Banks and financial analysts have started using new climate disclosure rules to understand the financial risks posed by climate change. Photo: 123RF
The government is considering halving the number of companies required to report their greenhouse gas emissions.
Just a year after the country's "world leading" climate disclosure rules came into force, the bar looks likely to be lowered after complaints about "ridiculous" compliance costs of up to a million dollars.
The rules require certain large companies - including some stockmarket-listed companies and some big Kiwisaver providers - to publish transparent and consistent disclosures on their plans and efforts to reduce emissions, as well as the risks climate change could pose to their businesses.
Banks and financial analysts have started using the statements to get a handle on the financial risks posed by climate change - the goal being to lower the risk of lending and investment and help money flow more freely.
But Turners Automotive Group says it spent a million dollars complying with the new climate disclosure rules during the first year in force, resulting in a final disclosure document just seven pages long.
The median cost in one market survey was about a quarter of that.
Turners chief financial officer Aaron Saunders said the company had to get its four separate divisions compliant with demanding rules on governance, risk and other matters.
Turners also built new data systems to get itself ready for future requirements to disclose supply chain emissions.
Saunders said the complexity of the data was such that the company decided it could not be managed in a spreadsheet or something simpler.
"The report is just the tip of the iceberg. We didn't spend a million dollars, you know, $150,000-odd page on that report, there is a bunch of work that goes on underneath that," he said.
"We sell 40,000 cars a year, we [will] have to report the remaining lifetime emissions of every single one of those vehicles and so we had to had to build a system to record that data," Saunders said.
Other companies complained the regime was too onerous compared with Australian companies of a similar size, according to the consultation document on the proposed changes.
Another complaint was that fear of prosecution was making companies afraid of sharing climate information, particularly with directors' facing personal liability.
One proposal being considered would roughly halve, to 54, the number of sharemarket-listed companies that have to report on their emissions, as well as on the risks climate change poses to their businesses.
In 2021 New Zealand was the first country in the world to introduce a law require big companies to reveal how much risk climate change posed to their bottom lines.
But with Australia and others now planning to grow and strengthen their regimes, Minter Ellison Rudd Watts financial services partner Lloyd Kavanagh says other countries will soon have stricter rules than New Zealand's.
Kavanagh said the proposed changes to entry thresholds were a recognition that the first year of reporting had been "very demanding" for smaller entities.
But he said other jurisdictions were catching up with New Zealand and many would soon have more onerous requirements, including Australia.
"There are going to be many more entities covered in Australia and it won't be limited to financial institutions or listed entities," he said.
"Because we went first, our regime is more flexible and probably less demanding than the international standards will prove to be."
Kavanagh said he was hearing a wide range of costs for the first year of compliance.
"The Financial Markets Authority have been very clear that in year one they are taking an educative approach. So as long as you're acting in good faith and even if you haven't got it exactly right, they are not going to be prosecuting.
"Many entities decided that with that approach, they were comfortable doing it in-house without external consultants."
"Many of them, I have the impression, have done their work for under $200,000 in cost," he said.
Kavanagh said costs would likely come down and many companies might choose to keep going, even if they did not have to.
He said if mandatory thresholds were lifted, he would like to see clear, and supportive, guidance from the FMA on its attitude towards voluntary disclosure.
"At the moment there is a lot of anxiety about greenwashing risk with voluntary disclosure," he said.
Kavanagh said the regime was less about making companies report their climate impacts, and more about future-proofing a companies' finances from climate-related events such as Cyclone Gabrielle or changing tourism patterns.
"Three quarters of the regime is about what the planet, markets and government are going to do to your business and only a quarter is about what your business is going to do to the planet," he said.
"These are all things responsible boards of directors should be asking their teams about anyway to factor into their strategy, and risk management.
"There's no obligation to say you must reduce your carbon footprint, there is an obligation to be open and honest about what you are doing, if anything."
Commentators expected many companies would choose to voluntarily to keep reporting, even if they get a reprieve.
That was certainly true of food exporters, who have to meet increasingly strict international disclosure rules, said New Zealand Trade and Enterprise head of sustainability Florence Van Dyke.
She said most New Zealand exports by value go to countries with either planned or current climate disclosure regimes, and many big multinational customers were also wanting to see emissions-cutting plans.
"I do think it's an opportunity for business because at the end of the day climate risk is financial risk and having more data on about this can build resilience and enable companies to become future fit."
A recent round up of public opinion surveys published by the MInistry for the Environment found New Zealanders wanted more climate information from governments and businesses.
Public submissions on the proposed changes close on Friday.
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