New Zealand corporates are behind their overseas peers when it comes to reporting the risks that climate change may have on their businesses. Photo / AP
New Zealand corporates are behind their overseas peers when it comes to reporting the risks that climate change may have on their businesses. Photo / AP
New Zealand listed corporates barely score a pass mark for their reporting on risks to their businesses associated with climate change, PwC says.
The consultant's chief risk and reputation officer Karen Shires said local corporate reporting though their annual reports was well behind their peers overseas, and that failing toidentify climate risk could impact on companies' ability to raise capital.
Shires likened the sudden rise in interest rates to a swift step up in awareness around environmental, social and governance (ESG) issues.
"Interest rates have shot up really quickly - faster than we thought.
In an analysis of NZX companies with March balance dates, PwC said just three out of 15 discussed the impact of climate-related risks in their financial statements.
None of the 15 included quantification of the impacts of climate risks on their financials.
In its report, PwC said companies around the world were making net carbon zero commitments.
"New Zealand companies are following suit to a lesser extent," the report said.
Apart from investors, this trend had been partly driven by governments taking steps to motivate the private sector – something that might come into play more with the introduction of New Zealand's emissions reduction plan.
"We would therefore expect greater reporting of a company's net-zero commitments and how it plans to get there in future annual reports," PwC said.
Shires said New Zealand entities were either identifying material risk or saying there is "nothing to see here".
"However that's not the way investors are looking at it," she said.
"They are wanting to know what have you thought through, what have you considered.
"Maybe there is no risk at the current time, but that risk could be great looking out five years.
"There can be the physical impacts - it could be where their facilities are located - erosion, or it could be transitional things - moving away from fossil fuels and plastics, or it could be in your supply chain.
"There are so many ways that you can be impacted.
NZ will introduce new environmental reporting standards in 2023. Photo / File
"What we would expect to see is the entities starting to build some of these factors into their cashflow forecasts, particularly when they are looking at areas like impairment."
Shires said some corporates are putting some information into the front parts of their annual reports - on the commentary side - but outside the financial statements.
"They are not necessarily making the connection that if they are reporting and talking about it there, they should also be reporting and talking about it in the financial statements.
"There is a disconnect there and we are not seeing things being joined up that well," she said.
Earlier this year, the Government passed legislation to mandate climate-related disclosures for publicly listed companies and large entities.
The new reporting standards are currently being developed in line with TCFD (Taskforce on Climate-Rated Disclosures) framework which will require organisations to assess the risks and opportunities of climate change.
The disclosures are expected to be required for the financial years starting in 2023.
Shires said climate reporting, or the lack of it, could become an issue for companies seeking to raise capital.
"We are starting to see more entities talk about 'green' finance.
"You are going to have money that is lent to an organisation to enable it to change or transition through risk.
"The rate of return might be linked to how successfully they are doing that.
"Access to finance is going to be more and more linked to whether you are a good global citizen, not just a good corporate citizen.
"Are you thinking about climate risk and how you are responding.
"If you are not, it's going to be harder to get capital - it's going to come at a very high price."
ESG issues could also end up in auditors' reports on company accounts if they fail to detail material risks.
Shires said New Zealand corporates' climate reporting would "barely warrant a pass at this point".
"I would hope that the June balance date reports and those entities that report later this year will improve," she said.
