The mandatory climate-related financial disclosure regime is designed to not only put climate change squarely on the agenda of businesses, but also provide a framework in which they can assess and understand the risks and declare how they will respond.
Aimed at publicly listed companies, as well as major banks, insurers, non-bank deposit takers and investment managers, around 200 entities will likely be subject to the regime. This collective reporting effort is expected to help de-carbonise investments, and transition us to the low-carbon economy we must create if we're to meet our international obligations to address climate change.
Current timeframes indicate that entities would need to start making climate-related financial disclosures for financial years beginning in 2022, meaning that for many, there is less than fifteen months before the first reporting period commences.
So what will climate change reporting look like?
XRB (the External Reporting Board) is currently developing the Financial Reporting Standard for climate-related financial disclosures, which will outline reporting requirements.
It's expected that the standard will be based on the Taskforce on Climate-related Financial Disclosures (TCFD) framework, which is considered global best practice for climate risk reporting, as well as international developments in this area.
The TCFD framework is based on four key themes for climate reporting — governance, strategy, risk management, and metrics and targets — with 11 disclosures recommended under each.
While publication of the standard is expected at the end of next year, many entities are getting ahead of the game.
Greater scrutiny of climate risks will also shine a light on new opportunities
At a recent Infinz event, Orion New Zealand shared lessons it's learned so far on its climate change reporting journey.
Last August, the Canterbury-based electricity distribution network published Climate Change Opportunities and Risks for Orion — a report prepared in line with the TCFD's recommendations.
The report provided the first qualitative snapshot of Orion's climate change risks, but also highlighted the greatest opportunities to make a positive impact in its community.
A key message from the Orion representatives speaking at the event was that climate change reporting must be seen as an opportunity to identify and develop strategic options and manage risk, rather than a compliance-based exercise.
The introduction of a mandatory climate-related financial disclosure regime means that the time for businesses to put climate change on their agenda is now.
- Jim McElwain is Executive Director of Infinz, the member-based body for professionals in finance-roles and working in the financial services eco-system, with over 1800 members nationally www.infinz.com.