Image: Getty Images; additional design by Archi Banal
Image: Getty Images; additional design by Archi Banal

BusinessJanuary 17, 2022

Game-changer or greenwashing tool? The new climate law could go either way

Image: Getty Images; additional design by Archi Banal
Image: Getty Images; additional design by Archi Banal

A new act could change the way we share information about the impacts of climate change – but only if it’s implemented with credibility and accountability at the forefront, writes Karen McWilliams.

History is littered with examples of companies and governments attempting to buy or downright dupe their way towards being perceived climate and environment friendly.

Whether it’s claiming compostable packaging, spamming environmental jargon, fudging emissions numbers, or covering the spare tyre on the back of a diesel ute with nature imagery, we’ve all seen companies and brands try to claim climate-friendly status.  

Some have successfully put a green sheen on practices that are anything but.  However, as the health of our climate and environment is increasingly threatened, governments around the world are looking for new ways to address this issue – New Zealand included. 

This is where a game-changing piece of new legislation comes in. The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act, also known as the CRD Act, could change the way we share information about the impacts of climate change. 

Passed shortly before Cop26, the CRD Act leverages the influence of global capital markets to increase focus on climate, by requiring certain entities to disclose the impacts that climate change and the transition to net zero have on their business

Extreme weather events, such as fires, floods and droughts, as well as meeting emission reduction targets, may all present risks and opportunities to business operations and their supply chains both now and in the future. Under the new act, they’ll have to report these. 

But do investors want more climate information from businesses? Yes – a recent CA ANZ survey of New Zealand retail investors found that 81% of respondents consider climate change information to be “somewhat” to “very” important to their investment decision-making. Furthermore, 50% of those respondents said that businesses have a responsibility to address climate change.  

The CRD Act sets out a way for businesses to show investors, lenders and insurance underwriters how climate affects their operations and future strategy. This approach to disclosure centres around the idea that investors will be making their decisions based on long-term value and profitability. 

And so it seems, by framing climate change as an economic problem – a question of long-term value and profitability rather than an environmental problem – we’re starting to see some real change in the way businesses are considering what climate change means to them.  

It’s a slight shift away from the focus we’ve seen on the effect of business on the environment, but one that makes sense given the influence and reach of the global and domestic capital markets. It’s not a replacement for measuring and reporting business impacts on the environment – in fact it’s a way to hone business attention on climate change and the risks and opportunities it presents. 

It requires certain entities to disclose climate-related matters and empowers New Zealand’s External Reporting Board (XRB) to determine what the minimum standard of public disclosure should look like. 

This work has the support of Chartered Accountants Australia and New Zealand.  The premise behind our support is simple. We think that if businesses have a better understanding of how climate change will affect their operations, then they will be more inclined to work to mitigate their impacts on the climate and embrace the opportunities.  

The robust application of the CRD Act depends on two things.  

Firstly, being clear around the disclosure requirements and the intended audience. As explained, the focus is on the effect of climate-related issues on the entity for use primarily by potential and future investors and lenders.  

Secondly, we need to ensure that this legislation doesn’t become another greenwashing tool, alongside some of the examples I mentioned earlier. This means developing a robust and thorough assurance regime – in layman’s terms, a process that provides credibility for any claims.  

Pleasingly, the act includes a requirement for assurance over greenhouse gas emissions, but this has been deferred by two years to allow data capture and reporting processes time to mature, and for the XRB to develop an assurance regime.  

Establishing a more thorough regime will require a collaborative partnership between those with assurance skills, such as chartered accountants, and those with climate subject matter expertise.  

The legislation, standards and international developments all have the power to lift climate accountability, not just for businesses, but for every one of us as investors via our superannuation.  

The CRD Act’s success will depend on being clear around the purpose of the disclosures and including an assurance regime at the same high standard as we already have for investment-grade financial information.  Without these two things, there is a risk it could end up becoming a greenwashing exercise, like so many others before it.  

Karen McWilliams FCA is the business reform leader at Chartered Accountants Australia and New Zealand. 

The Spinoff’s business section is enabled by Kiwibank.

Kiwibank backs small to medium businesses, social enterprises and Kiwi who innovate to make good things happen.

Check out how Kiwibank can help your business take the next step.

Mad Chapman, Editor
Aotearoa continues to adapt to a new reality and The Spinoff is right there, sorting fact from fiction to bring you the latest updates and biggest stories. Help us continue this coverage, and so much more, by supporting The Spinoff Members.Madeleine Chapman, EditorJoin Members

Get The Spinoff
in your inbox