Date posted: 26/04/2021

CAs take key role in assuring climate risk reporting

New Bill paves the way for auditors to branch out into extended external reporting

In brief

  • New Zealand positions itself as global leader in climate risk reporting
  • External Reporting Board to get mandate to develop climate standards
  • CA ANZ gets assurance standard for greenhouse gases legislative backing

In a world-first, New Zealand has introduced a Bill that requires the financial sector to disclose the impacts of climate change on their business and explain how they will manage climate-related risks and opportunities.

The Bill proposes making climate-related disclosures mandatory for about 225 organisations, including most listed issuers, large registered banks, licensed insurers and managers of investment schemes. In addition, it requires assurance over the information in relation to greenhouse gas emissions.

CA ANZ had several conversations with policy makers during the legislation drafting process. Our emphasis in relation to the proposed assurance requirements was on the importance of these engagements being conducted by appropriately skilled and qualified practitioners who are part of a regulated profession, and the need for them to be carried out and reported on in accordance with an internationally accepted assurance framework.

Both aspects are critical to achieving a level of assurance that provides integrity, is understandable by users of the reporting, and is comparable between entities. We are pleased to see the External Reporting Board's (XRB) assurance standards have been recognised in the Bill, which will enhance the credibility of, and trust in, the information being reported. Having this framework means our members will be well placed to take a key role in these engagements.

The International Auditing and Assurance Standards Board (IAASB) has just published new guidance to advance assurance for non-financial reporting, which should go a long way to supporting progress in this area.

The detail

The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill amends the Financial Markets Conduct (FMC) Act to require certain FMC reporting entities considered to have a higher level of public accountability ("climate reporting entity") to prepare climate statements for financial years commencing in 2022.

In addition, an assurance engagement would be required over parts of the climate statement relating to greenhouse gas emissions, but this would not prevent the assurance engagement covering the whole, or other parts, of the climate statement on a voluntary basis. It does not specify the level of assurance (reasonable or limited), instead leaving it up to the market to decide.

It is proposed that climate statements be prepared in accordance with 'applicable climate standards' within four months after balance date. As New Zealand does not have such standards currently, the Bill extends the mandate of the XRB to take on this role.

Reporting will be based on the Task Force on Climate-related Financial Disclosures framework. The XRB will also be able to issue guidance on environmental, social and governance reporting and other wider aspects of non-financial reporting.

The Bill says the assurance engagement must be carried out by a 'qualified climate-related disclosure (CRD) assurance practitioner'. A qualified CRD assurance practitioner is defined as a natural person who:

  • is a member of an 'approved CRD assurance body'
  • subject to a code of conduct and disciplinary process of the CRD assurance body
  • has the expertise, technical competence, and qualifications that are specified in the applicable auditing and assurance standards
  • is recognised by the CRD assurance body as having the expertise, technical competence, and qualifications.

The Financial Markets Authority (FMA) would be responsible for the independent monitoring and enforcement of climate reporting entities' compliance with the climate standards, and approval of CRD assurance bodies.

Assurance engagements must be carried out in accordance with the "applicable auditing and assurance standards". This refers to the standards issued by the XRB, specifically ISAE (NZ) 3000 Assurance Engagements other than Audits or Reviews of Historical Financial Information and
ISAE (NZ) 3410 Assurance Engagements on Greenhouse Gas Statements.

ISAE (NZ) 3410 requires assurance practitioners to have competence in both assurance skills and techniques, and the quantification and reporting of emissions. This presents an opportunity for members with assurance experience to upskill and expand their offerings.

The model is similar to the Australian National Greenhouse and Energy Reporting Scheme (NGERS) which, over time, has proven to be workable and effective. Australia's Clean Energy Regulator maintains a list of registered auditors.

While many different subject matter experts are represented on this list such as accountants, engineers and scientists, a critical aspect of the eligibility requirement is audit team leadership and assurance knowledge, which are core skills in and of themselves.

Have your say

Submissions on the Bill are due by 28 May, and we want to hear what you think.

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Read the Bill

Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill

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IAASB guidance

Non-Authoritative Guidance on Applying ISAE 3000 (Revised) to Extended External Reporting (EER) Assurance Engagements

Read more

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