3 greenhouse gas (GHG) emissions is encouraged for all entities on adoption of Aotearoa New Zealand Climate Standards, this Standard provides an exemption from this disclosure requirement in an entity’s first reporting period and second reporting period. An entity may choose to apply the adoption provision in this paragraph to all its scope 3 GHG emissions sources, or a selected subset of its scope 3 GHG emissions sources. If an entity discloses a selected subset of its scope 3 GHG emission sources, it must identify which sources it has not disclosed.

18. Paragraph 40 of NZ CS 3 General Requirements for Climate-related Disclosures requires the following disclosure:

For each metric disclosed in the current reporting period an entity must disclose comparative information for the immediately preceding two reporting periods.

If an entity elects to use the adoption provision in paragraph 17, this Standard provides an exemption from providing comparative information for scope 3 GHG emissions in an entity’s third reporting period.

19. If an entity elects to use the adoption provision in paragraph 17, this Standard permits an entity to provide one year of comparative information for scope 3 GHG emissions in an entity’s fourth reporting period.

19.1 If an entity elects to use the adoption provision in paragraph 17 only for its first reporting period, this Standard allows an entity to exclude comparative information for scope 3 GHG emissions in its second reporting period and permits an entity to provide one year of comparative information for scope 3 GHG emissions in its third reporting period.

20. Paragraph 40 of NZ CS 3 requires the following disclosure:

For each metric disclosed in the current reporting period an entity must disclose comparative information for the immediately preceding two reporting periods.

This Standard provides an exemption from this disclosure requirement in an entity’s first reporting period.

21. In an entity’s second reporting period, this Standard permits an entity to provide one year of comparative information for each metric.

22. Paragraph 42 of NZ CS 3 requires the following disclosure:

An entity must disclose an analysis of the main trends evident from a comparison of each metric from previous reporting periods to the current reporting period.

This Standard provides an exemption from this disclosure requirement in an entity’s first and second reporting period.

22.1 If an entity elects to use the adoption provision in paragraph 17 for its first reporting period and second reporting period this Standard allows an entity to exclude an analysis of main trends (see paragraph 22) for scope 3 GHG emissions in an entity’s first reporting period, second reporting period and third reporting period.

23. If an entity elects to use any of the adoption provisions in this Standard, it must include a description of the adoption provisions used in conjunction with its statement of compliance with Aotearoa New Zealand Climate Standards (see NZ CS 3, paragraph 55).

24. For accounting periods ending before 31 December 2025, this adoption provision allows an entity to exclude its scope 3 GHG emissions disclosures from the scope of the assurance engagement (see paragraphs 25, 26(a)(iii), 26(b) and 26(c) of NZ CS 1). This means that the assurance of the entity’s scope 3 GHG emissions disclosures will apply in relation to accounting periods ending on or after 31 December 2025.

25. For the avoidance of doubt, if adoption provision 8 is used, the entity’s scope 1 and scope 2 GHG emissions disclosures must be the subject of an assurance engagement (see paragraphs 25, 26(a)(i) and (ii), 26(b) and 26(c) of NZ CS 1).

26. If an entity elects not to use adoption provision 4 it may still use adoption provision 8. In such a case, this Standard requires an entity to clearly identify that its scope 3 GHG emissions disclosures have not been mandatorily assured.

B1. An entity must apply this Standard for annual reporting periods beginning on or after 1 January 2023.

B2. Amendments to Adoption of Aotearoa New Zealand Climate Standards 2024, published in November 2024, amended paragraphs 7, 8, 12, 17, 18 and 19 and added paragraphs 1.1, 8.1, 19.1, 22.1, 24, 25, 26 and a new defined term ‘fourth reporting period’ to Appendix A. An entity must apply those amendments in accordance with the commencement and application date provisions in paragraphs B3 to B5.

B3. This amending Standard takes effect on the 28th day after the date of its publication under the Legislation Act 2019. The amending Standard was published on 27 November 2024 and takes effect on 25 December 2024.

B4. The accounting periods in relation to which this amending Standard commences to apply are those accounting periods following, and including, the first accounting period for the entity that begins on or after the mandatory date.

B5. In paragraph B4:

mandatory date means 1 January 2024.

BC1. This Basis for Conclusions summarises the XRB Board’s considerations in developing NZ CS 2 Adoption of Aotearoa New Zealand Climate Standards as part of the climate-related disclosure framework for Aotearoa New Zealand.

BC2. The Basis for Conclusions accompanying NZ CS 1 Climate-related Disclosures contains further information on the development of the climate-related disclosure framework, including an explanation of the multi-phase consultation process undertaken by the XRB.

BC3. The XRB Board became aware through its consultation process that the depth of understanding of climate-related risks and opportunities varied substantially across entities in the climate reporting regime. Furthermore, capability to enable high-quality climate-related disclosures will take time to develop and evolve. Rather than delay the application of Aotearoa New Zealand Climate Standards, the XRB Board decided to issue a separate Standard containing adoption provisions to assist entities while they are developing that capability. The XRB Board noted that those entities that are more advanced in their climate reporting journey may choose not to apply any of the adoption provisions in this Standard.

BC4. The XRB Board also decided that some disclosure requirements, by their nature, require an exemption. For example, an exemption from providing comparative information for an entity in the early years of reporting when that information has not previously been compiled.

BC5. As discussed in the Basis for Conclusions accompanying NZ CS 1, the XRB Board issued ED NZ CS 2 First-time Adoption of Aotearoa New Zealand Climate Standards in July 2022.

BC6. The XRB Board received 56 formal submissions in response to the three July 2022 exposure drafts, being ED NZ CS 1 Climate-related Disclosures, ED NZ CS 2 and ED NZ CS 3 General Requirements for Climate-related Disclosures. Comments were received by respondents on the proposed adoption provisions in ED NZ CS 2. This Basis for Conclusions includes the reasons for accepting particular views and rejecting others.

BC7. The XRB Board received feedback on ED NZ CS 2 that it should clarify whether any adoption provisions are available for use by an entity that had previously prepared and presented climate-related disclosures in accordance with Aotearoa New Zealand Climate Standards but had not done so for several reporting periods. This situation could arise where an entity no longer has a legislative requirement to prepare climate statements because it is no longer large, but subsequently becomes large again in a future reporting period.

BC8. The XRB Board agreed that it should be clear in this Standard when an entity is able to use the adoption provisions. The XRB Board’s view expressed in ED NZ CS 2 was that the adoption provisions should only be available to entities the first time an entity adopts Aotearoa New Zealand Climate Standards and that an entity should not be able to take advantage of any adoption provisions in future reporting period(s). However, on reflection, the XRB Board decided that the two types of adoption provisions proposed in ED NZ CS 2 were fundamentally different in nature. These were Type A: those that applied to disclosure requirements representing more complicated areas of disclosure such as the disclosure of scope 3 GHG emissions, and Type B: those that, by their nature, required an exemption, such as, the disclosure of comparative information.

BC9. The XRB Board concluded that an entity should be permitted to use the Type A provisions only once but should be permitted to use the Type B provisions more than once if necessary. This means that, for example, if an entity no longer meets the criteria of being a climate reporting entity by dropping under the size threshold, but then, after an intervening period of not meeting the criteria, becomes ‘large’ again, that entity can avail itself of adoption provisions 6 and 7. Paragraphs 7 to 9 of this Standard have been included to reflect this decision.

BC10. The XRB Board also decided to remove ‘First-time’ from the title of this Standard so that its application was clearer.

BC11. The XRB Board sought feedback on its preliminary view that adoption provisions were not required for the Governance and Risk Management sections of NZ CS 1 as part of its October 2021 Governance and Risk Management consultation (GRM consultation). Most respondents agreed with the XRB Board’s view that adoption provisions were unnecessary for the Governance and Risk Management disclosures. Of those respondents advocating for adoption provisions, the primary arguments related to recognising that many entities are in the early stages of developing their capability in relation to climate-related reporting, and that it can be a large task for entities to implement climate risk frameworks.

BC12. The XRB Board acknowledged the feedback received but noted that the intent of both the Governance and Risk Management sections of NZ CS 1 is for an entity to disclose the extent of its activities, not to require a certain level of performance. An entity will be able to meet the Governance and Risk Management disclosures by describing its current processes and activities. The XRB Board affirmed its preliminary view and did not propose any adoption provisions for the Governance and Risk Management disclosures in ED NZ CS 2. Responses to ED NZ CS 2 indicated support for this decision.

BC13. In March 2022, the XRB Board published the Strategy, and Metri‍cs and Tar‍gets Consultation Document (SMT consultation). In the SMT consultation, the XRB Board requested feedback on its proposed Strategy adoption provisions, covering current and anticipated financial impacts disclosures, and transition planning disclosures.

BC14. The XRB Board received generally positive feedback on the proposed adoption provisions. Many acknowledged that the underlying disclosures required difficult underlying analysis and planning, and that the proposed adoption provisions provided some relief. Other feedback noted that, in the context of climate change, entities need to have incentives to start dealing with these more difficult issues and that primary users are seeking information on these matters now. These respondents argued in favour of no adoption provisions.

BC15. Given that the analytical methods currently available to undertake analysis on financial impacts are relatively novel to entities, the XRB Board decided to provide adoption provisions for financial impact disclosures. The XRB Board recognises that undertaking this type of analysis is challenging, involves grappling with a high degree of uncertainty, and, in many instances, longer time horizons than those considered in other contexts such as financial reporting.

BC16. The XRB Board decided to provide an adoption provision for transition planning to give entities time to develop such plans and to ensure entities properly scope and embed transition planning as a core aspect of strategy. Unlike other adoption provisions, the XRB Board decided that entities must disclose their progress towards developing a transition plan if they take advantage of this adoption provision. This is due to both strong primary user demand for this information and the important role of transition planning in an entity’s ability to build resilience to climate change and in communicating specific actions they are taking to reduce emissions.

BC17. In the SMT consultation, the XRB Board carefully considered, but decided against, proposing adoption provisions for Strategy disclosures relating to scenario analysis. Scenario analysis plays a core role in the broader context of NZ CS 1. Scenario analysis should precede the calculation of financial impacts, as well as transition planning aspects of an entity’s strategy. This is because scenario analysis provides entities with systemic insights into how future climate-related risks and opportunities might affect their business models and strategies. Furthermore, if adoption provisions for scenario analysis were included, the XRB Board considered that disclosures for current and anticipated financial impacts, and transition planning would subsequently need to be further delayed. Such delays would create broader risks for the financial system if this information was not disclosed until 2025–2030, in the context of New Zealand’s 2030 emissions reduction target and broader climate change objectives.

BC18. Although some respondents to the SMT consultation requested relief from scenario analysis, many respondents (including comments made during informal consultation), observed that it is important that entities start now on this work. The XRB Board therefore decided to confirm its original decision not to provide adoption provisions for scenario analysis in NZ CS 2. The XRB Board’s parallel encouragement of sector-level collaboration on scenario analysis is also expected to reduce the resourcing requirements and cost burden for a significant number of entities.

BC19. The XRB Board did not propose any adoption provisions for Metrics and Targets in the SMT consultation, except for the adoption provision which exempted the disclosure of comparative information for metrics.

BC20. While respondents agreed with the requirement to disclose scope 3 greenhouse gas (GHG) emissions, many respondents highlighted challenges with measuring these emissions. Particular areas of concern were financed and underwritten emissions, including concerns raised about the lack of methods for calculating scope 3 emissions, including for general insurance underwriting, health and travel insurance, derivatives and sovereign bonds. Concerns were also raised about the effort required, and ability to, identify and collate data for other categories of financed emissions. Respondents requested that the XRB Board consider providing some adoption relief from the disclosure of scope 3 GHG emissions.

BC21. The XRB Board considered options for providing relief from the disclosure of scope 3 GHG emissions, including whether to provide an exemption from disclosing certain scope 3 categories in the first year of reporting (for example, category 15 financed emissions). The XRB Board decided, on balance, to propose in ED NZ CS 2 an exemption from disclosing all scope 3 GHG emissions in an entity’s first reporting period. Following feedback received on ED NZ CS 2 the XRB Board clarified in this Standard, that an entity may choose to apply the adoption provision to all its scope 3 GHG emissions sources, or a selected subset of its scope 3 GHG emissions sources. The XRB Board decided that, if an entity chose to disclose a selected subset of its scope 3 GHG emission sources, it must identify which sources it has not disclosed (see paragraph 17).

BC22. Although the XRB Board decided to provide an exemption from disclosure for the first year of reporting, it strongly encourages entities to measure their scope 3 GHG emissions. For most entities, scope 3 GHG emissions are where their most material emissions risks and opportunities lie. Obtaining a clear picture of the scale and scope of these emissions sources will greatly assist entities to understand their climate-related risks and opportunities and assist with transition planning.

BC23. The XRB Board noted that the GH‍G Protocol Corporate Accounting and Reporting Standard does not require an entity to report its scope 3 GHG emissions. Therefore, an entity would be able to measure in accordance with the Corporate Accounting and Reporting Standard while disclosing either none, or a subset of, its scope 3 GHG emissions. The XRB Board also noted that ISO 14064-1:2018 requires an entity to identify the intended use of its GHG inventory. This use may include regulated disclosure schemes such as the GHG emissions disclosures required by Aotearoa New Zealand Climate Standards.

BC24. In addition, the XRB Board noted that the GH‍G Protocol Corporate Accounting and Reporting Standard, the Corporate Value Chain (Scope 3) Accounting and Reporting Standard and ISO 14064-1:2018 – Greenhouse gases, allow an entity to exclude emission sources, including facilities, operations or assets under certain limited circumstances. Any specific exclusions of sources must be disclosed with a justification for their exclusion. The XRB Board believes the justification of exclusions is an important disclosure in its own right and has included it in NZ CS 1 (see NZ CS 1, paragraph 24(d)).

BC25. Some respondents requested adoption provisions in relation to Me‍trics and Tar‍gets generally as part of the feedback received during the SMT consultation. They cited concerns that the Task Force on Climate-related Financial Disclosures (TCFD) cross-industry metric categories were relatively new and that there was a lack of data. In addition, time was needed for entities to put in place systems to measure and track these metrics and related targets. The XRB Board considered this feedback but decided not to provide any additional adoption provisions in ED NZ CS 2 as it considered that entities should be able to provide the metrics identified, albeit with a higher level of uncertainty or estimation in the first few years of disclosure. Responses to ED NZ CS 2 indicated support for this decision, and as a result no additional metrics and targets adoption provisions were included in this Standard.

BC26. In ED NZ CS 2, the XRB Board noted that because Aotearoa New Zealand Climate Standards are based on TCFD recommendations, those entities that had voluntarily applied the TCFD’s recommendations may be able to apply a retrospective approach and provide comparative metrics in their first reporting period. However, the XRB Board acknowledged that not all entities would be able to use a retrospective approach. Consequently, the XRB Board decided to include an adoption provision to provide exemptions from disclosing comparative information for metrics (see Adoption provision 6). Responses to ED NZ CS 2 supported the XRB Board’s decision.

BC27. Some respondents to ED NZ CS 2 requested that the XRB Board clarify the requirement to disclose comparative information when an entity uses adoption provision 4: Scope 3 GHG emissions. The XRB Board agreed clarification was required and consequently added Adoption provision 5: Comparatives for Scope 3 GHG emissions.

BC28. Some respondents to ED NZ CS 2 requested an additional adoption provision from having to restate comparative information when methods had changed. The XRB Board had already decided that restatement of comparative information would not be required when an entity changes the methods used to calculate a metric. This decision is reflected in the requirements in NZ CS 3 (see NZ CS 3, paragraphs 44-46).

BC29. Because the XRB Board had decided to include an adoption provision for comparative information, it concluded that entities should also be given an exemption for trend analysis in its first two reporting periods (see paragraph 22).

BC30. During 2024, the XRB was made aware of challenges and concerns relating to the implementation of Aotearoa New Zealand Climate Standards (NZ CS). Stakeholders advised they were facing challenges with obtaining reliable data, high costs, and how to disclose in the absence of comprehensive guidance on certain topics. Stakeholders also shared challenges relating to assurance over scope 3 GHG emissions disclosures because of difficulties in obtaining sufficient reliable data from up and downstream entities.

BC31. Responding to the implementation challenges and concerns raised by stakeholders, in October 2024, the XRB Board issued Exposure Draft – Amendments to Adoption of Aotearoa New Zealand Climate Standards 2024. In the exposure draft, the XRB Board proposed amending NZ CS 2 as follows:

1. a one-year extension to the adoption provision for scope 3 GHG emissions disclosures;
2. a new one-year adoption provision relating to the assurance of scope 3 GHG emissions disclosures;
3. a one-year extension to the adoption provision for anticipated financial impacts disclosures; and
4. a one-year extension to the adoption provision for transition planning disclosures.

BC32. The XRB Board at the same time also issued Exposure Draft – Amendments to Assurance Engagements over Greenhouse Gas Emissions Disclosures 2024. This exposure draft proposed amendments to NZ SAE 1 Assurance Engagements over Greenhouse Gas Emissions Disclosures as a result of the proposed new one-year adoption provision relating to the assurance of scope 3 GHG emissions in NZ CS 2.

BC33. The XRB Board received 106 written responses to the consultation. During the consultation period the XRB held six online feedback sessions, with 55 attendees across the six sessions. The XRB also held eight targeted workshops and meetings to seek feedback from the following stakeholders:

1. XRAP;²
2. the Climate and ESG Committee of the Financial Services Council;
3. the Institute of Directors;
4. Data providers; and
5. Assurance practitioners.

BC34. Most respondents agreed with the XRB Board’s proposal to extend the existing adoption provision for the disclosure of scope 3 GHG emissions by one more year. Respondents noted that the extension would allow for more accurate, reliable, and quality data to be available. Many respondents commented that the extension would allow time for them to put in place effective controls, processes and systems to collect and report on their scope 3 GHG emissions.

BC35. Managed investment scheme managers (MIS managers) expressed concerns with their ability to assess the reliability of data, noting that a large portion of their scope 3 GHG emissions are estimated by third party data providers. MIS managers emphasised the need to provide enough time for the level of company-reported emissions data to mature so that MIS managers can draw from more accurate and reliable data sources. They noted that this would give assurance practitioners and end users of the climate statements greater certainty over the data disclosed.

BC36. Some respondents did not agree with the XRB Board’s proposal. Some of the reasons provided by these respondents included:

1. users and entities need the information about scope 3 GHG emissions now to support the allocation of capital to a low-emissions, climate-resilient future;
2. a further delay risks entities doing nothing or making decisions to de-prioritise work and be in the same place in a year's time;
3. entities will learn by doing i.e., the journey of improvement only starts once scope 3 GHG emissions reporting commences, and the entity understands where further refinement is needed; and
4. scope 3 GHG emissions are an important metric to assess transition risk within the value chain.

BC37. The XRB Board decided on balance to proceed with the one-year extension to the adoption provision for scope 3 GHG emissions disclosures as proposed. However, when deciding on the additional one-year relief, the XRB Board noted that the data issues and collection challenges identified by stakeholders will not all be resolved in a year and may continue for some time into the future. The XRB Board noted that by nature, scope 3 GHG emissions contain high levels of estimation and uncertainty and that NZ CS acknowledges and allows for this (for example, disclosures on any exclusions, disclosure of methods and assumptions and level of uncertainty).The XRB Board noted that one additional year will allow entities more time to put in place effective controls, processes and systems to collect and report on their scope 3 GHG emissions. It will also allow the XRB time to provide further implementation support to entities disclosing scope 3 GHG emissions.

BC38. Most respondents indicated strong support for the XRB Board’s proposed inclusion of a new adoption provision that gives relief before the entity is required to obtain assurance over their scope 3 GHG emissions disclosures. Respondents supported this delay to enable entities time to put in place effective controls, processes and systems to collect and report on their scope 3 GHG emissions.

BC39. However, there were mixed views as to whether a one-year delay would be long enough to enable systems to mature adequately to support the availability of appropriate sufficient evidence for an assurance engagement. Some respondents agreed that one year would be enough time, some respondents were unsure or held no view about the appropriate length of time, while some did not agree that one year would be sufficient. A few respondents reflected that their entity would not disclose their GHG emissions without obtaining assurance. Many of the respondents who wanted to delay the assurance for more than one year also requested a delay in the disclosure of scope 3 GHG emissions for longer than one year.

BC40. MIS managers expressed concerns about the ability to obtain reliable data from third-party data providers and whether a one-year delay would be sufficient. However, during the consultation, XRB staff heard from third party data providers that they are moving at pace to address these matters and that the opportunity for assurance practitioners to rely on service organisation control reports covering the description, design and operating effectiveness of controls³ will be available within the year.

BC41. A few respondents expressed a concern at a lack (or perceived lack) of capacity and capability in the assurance market to provide the required assurance engagements. Assurance practitioners submitted that there is adequate resource.

BC42. The XRB Board decided to proceed with an optional delay in assurance of scope 3 GHG emissions disclosures by one year to recognise the current challenges in obtaining sufficient reliable information. However, it notes that, given the nature of scope 3 GHG emissions disclosure, there will always be inherent uncertainty and a high degree of estimation. For the avoidance of doubt, if the adoption provision is used by the entity, the scope 1 and scope 2 GHG emissions disclosures shall be the subject of an assurance engagement.

BC43. The XRB Board is committed to supporting the implementation of the assurance over GHG emissions disclosures and is developing guidance for both preparers and assurance practitioners.

BC44. The XRB Board also understands that the Financial Markets Authority will undertake targeted consultation in December 2024 on a possible class exemption to ensure the new one-year adoption provision relating to the assurance of scope 3 GHG emissions can be implemented with complete certainty by climate reporting entities. The FMA is considering exemption relief for one year for those entities in 2025 who disclose their scope 3 GHG emissions but do not have them assured, to complement the XRB relief.

BC45. Respondents strongly supported allowing more time for the underlying analysis relating to anticipated financial impacts disclosures. They noted that this would allow for more robust processes to be put in place, and data to be gathered, which would lead to higher-quality, more trusted disclosures. MIS managers in particular expressed concerns with their ability to do this type of analysis. They broadly supported the proposal (with some noting that they intended to make use of the ‘unable to disclose quantitative information’ ability in paragraph 15(d) of NZ CS 1).

BC46. Respondents strongly supported further guidance be issued by the XRB Board on this topic. Many requested that this be internationally aligned, delivered promptly and well targeted.

BC47. Some professional service providers noted that while further guidance would be welcome, they were of the view that learning-by-doing is an important part of the regime. They noted that, for example, the experience to date with scenario analysis is that starting early and learning is important and preferable to delay. Some noted that the data, tools and methods already exist for entities to draw from while others reiterated the complexity of the analysis in this area.

BC48. The key issue for the XRB Board to consider was whether more time would result in entities delaying their assessment, or enable better assessments. There is a risk that maturity does not grow if the time is not utilised by entities to learn-by-doing. If the work is simply pushed back by a year, then when entities come to disclose, they will find they are unprepared, potentially leading to lower quality disclosure. However, a lack of adequate guidance is a compelling reason for allowing more time and therefore the XRB Board decided to provide the additional year as proposed. The XRB is committed to prioritising further guidance for release in 2025, engaging with international standard setters, and with entities to encourage learning-by-doing and knowledge sharing.

BC49. Most respondents supported extending the adoption provision regarding transition planning disclosures for a second reporting period. However, most of these supportive submissions appeared to base their support on an understanding that this disclosure requires a fully-fledged, certain and finished ‘plan’, rather than an understanding that it is an iterative and dynamic process, with the disclosure reflecting this over time.

BC50. Some respondents, comprised of primary users, practitioners, and entities who had already started transition planning, provided a different perspective. They described transition planning as an iterative and dynamic process, and a key conversation starter, both internally and with primary users. These respondents provided a strong theme of learning-by-doing, with some noting that transition planning will be a “work in progress for the foreseeable future” and an important tool to improve business decision making and capital allocation, therefore strongly contributing to the purpose of the climate reporting regime as a whole.

BC51. Primary users indicated in their submissions that they see this disclosure as critical to assess entities’ maturity and level of commitment, and what the entities are doing to avoid capital misallocation while refining their long-term transition plan. Primary users expressed expectations aligned with this continuous improvement approach of transition planning, and while more guidance might be needed in the future as entities progress, the guidance readily available is sufficient for most entities to start disclosing useful information to their primary users.

BC52. Primary users raised concerns that they needed more information regarding entities’ transition planning progress and maturity than was disclosed in the first year by some entities under paragraph 16 of NZ CS 2. As expressed in paragraph BC 16 of NZ CS 2, transition planning plays an important role in an entity’s ability to build resilience to climate change and in communicating specific actions taken to reduce emissions. Any further delay in starting transition planning work and disclosure could result in adverse effects contrary to the stated aim of NZ CS to support the allocation of capital towards activities that are consistent with a transition to a low-emissions, climate-resilient future.

BC53. The XRB Board has decided not to proceed with the proposal to provide an additional year for transition planning disclosures on the basis of hearing strong primary user demand for this information and to avoid accumulating broader risks for the financial system if this information was not disclosed. The XRB has already issued guidance on transition planning and further guidance will be issued by Q1 2025. The XRB will emphasise that transition planning is an ongoing iterative and dynamic process.

BC54. Some respondents (mostly climate reporting entities) made requests for further time than the proposals. The XRB Board considered these requests closely both as an overarching consideration and specifically in relation to each of the proposals.

BC55. Overall, the XRB Board’s view was that to most appropriately balance information demands from primary users, the availability of methods, support, guidance, and costs and benefits, a one-year extension for these proposals was generally most appropriate. In relation to transition planning, the urgency and nature of the information (iterative, rather than ‘finished’), means it can be provided without further delay.

BC56. Some respondents emphasised the importance of aligning the timing of disclosure requirements with international climate reporting regimes, particularly that of Australia. In support, some cited the fact their parent companies had incoming disclosure requirements in Australia, data quality benefits, market capacity and the potential to reduce costs. During the consultation process, XRB staff engagement found that the planned introduction of regimes in other jurisdictions, particularly Australia, will influence the New Zealand regime. Specifically, it will drive significant improvements in data availability and transparency for New Zealand entities and professional service providers in the very near future.

BC57. The XRB Board also considers that some of the perceived benefits of alignment cited by respondents relate much more to aligning substantive disclosure requirements rather than timing alone. These are broader questions outside the scope of this consultation, but important questions that the XRB Board intends to consider in 2025 as part of the previously signalled post-implementation review.