NZX companies still coming to terms with climate risk reporting – PwC

Companies are slowly adjusting to new reporting standards covering the risks posed by climate change. Photo / 123rf

It’s early days, but it looks like companies are struggling to come to terms with the new climate change reporting standards, PwC chief risk officer Karen Shires says.

PwC, in an analysis of reports from NZX-listed companies with December 31 balance dates, said a larger proportion of reporters mentioned climate change in their financial statements compared with last year.

“Among the reporters who commented on the effect of climate-related matters in their financial statements, most concluded there were no material impacts on the financial statements from climate-related matters,” PwC said.

“This is despite all reporters making commitments to reduce carbon emissions, and three reporters identifying specific financial statement line items that were impacted by Cyclone Gabrielle, an extreme weather event.”

These included impairment of goodwill, insurance proceeds, property, plant and equipment revaluation loss, Government grants and capitalised costs.

“While we have observed reporters moving away from a passing mention of climate in the financial statements and providing more helpful disclosures, the discussion of financial reporting impacts of climate-related matters remains brief overall,” it said.

The six companies which reported were the first to mandatorily prepare their climate-related disclosures (CRD) in compliance with the New Zealand Climate Standards (NZ CS) issued by the External Reporting Board (XRB).

Of the six, three discussed the impact of climate-related risks in their financial statements, and four discussed the 2023 extreme weather events.

One business disclosed the use of green finance.

PwC said it may take time to develop the capability to produce high-quality climate-related disclosures.

Three of the six December 2023 reporters did not publish their CRD at the same time as their annual reports. Instead, they released a separate statement almost four months after their reporting date.

To address the challenges associated with the adoption and implementation of NZ CS, the XRB is taking a phased approach, providing exemptions to certain disclosure requirements in the initial three reporting periods.

Shires said the fact most of the companies opted to report after they had released their annual reports - which they were entitled to do - showed they were struggling with the new climate reporting standards.

“Part of it is, how do you bring this [climate change risk] into your mainstream activity?” she said.

“Entities could articulate the risks but they were still trying to work through the opportunities that could come in this space.

“I think that that will start to evolve and that we will see more on the opportunities side,” she said.

“They will need to understand the risk component and how they respond.”

Insurance will be part of it.

“They will have to mitigate the risk rather than just insure against it, so it means actual changes they can make to their business,” Shires said.

“For example, will banks lend to customers who are at risk of coastal erosion?

“Or do insurers insure a property on a coast? And we are starting to see the insurers, through their risk-base processes, price the risk or choose not to cover the risk,” Shires said.

“This is where it starts to become real.”

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.