Aotearoa New Zealand Climate Standard 3
General Requirements for
Climate-related Disclosures (NZ CS 3)
Applies from 1 January 2023

Issued December 2022

Aotearoa New Zealand Climate Standard 3
General Requirements for Climate-related Disclosures (NZ CS 3)
Issued 14 December 2022
This Standard was issued on 14 December 2022 by the External Reporting Board pursuant to section
12(aa) of the Financial Reporting Act 2013.
This Standard is secondary legislation for the purposes of the Legislation Act 2019, and pursuant tosection 27(1) and section 28(2) of the Financial Reporting Act 2013 takes effect on 1 January 2023.
Reporting entities that are subject to this Standard are required to apply it in accordance with theapplication date in Paragraph B1 of Appendix B.
In finalising this Standard, the External Reporting Board has carried out appropriate consultation inaccordance with section 22(1) of the Financial Reporting Act 2013.
This Standard has been issued as a result of the New Zealand Government enacting legislation torequire certain entities to prepare climate-related disclosures.

NZ CS 3

COPYRIGHT© External Reporting Board (XRB) 2022
This XRB Standard contains copyright material.
Reproduction in unaltered form (retaining this notice) is permitted for personal and non-commercial
use subject to the inclusion of an acknowledgement of the source.
Requests and enquiries concerning reproduction and rights for commercial purposes should be
addressed to the Chief Executive, External Reporting Board at the following email address:
enquiries@xrb.govt.nz
http://www.xrb.govt.nz

ISBN 978-1-99-100529-8

3

NZ CS 3

Contents: NZ CS 3 General Requirements for Climate-related Disclosures
Objective ................................................................................................................................................ 6
Scope...................................................................................................................................................... 6
Fair presentation ................................................................................................................................... 6
Principles ............................................................................................................................................... 6
Table 1: Principles — Information ....................................................................................................... 7
Table 2: Principles — Presentation ..................................................................................................... 8
Location of disclosures ........................................................................................................................ 9
Cross referencing ................................................................................................................................ 9
Climate statements relating to registered schemes ............................................................................ 9
Reporting entity ..................................................................................................................................... 9
Value chain ............................................................................................................................................ 9
Reporting currency ............................................................................................................................... 9
Reporting period ................................................................................................................................. 10
Materiality............................................................................................................................................. 10
Comparative information, consistency of reporting, and restatement of comparatives ............ 11
Comparatives for metrics .................................................................................................................. 11
Consistency ....................................................................................................................................... 11
Restatement of comparatives ........................................................................................................... 12
Methods and assumptions, and data and estimation uncertainty ................................................. 12
Scenario analysis methods and assumptions ................................................................................... 12
GHG emissions methods, assumptions and estimation uncertainty ................................................ 13
Statement of compliance .................................................................................................................... 13

Appendix A Defined terms ................................................................................................................ 14

Appendix B Application date ............................................................................................................ 16
Application date ................................................................................................................................. 16

Basis for Conclusions on NZ CS 3 General Requirements for Climate-related Disclosures...... 18

4

NZ CS 3

NZ CS 3 General Requirements for Climate-related Disclosures is set out in paragraphs 1-56 andAppendices A and B. All the paragraphs, including Appendices A and B, have equal authority. Terms
defined in Appendix A are in italics the first time that they appear in this Standard. This Standard should
be read in the context of its objective, the Basis for Conclusions, NZ CS 1 Climate-related disclosures
and NZ CS 2 Adoption of Aotearoa New Zealand Climate Standards.

The climate-related disclosure framework comprises three Aotearoa New Zealand Climate
Standards that have been designed as a package. It is important that they are read in context ofeach other.
•

NZ CS 1 contains the climate-related disclosure requirements for each of the four thematic
areas (Governance, Strategy, Risk Management and Metrics and Targets) and the assurance
requirements for greenhouse gas emissions disclosures.

•

NZ CS 2 provides optional adoption provisions.

•

NZ CS 3 contains the principles, the underlying concepts such as materiality, and the general
requirements.

The need for materiality judgements is pervasive in the preparation and presentation of all disclosure
requirements in Aotearoa New Zealand Climate Standards.

5

NZ CS 3

Objective
1.

The objective of this Standard is to establish principles and general requirements to enable theprovision of high-quality climate-related disclosures.

2.

The ultimate aim of Aotearoa New Zealand Climate Standards is to support the allocation ofcapital towards activities that are consistent with a transition to a low-emissions,climate-resilient future.

Scope
3.

This Standard applies to entities that are required by the Financial Markets Conduct Act 2013
to prepare climate statements or group climate statements that comply with the climate-related
disclosure framework.

4.

Any entity that elects to or is otherwise directed to prepare climate statements or group climate
statements is encouraged to apply all the requirements of Aotearoa New Zealand Climate
Standards.1

5.

This Standard does not apply to an interim period.

Fair presentation
6.

An entity must fairly present its climate-related disclosures. Fair presentation requires an entity
to disclose information in accordance with the principles in this Standard and the disclosure
objectives and requirements in Aotearoa New Zealand Climate Standards.

7.

Applying Aotearoa New Zealand Climate Standards is presumed to result in climate-related
disclosures that achieve a fair presentation. When compliance with the specific requirements
in Aotearoa New Zealand Climate Standards is insufficient to show a fair presentation,
additional disclosures must be provided.

8.

Aotearoa New Zealand Climate Standards contain disclosure objectives to assist entities indetermining whether to disclose additional information. However, when disclosing additional
information, an entity must ensure that relevant information is not obscured by the inclusion of
immaterial detail.

9.

When applying Aotearoa New Zealand Climate Standards, an entity, after it has considered all
relevant facts and circumstances, must decide how to aggregate or disaggregate theinformation in its climate-related disclosures. For example, information about climate-relatedrisks and climate-related opportunities might need to be disaggregated, such as bygeographical location, business unit or type of asset. An entity shall not reduce theunderstandability of its climate-related disclosures by obscuring material information withimmaterial information or by aggregating material items that are dissimilar.

Principles
10.

To achieve fair presentation, an entity must apply the principles provided in Table 1 and Table 2
when preparing and presenting climate-related disclosures.

11.

An entity may encounter tension in the application of the principles. For example, an entity may
update a metric to meet the comparability principle, which could then result in a conflict with theprinciple of consistency. Tension can also arise within a single principle. For example,
disclosures must be verifiable, but assumptions made about future-oriented disclosures often
require significant judgement that is difficult to verify. This means that, in practice, all theprinciples may not be fully achieved and a balance or trade-off between certain of them may be

1

For example, Crown Financial Institutions as directed by a letter of expectation from the Minister of Finance.

6

NZ CS 3

necessary. An entity must consider the needs of its primary users and the objectives of climaterelated disclosures when making judgements about trade- offs between the principles.

Table 1: Principles — Information
12.

This table describes the principles that makes information in climate-related disclosures usefulto primary users.

Principle

Explanation in the context of climate-related disclosures

Relevance

Climate-related disclosures are more relevant if the information is
specific to an entity. For example, where the disclosures convey
anticipated impacts of climate-related risks and opportunities thatare specific to an entity’s markets, business model, corporate orinvestment strategy, financial statements, and future cash flows.

Information is relevant where
it is capable of making a
difference in the decisions
made by primary users.

Accuracy
Information is accurate if it isfree from material error or
misstatement.

Verifiability
Information is verifiable if it ispossible to corroborate either
the information itself or the
inputs used to derive it.

Comparability
Information is comparable if itenables primary users to
identify and understandsimilarities in, and differencesamong, items.

Climate-related disclosures are based on estimates andjudgements of the current position as well as future expectations
and uncertain pathways. Accurate information implies the entity has
implemented adequate processes and internal controls to ensure
information is free from material error or misstatement. However, in
this context accuracy does not mean certainty of outcome.
Estimates should be presented with a clear emphasis on their
possible limitations and related uncertainty.
Climate-related disclosures should be defined, collected, recorded,
and analysed in such a way that the information reported isverifiable. In the context of future-oriented information, verifiability
means that the assumptions used can be traced back to theirsources. Future-oriented disclosures will inherently involve theentity’s judgement (which should be adequately explained).
Information is more useful to primary users if it can be compared
with:
(a)

information provided by the entity in previous reporting
periods;(b)

points of reference (such as targets, baselines, or an industry
benchmark); or(c)

information provided by other entities, in particular those withsimilar activities or operating within the same industry.

Consistent climate-related disclosures support comparability.
Consistency
Information is consistent if thesame metric, approach or
method is used from reporting
period to reporting period.

However, recognising the developing nature of climate-related
disclosures, consistency does not prevent new metrics, newapproaches or methods from being adopted. For example, thedisclosure of a new metric where it provides more useful information
to primary users or adopting a new method where emerging bestpractice supports change.

TimelinessInformation is timely when it isavailable in time to be capableof influencing primary users’
decisions.

Making climate-related disclosures available at the same time as
an entity’s financial reporting enables primary users to make morerounded assessments.

7

NZ CS 3

Table 2: Principles — Presentation
13.

This table describes the principles that makes the presentation of climate-related disclosuresuseful.

Principle

Explanation in the context of climate-related disclosures

Balance

Climate-related disclosures are balanced when they do not
overemphasise positive news or impacts, in a manner that could beinterpreted as misleading. Balanced narrative explanations requirethat climate-related disclosures are portrayed in a manner that is freefrom bias.

Information is balanced if is
portrayed in a manner thatis free from bias or is notmanipulated to make it
more likely that primaryusers will receive that
information favourably or
unfavourably.
Understandability
Presenting information in aclear and concise manner.

Climate-related disclosures should be written with the objective ofcommunicating information to primary users. The disclosures should
be sufficiently granular to balance the information needs ofsophisticated users, but also provide less-detailed information for
those who are less sophisticated.
The clearest form of disclosure depends on the nature of theinformation and might sometimes include tables, graphs, or diagrams.
For climate-related disclosures to be concise they should avoid
generic (or boilerplate) information and unnecessary duplication.
Climate-related
disclosures
shouldincludestraightforward
explanations of issues. Terms used in the disclosures should be
explained or defined for a proper understanding by primary users.

CompletenessPresenting all informationthat is necessary for anunderstanding of the matterthat it purports to represent
and does not leave out
details that could cause
information to be false or
misleading to primaryusers.
Coherence
Presenting disclosures in a
way that explains thecontext and relationships
with other disclosures ofthe entity.

Climate-related disclosures should be sufficiently comprehensive toallow primary users to assess future expectations and performance,
and also evaluate actual performance relative to previously disclosed
expectations.
To avoid obscuring relevant information, disclosures should be
eliminated if they are immaterial or redundant. However, where aparticular risk or issue might be expected by primary users, but it is
not considered material by the entity, it may, to achieve the principleof completeness, consider including a statement that the risk or issue
is not considered to be material. This will show the risk or issue has
not been overlooked.
Coherence means presenting climate-related disclosures in a waythat makes clear the linkages and connections between an entity’s
climate-related risks and opportunities and its governance, strategy,
risk management and metrics and targets.
Coherence will be more important if climate-related disclosures arepresented in different locations within a document or are distributed
across other disclosures of the entity.
Coherence also requires an entity to present information in a way thatallows primary users to relate information about its climate- relatedrisks and opportunities to the entity’s financial statements.

8

NZ CS 3

Location of disclosures
14.

An entity may provide its climate-related disclosures in a standalone document or within anotherdocument (for example, its annual report or a sustainability or integrated report).

15.

Where the climate-related disclosures are provided within another document, an entity must
include a table within that other document, clearly identifying the location of the disclosuresrequired by Aotearoa New Zealand Climate Standards.

Cross referencing
16.

Disclosures required by Aotearoa New Zealand Climate Standards may be incorporated within
an entity’s climate-related disclosures by cross reference.

17.

Disclosures included by cross referencing should comply with the principle of fair presentationin this Standard. In particular, disclosures included by cross reference should not make anentity’s climate-related disclosures less understandable, complete or coherent.

18.

If an entity applies cross referencing:

19.

(a)

the disclosures must be made freely available to primary users at the same time as themain climate-related disclosures;(b)the entity must identify the location of that information and explain how to access it; and(c)the entity must ensure cross referencing is direct and precise as to the specific locationof that information.

If information is included by cross reference, that information becomes part of theclimate-related disclosures. This means that the information included by cross reference needs
to comply with the requirements of Aotearoa New Zealand Climate Standards. It also meansthat the governance body that authorises the climate-related disclosures takes the same
responsibility for the information included by cross reference as they do for the information
included directly.

Climate statements relating to registered schemes
20.

To avoid unnecessary duplication this Standard allows for common information to be presented
at a scheme level. For example, if the disclosures on Governance and Risk Management
contain common information for each fund within a scheme, these may be presented at ascheme level.

Reporting entity
21.

Except as otherwise required by Part 7A of the Financial Markets Conduct Act 2013, an entity
must prepare its climate-related disclosures for the same reporting entity as its financial
statements.

Value chain
22.

Climate-related risks and opportunities relate to activities, interactions, and relationships and to
the use of resources along an entity’s value chain. When considering its exposure toclimate- related risks and opportunities, an entity must consider the exposure of its value chain
as well. Investments that an entity has in other entities, for example, associates and joint
ventures, are also considered to be part of an entity’s value chain.

Reporting currency
23.

When currency is used as the unit of measure in an entity’s climate-related disclosures, anentity must use the presentation currency of its financial statements.

9

NZ CS 3

Reporting period24.

An entity must prepare its climate-related disclosures for the same reporting period as its annual
financial statements.

25.

When an entity changes the end of its reporting period, resulting in a reporting period that islonger or shorter than 12 months, an entity must disclose the period covered by its climaterelated disclosures and:

26.

(a)

the reason for using a longer or shorter period; and(b)

the fact that the climate-related disclosures are not entirely comparable.

Information about transactions, other events and conditions that occur after the end of thereporting period, and before the date on which the climate-related disclosures are authorisedfor issue, must be disclosed if non-disclosure could reasonably be expected to influence
decisions that primary users make on the basis of the climate-related disclosures.

Materiality
27.

Materiality applies to all the disclosure requirements in Aotearoa New Zealand Climate
Standards.

28.

Information required by Aotearoa New Zealand Climate Standards must be disclosed if it ismaterial. Information is material if omitting, misstating or obscuring it could reasonably be
expected to influence decisions that primary users make on the basis of an entity’s climaterelated disclosures.

29.

Assessing whether information could reasonably be expected to influence decisions made byprimary users requires an entity to consider the characteristics of those users while also
considering the entity’s own circumstances.

30.

Materiality is entity-specific, based on the nature, magnitude, or both, of the items to which theinformation relates. This Standard does not specify a uniform quantitative threshold formateriality or predetermine what would be material in a particular situation.

31.

The application of the disclosure requirements in Aotearoa New Zealand Climate Standards
are presumed to result in material information in most cases. However, if when applying thedisclosure requirements to its own specific facts and circumstances, an entity determines thatthe resulting information is not material, it need not disclose it.

32.

An entity assesses whether information, either individually or in combination with otherinformation, is material in the context of its climate-related disclosures taken as a whole.

33.

An entity must apply judgement to identify the information about climate-related risks andopportunities that is material to an entity’s circumstances at each reporting date. Because anentity’s circumstances change over time, materiality judgements are reassessed at eachreporting date in the light of those changed circumstances.

34.

The application of judgement in assessing whether information is material involves bothquantitative and qualitative considerations. It is recognised that a quantitative assessment is
not always possible.

35.

An entity ordinarily assesses whether information is quantitatively material by considering thesize of the impact against measures of the entity’s financial position, financial performance andcash flows. For example, the anticipated impact of increases in revenue from new products orservices from climate-related opportunities, or the anticipated impact of cost increases fromnew regulatory requirements on an entity’s financial performance may be of such a size it could
reasonably be expected to influence decisions that primary users make on the basis of that
information.

36.

In some circumstances, an item of information could reasonably be expected to influence
primary users’ decisions regardless of its size—a quantitative threshold could be material even
if it is very small or zero. For example, greenhouse gas (GHG) emissions may be seen as aproxy for an entity’s exposure to transition risk, and so be expected to influence an entity’s
primary users’ decisions regardless of the size of those emissions. Another example is that in10

NZ CS 3

some circumstances the lack of processes could be material information (such as, if agovernance body does not have any reporting processes in place to ensure that it is informed
about climate-related risks and opportunities).
37.

An entity must consider the context in which it operates when making materiality judgements.
Characteristics of the entity’s context include, but are not limited to, an entity’s geographicallocation, its industry sector, or the state of the economy or economies in which an entity
operates. Entities operating in the same context might share a number of these qualitative
factors. Moreover, these qualitative factors could remain constant over time or could vary. In
some circumstances, if an entity is not exposed to a risk to which other entities in its industry
are exposed, that fact could reasonably be expected to influence its primary users’ decisions;that is, information about the lack of exposure to that particular risk could be material
information.

38.

Material information could include information about an entity’s impacts on the climate if those
impacts could reasonably be expected to influence decisions that primary users make on thebasis of an entity’s climate-related disclosures . For example, an entity’s negative impact on
climate change could, via subsequent regulatory action or social pressure, result in reputational
damage to that entity, which, in turn, may influence the decisions of that entity’s primary users.
An entity is encouraged to think broadly about its climate-related risks and opportunities in thecontext of these possible feedback loops when it considers how its impacts on the climate could
reasonably be expected to influence decisions that primary users make.

39.

Information about a given class of risk may be material when taken in aggregate. For example,
an entity might be exposed to several climate-related risks, each of which could cause the same
type of disruption (such as disruptions to the entity’s supply chain). Information about anindividual source of risk might not be material if disruption from that source is highly unlikely tooccur. However, information about the aggregate risk—the risk of supply chain disruption fromall sources—might be material.

Comparative information, consistency of reporting, and restatement ofcomparatives
Comparatives for metrics
40.

For each metric disclosed in the current reporting period an entity must disclose comparative
information for the immediately preceding two reporting periods.

41.

If an entity discloses a new metric in the current reporting period, paragraph 40 does not apply.
In such cases the following disclosure requirements apply.

42.

(a)

An entity is not required to disclose comparative information in the current reporting
period of disclosing a new metric.

(b)

In the subsequent reporting period, an entity must disclose comparative information for
the new metric for the immediately preceding reporting period.

(c)From the second reporting period an entity must disclose comparative information forthis metric for the immediately preceding two reporting periods (that is, the metric is nolonger new, and the requirement in paragraph 40 applies).

An entity must disclose an analysis of the main trends evident from a comparison of each metricfrom previous reporting periods to the current reporting period.

Consistency
43.

Presenting climate-related disclosures consistently from one reporting period to the next allows
for inter-period comparisons and provides information about trends. If an entity changes what
it discloses, or the methods used, it must provide an explanation of those changes and of theeffect on the current reporting period’s climate-related disclosures.

11

NZ CS 3

Restatement of comparatives
44.

An entity may change what it discloses in the current reporting period for several reasons. For
example, to correct a material error, change a method, use more current estimates or reflectchanges in the nature of the activities of an entity. Restatements of comparative information
enhances consistency of information between reporting periods, assisting primary users toassess trends. This Standard requires restatements only for material errors made in previous
reporting periods (see paragraph 45). However, it permits restatement of comparative
information for other reasons (see paragraph 46).

45.

An entity must correct material errors made in previous reporting periods by restating thecomparative information for any previous reporting period(s) in which the error occurred. The
entity must disclose an explanation of the error and the change. If the error relates solely tonarrative information, an explanation of the error must be disclosed. Corrections of errors must
be made in the first climate statement or group climate statement authorised for issue after the
discovery of the errors.

46.

When deciding whether to restate comparative information for reasons other than for correcting
material errors, an entity considers the needs of its primary users and should restatecomparatives if this provides the most decision-useful information. A common example ofrestating comparative figures would be where a metric or target is redefined. Restatement inthis case would provide the best information for a primary user to assess trends and progressof an entity. For example, an entity could redefine a GHG intensity metric to expand theemission sources in the calculation from scope 1 emissions and scope 2 emissions only, to also
include scope 3 emissions.

Methods and assumptions, and data and estimation uncertainty
47.

Disclosures about methods and assumptions, and data and estimation uncertainty, are vital toensure primary users are provided with information to understand the context of an entity’s
climate-related disclosures.

48.

The use of uncertain data, and reasonable estimates based upon them, is an essential part ofpreparing climate-related disclosures. There may also be disclosures for which the methods
available to entities are relatively novel or uncertain. The usefulness of the information disclosed
is not undermined if the use of a novel or uncertain method, assumption, or uncertain data andestimation, is accurately and transparently described and explained.

49.

An entity must:

50.

(a)

provide a description of the methods and assumptions used in the preparation of its
climate-related disclosures where they are not apparent, including the limitations of thosemethods.

(b)

identify aspects of its disclosure (including amounts) that involve data and estimation
uncertainty, disclosing the sources and nature of data and estimation uncertainties.

When deciding how much information to disclose in accordance with paragraph 49, an entity
must focus on those assumptions and other sources of estimation and data uncertainty thathave the most influence on an entity’s climate-related disclosures, or that require an entity’s
most difficult, subjective or complex judgements.

Scenario analysis methods and assumptions
51.

An entity must disclose the methods and assumptions underlying the climate-related scenarios
used, and the scenario analysis process employed. The following information must be included
when describing the methods and assumptions underlying the climate-related scenarios used,
and the scenario analysis process employed:(a)the climate-related scenarios it has used, including:(i)a brief description of each scenario narrative;

12

NZ CS 3

(b)

(ii)

the time horizons considered, including endpoints and whether the endpoints are
determined by a year or a temperature target;(iii)

a description of the various emissions reduction pathways in each scenario andthe assumptions underlying pathway development over time, including the scopeof operations covered, policy and socioeconomic assumptions, macroeconomic
trends, energy pathways, carbon sequestration from afforestation and naturebased solutions and technology assumptions including negative emissions
technology;(iv)

an explanation of why the entity believes the chosen scenarios are relevant andappropriate to assessing the resilience of the entity’s business model and strategy
to climate-related risks and opportunities; and(v)

the sources of data used to construct each scenario;

how the scenario analysis process has been conducted, including:(i)whether scenario analysis is a standalone analysis or integrated within the entity’s
strategy processes;(ii)

the governance process used to oversee and manage the scenario analysis
process, including the role of the governance body and management;(iii)

if modelling has been undertaken, a clear description of what modelling wasundertaken and why the model was chosen as the appropriate model; and(iv)

which external partners and stakeholders are involved.

GHG emissions methods, assumptions and estimation uncertainty
52.

An entity must provide a description of the methods and assumptions used to calculate or
estimate GHG emissions, and the limitations of those methods. When choices between different
methods are allowed, or entity-specific methods are used, an entity must disclose the methods
used and the rationale for doing so.

53.

An entity must describe uncertainties relevant to the entity’s quantification of its GHG emissions,
including the effects of these uncertainties on the GHG emissions disclosures.

54.

An entity must provide an explanation for any base year GHG emissions restatements.

Statement of compliance55.

An entity whose climate-related disclosures comply with Aotearoa New Zealand Climate
Standards must include an explicit and unreserved statement of compliance. All requirements
must be complied with for an entity to state compliance with Aotearoa New Zealand Climate
Standards.

56.

The statement of compliance must be presented prominently within an entity’s climate-related
disclosures.

13

NZ CS 3

Appendix A
Defined terms
This appendix is an integral part of NZ CS 3 General Requirements for Climate-related Disclosures andhas the same authority as the other parts of this Standard. Some defined terms are used in at least one
other Aotearoa New Zealand Climate Standard, always with the same meaning.

Aotearoa New Zealand
Climate Standards

Standards issued by the External Reporting Board that comprise theclimate-related disclosure framework.

climate-related
disclosure framework

Climate-related disclosure framework has the meaning set out in section
9AA of the Financial Reporting Act 2013.

climate-related
opportunities

The potentially positive climate-related outcomes for an entity. Efforts tomitigate and adapt to climate change can produce opportunities forentities, such as through resource efficiency and cost savings, theadoption and utilisation of low-emissions energy sources, thedevelopment of new products and services, and building resiliencealong the value chain.

climate-related risks

The potential negative impacts of climate change on an entity. See also
the definitions of physical risks and transition risks.

climate-related scenario

A plausible, challenging description of how the future may develop
based on a coherent and internally consistent set of assumptions about
driving forces and relationships covering both physical and transition
risks in an integrated manner. Climate-related scenarios are notintended to be probabilistic or predictive, or to identify the ‘most likely’
outcome(s) of climate change. They are intended to provide an
opportunity for entities to develop their internal capacity to better
understand and prepare for the uncertain future impacts of climatechange.

climate statements

Climate statements has the meaning set out in section 5 of the Financial
Reporting Act 2013.

GHG

See greenhouse gas.

governance body

A board, investment committee or equivalent body charged withgovernance.

greenhouse gas

The greenhouse gases listed in the Kyoto Protocol: carbon dioxide(CO2); methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs),
nitrogen trifluoride (NF3), perfluorocarbons (PFCs), and sulphur
hexafluoride (SF6).

group climate
statements

Group climate statements has the meaning set out in section 5 of the
Financial Reporting Act 2013.

interim period

A financial reporting period shorter than a full financial year.

management

Executive or senior management positions that are generally separate
from the governance body.

material

Information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that primary users makeon the basis of an entity’s climate-related disclosures.

metricA quantity indicative of the level of historical, current, andforward-looking climate-related risks and opportunities for a given entity.
These indicators are used to track climate-related risks andopportunities and can also be used to measure progress against targets
over the duration of the period for which a target is set.

14

NZ CS 3physical risks

Risks related to the physical impacts of climate change. Physical risks
emanating from climate change can be event-driven (acute) such asincreased severity of extreme weather events. They can also relate tolonger-term shifts (chronic) in precipitation and temperature andincreased variability in weather patterns, such as sea level rise.

primary users

Existing and potential investors, lenders and other creditors.

reporting entity

An entity that is required, or chooses, to prepare climate statements orgroup climate statements.

reporting period

The period covered by climate statements or group climate statements.

scenario analysis

A process for systematically exploring the effects of a range of plausible
future events under conditions of uncertainty. Engaging in this process
helps an entity to identify its climate-related risks and opportunities anddevelop a better understanding of the resilience of its business modeland strategy.

scope 1 emissions

Direct GHG emissions from sources owned or controlled by the entity.

scope 2 emissions

Indirect GHG emissions from consumption of purchased electricity,heat, or steam.

scope 3 emissions

Other indirect GHG emissions not covered in scope 2 that occur in thevalue chain of the reporting entity, including upstream and downstream
GHG emissions. Scope 3 categories are purchased goods and services,
capital goods, fuel-related and energy-related activities, upstream
transportation and distribution, waste generated in operations, businesstravel, employee commuting, upstream leased assets, downstream
transportation and distribution, processing of sold products, use of soldproducts, end-of-life treatment of sold products, downstream leased
assets, franchises, and investments.

targetA specific level, threshold, or quantity of a metric that an entity wishes
to meet over a defined time horizon in order to achieve an entity’s overall
climate-related ambition and strategy.

transition risks

Risks related to the transition to a low-emissions, climate-resilient global
and domestic economy, such as policy, legal, technology, market andreputation changes associated with the mitigation and adaptation
requirements relating to climate change.

value chain

The full range of activities, resources and relationships related to anentity’s business model and the external environment in which it
operates. A value chain encompasses the activities, resources andrelationships an entity uses and relies on to create its products orservices from conception to delivery, consumption and end of life.
Relevant activities, resources and relationships include those in an
entity’s operations, such as human resource; those along its supply,
marketing and distribution channels, such as materials and service
sourcing and product and service sale and delivery; and the financing,geographical, geopolitical and regulatory environments in which anentity operates.

15

NZ CS 3

Appendix B
Application dateThis appendix is an integral part of NZ CS 3 General Requirements for Climate-related Disclosures andhas the same authority as the other parts of this Standard.

Application date
B1.

An entity must apply this Standard for annual reporting periods beginning on or after
1 January 2023.

16

NZ CS 3

Contents: Basis for Conclusions on NZ CS 3 General Requirements for
Climate-related Disclosures
Introduction ......................................................................................................................................... 18
Reasons for issuing this Standard .................................................................................................... 18
Consultation ...................................................................................................................................... 18
Scope.................................................................................................................................................... 18
Fair presentation ................................................................................................................................. 19
Principles ............................................................................................................................................. 19
Location of disclosures ...................................................................................................................... 20
Cross referencing .............................................................................................................................. 21
Climate statements relating to registered schemes .......................................................................... 22
Reporting entity ................................................................................................................................... 22
Value chain .......................................................................................................................................... 22
Reporting period ................................................................................................................................. 22
Materiality............................................................................................................................................. 22
Primary users .................................................................................................................................... 22
Materiality is a pervasive concept ..................................................................................................... 23
Use of ‘material’ and ‘significant’ ....................................................................................................... 24
Disclosure of materiality assessments .............................................................................................. 24
Enterprise value not meaningful for entire CRE population .............................................................. 24
What decisions are primary users making ........................................................................................ 25
Characteristics of primary users and the reasonable person test..................................................... 25
Double vs single materiality .............................................................................................................. 25
Comparative Information, consistency of reporting, and restatement of comparatives ............ 26
Methods and assumptions, and data and estimation uncertainty ................................................. 27
Scenario analysis and assumptions .................................................................................................. 27
GHG emissions methods, assumptions and estimation uncertainty ................................................ 28
Statement of compliance .................................................................................................................... 28

17

NZ CS 3

Basis for Conclusions on NZ CS 3 General Requirements for Climaterelated Disclosures
This Basis for Conclusions accompanies, but is not part of, NZ CS 3 General Requirements for
Climate-related Disclosures.

Introduction
BC1.

This Basis for Conclusions summarises the External Reporting Board (the XRB Board’s)
considerations in developing NZ CS 3 General Requirements for Climate-related Disclosures
as part of the climate-related disclosure framework for Aotearoa New Zealand.2

BC2.

The Basis for Conclusions accompanying NZ CS 1 Climate-related Disclosures contains further
information on the development of the climate-related disclosure framework, including an
explanation of the multi-phase consultation process undertaken by the XRB.

Reasons for issuing this Standard
BC3.

Rather than develop a separate conceptual framework for climate-related disclosures, the XRB
Board decided to incorporate the necessary concepts needed to prepare and present
climate-related disclosures into this Standard. This decision reflected that the XRB was working
at pace to deliver a climate-related disclosure framework for Aotearoa New Zealand, while also
acknowledging the XRB Board’s decision to commence a separate project to develop an
overarching integrated reporting framework.

BC4.

The XRB Board also decided that this Standard would include several general requirements.
The XRB Board decided this for a number of reasons.
(a)Future proofing: a separate general requirements standard would make it easier for the
XRB Board to add another climate standard to the suite (should the need arise).

(b)

To enable the XRB Board to keep NZ CS 1 concise i.e. NZ CS 1 will only contain thedisclosures for the four thematic areas (Governance, Strategy, Risk Management andMetrics and Targets).

(c)

To give the XRB Board the option to amend the general requirements as reporting
matures.

Consultation
BC5.

As discussed in the Basis for Conclusions accompanying NZ CS 1, the XRB Board issued an
exposure draft of this Standard in July 2022 — ED Aotearoa New Zealand Climate Standard 3
General Requirements for Climate-related Disclosures (ED NZ CS 3). An earlier version of themateriality section was also consulted on as part of the March 2022 Strategy and Metrics andTargets consultation (SMT consultation).

BC6.

The XRB Board received 56 formal submissions in response to the ED consultation in July 2022
which was comprised of ED NZ CS 1 Climate-related Disclosures, ED NZ CS 2 First-time
Adoption of Aotearoa New Zealand Climate Standards and ED NZ CS 3. Comments werereceived by respondents on the proposed concepts and general principles in ED NZ CS 3. This
Basis for Conclusions includes the reasons for accepting particular views and rejecting others.

Scope
BC7.

2

The XRB Board developed Aotearoa New Zealand Climate Standards primarily for thoseentities that are climate reporting entities (CREs) under the Financial Markets Conduct Act 2013
(FMCA 2013). The CREs captured are large listed debt or equity issuers, large financial entities

Note that some of the content in this Basis for Conclusions applies to the climate-related disclosure framework as a whole.

18

NZ CS 3such as registered banks, licensed insurers, credit unions, building societies, and managers ofregistered managed investment schemes (MIS Managers).
BC8.

The XRB Board recognised that other entities may voluntarily apply Aotearoa New Zealand
Climate Standards. For example, asset owners will be requesting information on climate-relatedrisks and opportunities from the companies they invest in, and these companies may look to
Aotearoa New Zealand Climate Standards for how to disclose this information. Crown Financial
Institutions may be directed to apply Aotearoa New Zealand Climate Standards via a letter of
expectation from the Minister of Finance. There will also be entities that voluntarily decide toapply Aotearoa New Zealand Climate Standards as opposed to having been asked by theirfunders or owners.

BC9.

The XRB Board encourages all entities that voluntarily adopt Aotearoa New Zealand Climate
Standards to apply all the requirements of Aotearoa New Zealand Climate Standards(see paragraph 4). The XRB Board noted that an entity must not state that its climate
statements or group climate statements comply with Aotearoa New Zealand Climate Standards
unless it complies with all the requirements of Aotearoa New Zealand Climate Standards.

BC10. The XRB Board noted it has the ability under the Financial Reporting Act 2013 to issue Aotearoa
New Zealand Climate Standards that apply to interim periods. To avoid doubt, the XRB Board
has clarified in the scope sections that NZ CS 1, NZ CS 2 and NZ CS 3 do not apply to interim
periods.

Fair presentation
BC11. The XRB Board decided to include fair presentation as the overarching principle in Aotearoa
New Zealand Climate Standards. The XRB Board noted that there is a presumption that
applying Aotearoa New Zealand Climate Standards will result in climate-related disclosures
being presented fairly. The XRB Board also noted that additional disclosures may be necessary
if the application of Aotearoa New Zealand Climate Standards do not achieve fair presentation.

Principles
BC12. To underpin its requirements and help guide current and future development in climate-related
disclosures, the XRB Board decided to develop a set of principles of high-quality reporting forclimate-related disclosures. The XRB Board noted that such principles underpin theoverarching principle of fair presentation. The XRB Board also noted that entities applying
Aotearoa New Zealand Climate Standards must consider these principles when preparing
climate-related disclosures.
BC13. The XRB Board noted that the principles in Tables 1 and 2 (paragraphs 12 and 13) are largely
consistent with other mainstream international disclosure frameworks. The XRB Board
acknowledged that international frameworks employ a wide variety of terminology to refer tovery similar, if not identical, concepts. For example, the label ‘principles’ is also referred to as‘qualitative characteristics’, ‘attributes’, ‘guiding principles’, ‘fundamental principles’ and‘reporting principles’. The XRB Board decided to simply use the word ‘principles’.
BC14. The XRB Board decided to make the distinction between:(a)Table 1: the principles that relate to the information (per se); and(b)

Table 2: the principles relating to the presentation of that information.

BC15. The XRB Board decided to separate the concepts of comparability and consistency and noted
a similar approach by the Task Force on Climate-related Financial Disclosures (TCFD). The
XRB Board noted that during the implementation period, it is easy to imagine an entity forgoing
consistency to adopt an industry metric that is becoming generally accepted. The XRB Board
also noted that the trade-off between comparability and consistency clearly shows these are
separate concepts.
BC16. Respondents to ED NZ CS 3 also highlighted the inherent tension between the comparability
and consistency principles. They acknowledged that the XRB Board had communicated its viewthat entities are embarking on a journey with climate-related disclosures. Respondents

19

NZ CS 3commented that this journey means that matters reported will, by their nature, evolve as entities’
capabilities and understanding mature. They noted that this may impede an entity’s ability toadhere to the comparability and consistency principles in a meaningful way, or otherwise
impose an unnecessary compliance burden for entities to explain and justify differences in andchanges to reporting methods, which are part of the maturity journey. Respondents commented
that adoption provisions may assist to alleviate this issue; however, wider consideration should
be given to how the fair presentation requirements can be effectively applied to an ever-evolving
subject.
BC17. In responding to feedback on the topic of comparability, the XRB Board acknowledged thatcomparability at an individual disclosure level between entities may be particularly limited during
the first several years of climate-related disclosures as processes, systems and methods aredeveloped. The XRB Board further noted the nature of the information required to be disclosed
may mean comparability between entities at an individual disclosure level may, by its nature,continue to be limited. However, the XRB Board considers that primary users will always beable to make high-level comparisons between entities. For example, entity A integrates climaterelated risks into its enterprise risk management systems and entity B does not. In addition, the
XRB Board noted that the disclosure of points of reference, such as targets, baselines andindustry benchmarks enable primary users to make comparisons of the performance (andrelative level of ambition) of an entity and then to compare that with the performance andambition of another entity. The XRB Board is also of the view that meaningful comparability will
be achieved between an entity’s own disclosures over time, and that primary users are likely to
be very interested in such comparability.
BC18. Responding to the feedback on the imposition of an unnecessary compliance burden to explain
and justify differences and changes to reporting methods, the XRB Board notes that it
considered the compliance costs of this requirement when developing this Standard. While fairpresentation requires transparency by entities of the changes in their methods, to reduce thereporting burden for entities, the XRB Board decided not to require restatement of comparative
information for changes in methods, as it did not consider this information to be critical forprimary user decision making.
BC19. The XRB Board considered that cost constraint, although pervasive, was not a characteristic of
information quality. Rather, it is a characteristic of the processes and procedures that provide
information. Cost benefit decisions of Aotearoa New Zealand Climate Standards wereconsidered by the XRB Board during its due process, through extensive outreach with preparers
and stakeholders.
BC20. The XRB Board decided to include the principle of coherence as a presentation principle. The
XRB Board is of the view that this is in line with its broader strategic direction of integrated
reporting. The XRB Board noted that coherence means presenting information in a way that
achieves intra-integration within climate-related disclosures and inter-integration between
climate-related disclosures and other disclosures (including information in financial statements).
BC21. ED NZ CS 3 included the following explanation under the principle of verifiability: ‘To the extent
possible, climate-related should be based on objective data and use best-in-classmeasurement methods, which may include common industry practice as it evolves’.
Respondents did not agree that the reference to ‘best-in-class’ was appropriate and requested
its removal. Respondents also noted the practical concerns regarding the accuracy andtransparency of the data sources that can be applied for physical and transition risks. The XRB
Board considered the feedback received and noted that this is a new disclosure regime andmany disclosures do not have ‘best-in-class’ methods. In response to the feedback received
the XRB Board deleted the proposed explanation paragraph.

Location of disclosures
BC22. The XRB Board noted that, as well as providing information to primary users, an important intent
of the climate-related disclosures framework is to embed an understanding of climate change
across an entity. For example, one of the disclosures under Risk Management requires anentity to describe how its processes for identifying, assessing, and managing climate-relatedrisks are integrated into the entity’s overall risk management processes (see NZ CS 1,
paragraph 18(b)). The XRB Board noted that many voluntary reporters integrate their TCFD

20

NZ CS 3

disclosures throughout their annual report, rather than separating climate-related risks fromother risks or activities.
BC23. The FMCA 2013 requires the preparation of climate statements or group climate statementsthat comply with the climate-related disclosures framework. For those entities that are required
to prepare an annual report, the FMCA 2013 also requires that a copy of these climate
statements or group climate statements must either be included in the entity’s annual report, orthe annual report must include the address of (or a link to) the internet site where a copy of
those statements can be accessed. Beyond these requirements, the FMCA 2013 does not
specify the location of the climate statements or group climate statements. The XRB Board
decided to design the location of disclosures requirements in this Standard to:(a)support entities taking an integrated approach to climate change;(b)provide flexibility to entities to present their climate-related disclosures in a way that ismost meaningful for their primary users; and(c)allow for evolution over time.

BC24. Most respondents who provided comments on the proposed location of disclosuresrequirements in ED NZ CS 3, preferred climate-related disclosures to be fully integrated into
other forms of reporting (such as annual reports) and commented that the XRB Board should
not prescribe the location of an entity’s climate-related disclosures. Responding to the feedback
received, the XRB Board decided to give an entity the ability under this Standard to present its
climate-related disclosures in a standalone document or within another document (for example,
its annual report or a sustainability or integrated report). The XRB Board noted that, regardlessof the option chosen, an entity must ensure that the presentation principles in this Standard aremet.
BC25. While the majority of feedback received throughout the consultation supported the XRB Board’s
flexible approach, the XRB Board did receive feedback that taking a flexible approach may
make it difficult for primary users to identify climate-related disclosures if they are provided
within another document (rather than in a standalone document). Therefore, the XRB Board
decided that an entity must include a table within that other document that clearly identifies thelocation of the disclosures required by Aotearoa New Zealand Climate Standards(see paragraph 15). The intent is to allow primary users to quickly locate and identify reported
information.

Cross referencing
BC26. The XRB Board decided to allow an entity the ability to use cross referencing when presenting
its climate-related disclosures. The XRB Board developed requirements for the use of crossreferencing to ensure it is used appropriately and primary users have access to all theinformation they need for their decision making. The XRB Board intends for cross referencing
to be used only in cases where it achieves fair presentation and enhances the understandability,
completeness, consistency and coherence of climate-related disclosures.
BC27. The XRB Board proposed allowing cross reference to websites in ED NZ CS 3. Some
respondents noted that permitting cross referencing to an entity’s website may be interpreted
to mean climate-related disclosures could be part of an editable page on an entity’s website
and that this requirement should be removed. The XRB noted the requirement under the
FMCA 2013 for an entity to lodge its climate-related disclosures with the registrar. The XRB
Board also noted that the practicalities of meeting this requirement should information be hosted
on a editable page on an entity’s website. The XRB Board therefore decided to remove theability to cross-refer to a website page. However, the XRB Board notes that this would notprohibit an entity from cross-referencing to a document held on an entity’s website (as a copyof the document that is lodged with the registrar). Given the legal requirement to lodge climaterelated disclosures, the XRB Board also decided to delete the proposed requirement in
ED NZ CS 3 for an entity to maintain the cross-referenced information unchanged and available
over time.

21

NZ CS 3

Climate statements relating to registered schemes
BC28. The XRB Board noted that the FMCA 2013 requires MIS Managers to complete theirclimate-related disclosures for each separate fund. The XRB Board received feedback during
the consultation that MIS Managers wanted the XRB Board to clarify in Aotearoa New Zealand
Climate Standards whether common information across funds can be presented at a scheme
level. Based on the feedback received the XRB Board decide to clarify the presentation
requirements for MIS Managers and added paragraph 20 to this Standard.

Reporting entity
BC29. The XRB Board decided that except as otherwise required by Part 7A of the FMCA 2013, anentity is required to prepare its climate-related disclosures for the same reporting entity as its
financial statements. This decision aligns with the XRB Board’s mission of high-quality, credible,
integrated reporting, and is designed to enable entities to link financial statements withclimate-related disclosures. The XRB Board received supportive feedback for this decision.
BC30. The XRB Board received feedback on ED NZ CS 3 that there are some complicated structures
for overseas entities and groups. As a result, the XRB Board removed the paragraph in
ED NZ CS 3 that referenced the preparation of climate-related disclosures for a group as well
as a subsidiary. The XRB Board noted that the FMCA 2013 determines if and how entities arecaptured in the regime and are therefore classified as a CRE. The XRB Board concluded that
entities would need to determine for themselves if they are a CRE. The XRB Board also ensured
that the final versions of Aotearoa New Zealand Climate Standards did not replicate any of therequirements for CREs that are included in the Financial Sector (Climate-related Disclosuresand Other Matters) Amendment Act 2021 (the Amendment Act).

Value chain
BC31. The XRB Board received feedback during the consultation process that it should clarify thetreatment of joint ventures when making climate-related disclosures. The XRB Board noted thatclimate-related risks and opportunities relate to activities, interactions, and relationships, and to
the use of resources along an entity’s value chain. The XRB Board also noted than when
considering its exposure to climate-related risks and opportunities, an entity must consider the
exposure of its value chain as well. Consistent with this reasoning, the XRB Board noted thatinvestments that an entity has in other entities, for example, associates and joint ventures, arealso considered to be part of an entity’s value chain. The XRB Board decided to add
paragraph 22 to this Standard in response to the request for clarification. The XRB Board
received support for the inclusion of an entity’s value chain in this Standard.

Reporting period
BC32. The XRB Board decided that climate-related disclosures should be made for the same reporting
period as the financial statements. The XRB Board noted that as some reporting entities are
required or elect to publish half-year financial statements, it was necessary to clarify thatclimate-related disclosures should be made for the same reporting period as the annual
financial statements.

Materiality
Primary users
BC33. This Standard defines primary users as ‘existing and potential investors, lenders and othercreditors’. The XRB Board received feedback from some respondents throughout theconsultation process that the definition of primary user should be widened to accommodate
other stakeholders (for example, in the for-profit sector including customers and employees; in22

NZ CS 3

the public sector including a wider range of users, such as ratepayers, resource providers orservice recipients). The XRB Board considered this feedback and concluded that the scope ofentities included in the climate-related disclosure regime related to the fact that the entities ortheir products can be invested in and that this provided a strong rationale to provide a tightly
focused primary user definition that emphasises investor needs, rather than broadening it toother users.
BC34. The XRB Board acknowledged that some public benefit entities (PBEs) are included in thedefinition of reporting entities under section 461O of the FMCA 2013. However, these entities
are included by virtue of providing an investment product, not because the entities are PBEs.
The XRB Board decided that the information disclosed under this regime should be targeted atinvestors in those products. If the categories of entities designated as a CRE changes in the
future as a result of legislative amendment, the XRB Board concluded that this may warrant achange to the primary user definition, and that further consultation would be needed at thatpoint. The XRB Board also concluded that PBEs could take a broader perspective of who theirprimary users are, and report information that is considered to be of value to them.
BC35. The XRB Board also acknowledged the debate on whether primary users and otherstakeholders have different information needs when it comes to the disclosure of climate-related
information in particular. The XRB Board’s current understanding is that there is a high degreeof overlap between the information needs of these two groups.

Materiality is a pervasive concept
BC36. Some respondents to ED NZ CS 3 requested clarification on whether certain disclosure
requirements were subject to materiality judgements. For example, respondents soughtclarification as to whether the disclosure requirement in paragraph 19(c) in the Risk
Management section of NZ CS 1 was subject to a materiality judgement. These respondents
recommended that the disclosure was amended to read “whether any material parts of thevalue chain are excluded”. As another example, respondents also sought clarification as towhether the disclosure requirement in paragraph 41 of ED NZ CS 3 that required an entity to
explain changes in what it disclosed, the methods used, or how it presented its information
applied only to material changes, or to all changes. This feedback and questions received
during other outreach activities indicated to the XRB Board that there was confusion relating to
the application of materiality.
BC37. Responding to this feedback, the XRB Board noted that the disclosure requirements in
Aotearoa New Zealand Climate Standards are required to be provided by an entity whenmaterial. The XRB also noted that while the application of the disclosure requirements in
Aotearoa New Zealand Climate Standards are presumed to result in material information inmost cases, ultimately the responsibility for making materiality judgements rests with thereporting entity for all requirements in Aotearoa New Zealand Climate Standards. The XRB
Board notes that an entity need not provide a specific disclosure required by Aotearoa New
Zealand Climate Standards if, in the judgement of the reporting entity, the information resulting
from that disclosure would not be material.
BC38. The XRB Board further notes that materiality is a pervasive concept that applies to all disclosure
requirements in Aotearoa New Zealand Climate Standards. The XRB Board’s view is that it
would not be helpful to insert the word ‘material’ in front of certain disclosures as this could leadto further confusion (particularly in cases where ‘material’ was not inserted). Rather the XRB
Board intends entities to disclose only information that it considers to be material to its primaryusers. For example, paragraph 53 requires disclosure of ‘uncertainties relevant to the entity’squantification of its GHG emissions, including the effects of these uncertainties on the GHG
emissions disclosures’. An entity must only disclose material uncertainties, rather than all
uncertainties. If all uncertainties were disclosed, material information could be obscured byimmaterial information (see paragraph 8). Responding to the feedback received, the XRB
Board decided to add paragraph 27 to this Standard and to include a reminder at the front of
Aotearoa New Zealand Climate Standards to reinforce to preparers that materiality applies toall disclosure requirements.

23

NZ CS 3

Use of ‘material’ and ‘significant’BC39. The feedback on the use of the term ‘material’ also made the XRB Board consider its use of
the term ‘significant’ in the exposure drafts of Aotearoa New Zealand Climate Standards. The
XRB Board decided to remove the term significant where it was considered to have the same
meaning as material to avoid any confusion.

Disclosure of materiality assessments
BC40. A few respondents during the consultation suggested that the XRB Board should include a
disclosure about how an entity has made materiality assessments at the level of individual
disclosure requirements. The XRB Board decided not to include such a disclosure at this time
as it was concerned that such a requirement may result in boiler plate descriptions that would
not provide useful information to primary users and may inadvertently recreate the ‘disclose or
explain’ structure that was expressly removed during Select Committee (Economic
Development, Science and Innovation Committee) stage from the Amendment Act. The XRB
Board noted that it may reconsider at the post-implementation review (PIR) stage whether tointroduce a disclosure requirement about the process of identifying and disclosing material
information and/or materiality judgements. This would depend on whether there were concerns
about the lack of disclosure about how entities decide what is, and what is not, material and theneed to provide greater transparency for users.

Enterprise value not meaningful for entire CRE population
BC41. ED NZ CS 3 contained the following definition of material:
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence
decisions that primary users make on the basis of their assessments of an entity’s enterprise value.

BC42. The XRB Board received the following items of feedback on the proposed definition of material
in ED NZ CS 3:(a)the linkage to assessments of enterprise value in the definition is not appropriate forpublic entities that are PBEs—market capitalisation and elements contained in thedefinition of enterprise value are generally not relevant for public entities that are PBEs;(b)

the definition of material is inconsistent with the requirement for entities to think more
broadly about climate-related risks and opportunities;(c)debt investors may not be primarily concerned with assessments of enterprise value;(d)‘assessments of enterprise value’ in relation to MIS Managers should refer instead toeach fund; and(e)for MIS Managers it might be useful to adopt the definition of ‘material information’ under
the FMCA 2013 as this would provide a consistent approach to materiality for MIS
Managers (and their primary users).

BC43. The XRB Board noted that the ISSB at its October 2022 meeting3 tentatively decided to remove
the definition of ‘enterprise value’ and the words ‘to assess enterprise value’ from the objective
and description of materiality in its Exposure Draft IFRS S1 General Requirements forDisclosure of Sustainability-related Financial Information (ED IFRS S1) and to redeliberate themeaning of enterprise value at a future meeting. The ISSB also confirmed its definition ofmaterial in ED IFRS S1 shares the same definition as that used in IFRS® AccountingStandards.4
BC44. The XRB Board considered the feedback received in response to its proposed definition ofmaterial and the current direction of travel indicated by the ISSB. The XRB Board concluded
that it should adopt a definition of material that can be applied by all the entities that are requiredby the FMCA 2013 to prepare climate statements or group climate statements. Consequently,
3

IFRS Foundation. 2022. IFRS Update October 2022. Available at https://www.ifrs.org/news-andevents/updates/issb/2022/issb-update-october-2022/

4

The ISSB proposed definition of material is: Sustainability-related financial information is material if omitting, misstating or
obscuring that information could reasonably be expected to influence decisions that the primary users of general purpose
financial reporting make on the basis of that reporting, which provides information about a specific reporting entity.

.

24

NZ CS 3

the XRB Board decided to remove the link to enterprise value from the definition of material andremove the definition of enterprise value from the defined terms. The XRB Board also decided
to remove the definition of climate-related disclosures from the defined terms as this definition
also focused on assessments of enterprise value.
BC45. The XRB Board decided on the following definition of material:
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence thedecisions that primary users make on the basis of an entity’s climate-related disclosures.

BC46. As well as aligning more closely with the proposed ISSB definition, the XRB Board also notedthat the above definition is aligned with the definition in the New Zealand Equivalent to the IASB
Conceptual Framework for Financial Reporting (2018 NZ Conceptual Framework):
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence
decisions that the primary users of general purpose financial reports (see paragraph 1.5) make on thebasis of those reports, which provide financial information about a specific reporting entity.

What decisions are primary users making
BC47. Given the decision to remove ‘assessments of enterprise value’ from the materiality definition,
the XRB Board noted that a lack of clarity could arise about the nature of the decisions expected
to be made by primary users. The XRB Board therefore decided to include a paragraph under
the objective in each Aotearoa New Zealand Climate Standard. This paragraph states that theultimate aim is to ‘support the allocation of capital towards activities that are consistent with atransition to a low-emissions, climate-resilient future’. The XRB’s Board view is that primaryusers need information that enables them to make these capital allocation assessments. The
XRB Board noted that primary users also make assessments of an entity’s ability to create orpreserve value for itself and therefore for its investors and creditors, and that generating
long-term value necessarily requires a wider perspective than just immediate monetary returns.

Characteristics of primary users and the reasonable person test
BC48. The XRB Board received feedback on the exposure drafts that it should clarify ‘the type ofinvestor’ considered to be a primary user by reference to the concepts contained in the
FMCA 2013, such as a primary user is an investor who commonly invests in financial products
as this will affect the assessment of materiality. Some respondents to the earlier SMT
consultation had also suggested that the definition of materiality should be aligned with the‘reasonable person test’ used in the FMCA 2013. The XRB Board noted at the time that it did
not agree that moving away from a primary user test to a reasonable person test would be
helpful, and that it considered the relevant audience is the primary user.
BC49. The XRB Board also noted that with respect to climate-related disclosures (including
disclosures relating to forward-looking information, estimations, and uncertainties), the relevant
audience is the primary user. This audience is expected to be educated and experienced
enough to understand basic technical documents, which the XRB Board considered is over andabove the ‘reasonable person test’. However, the XRB Board acknowledged that different
entities may have primary users with different levels of sophistication (for example, KiwiSaver
investors as compared to an investor in listed debt), and an entity should consider this whenpresenting climate-related disclosures.

Double vs single materiality
BC50. Throughout the consultation process respondents requested that the XRB Board consider
introducing the concept of double materiality either now or in the future. The XRB Board
acknowledged the topical and ongoing global debate on ‘double’ versus ‘single’ materiality. The
XRB Board considered this topic and what it means for the climate-related disclosure
framework. The XRB Board considered that using simplified labels such as ‘single’ or ‘double’
materiality may serve to reduce, rather than enhance, different understandings of this topic. It
also questioned whether the directional effect really matters (i.e., impacts of climate on an entity
versus impacts of an entity on the climate), when the fundamental concept of materiality is
whether providing or withholding the information is likely to influence primary users’ decision
making. The XRB Board further noted that the requirements in NZ CS 1 already require25

NZ CS 3

information to be disclosed about an entity’s impact on climate change (for example, thedisclosure of scope 1, 2 and 3 GHG emissions, the transition plan aspects of an entity’s
strategy, and disclosure of an entity’s GHG emissions targets).
BC51. The XRB Board conducted further outreach with stakeholders during the consultation period tounderstand what material information they thought would be missing from the climate-related
disclosures if the XRB Board retained its original proposed definition of materiality. A key
message the XRB Board took away from the further outreach was that it was important to signal
to an entity that it needs to take a broad view when considering how its impacts on the climate
could reasonably be expected to influence the decisions of its primary users.
BC52. In response to feedback received, the XRB Board decided to clarify in this Standard that anentity is encouraged to think broadly about possible feedback loops when it considers how its
impacts on the climate could reasonably be expected to influence the decisions of its primaryusers (see paragraph 38). In the XRB Board’s view this amendment plus the requirements in
NZ CS 1 (that require information on impacts on climate, as noted above in paragraph BC50)
will mean the primary users are not receiving less information than they would if the XRB Board
adopted a broader materiality definition.

Comparative Information, consistency of reporting, and restatement ofcomparatives
BC53. One of the purposes of the consistency principle is to provide information about trends toprimary users of climate-related disclosures. Disclosing climate-related metrics consistently
from year to year will facilitate comparative and trend analysis. The XRB Board decided torequire an entity to disclose comparative information for the immediately preceding tworeporting periods, as this will provide a basis for primary users to track information over time.
The XRB Board noted that this is a minimum requirement and an entity can provide historical
data for as many reporting periods as it would like.
BC54. The XRB Board received feedback that it should clarify whether comparative information isrequired when an entity discloses a ‘new’ metric. The XRB Board considered this feedback anddecided it would not require an entity to provide comparative information when it disclosed a
new metric. The XRB Board added paragraph 41 accordingly.
BC55. ED NZ CS 3 included requirements for an entity to provide an explanation of changes in its
climate-related disclosures from one reporting period to the next. The XRB Board received
feedback that these disclosure requirements could be onerous for entities and may beoverwhelming for users, particularly early on where there may be considerable change year on
year due to developing methods. The XRB Board reconsidered its approach and removed therequirement for an entity to provide an explanation if an entity changes ‘how it presents its
information’, for example the use of different formats, narratives or language. However, the
XRB Board reaffirmed its view that changes to what an entity reports, for example, a change ina metric disclosed or a change in a method used must be disclosed as this information could
reasonably be expected to influence decisions that primary users make.
BC56. The XRB Board decided that all material errors in previously reported information must be
corrected by restating comparative information. Such errors might arise though calculation
mistakes, mistakes in applying the definitions for metrics and targets, oversights or
misinterpretations of facts, and fraud. The XRB Board also decided that an entity is required todisclose an explanation of the material error and the change (see paragraph 45).
BC57. The XRB Board noted that an entity might change its current year’s climate-related disclosures
for several reasons. These include changes in measurement methods, changes in amounts
because of more current estimates, or changes to the nature of an entity’s activities. The XRB
Board concluded that an entity needs to explain any such changes and the effect they have on
the current reporting period’s climate-related disclosures (see paragraph 43). However,
because of the developing nature of climate-related disclosures, the XRB Board decided not torequire an entity to restate its comparative information in these circumstances. Althoughrestatement is not required, the XRB Board also decided to include in this Standard examplesof when an entity should consider restatement of comparative information (see paragraph 46).

26

NZ CS 3

Methods and assumptions, and data and estimation uncertainty
BC58. The XRB Board noted that climate-related disclosures include disclosures relating toforward-looking information, and that providing these disclosures involves the selection of
methods (some of which may have inherent limitations), the use of, assumptions, estimations,and comes with a level of uncertainty. The XRB Board decided to include in ED NZ CS 3
requirements for the disclosure by an entity of the methods and assumptions used, and to
identify those disclosures that have significant estimation uncertainty. The XRB Board is firmlyof the view that transparency in this area is critical to ensure primary users are provided withinformation to understand the context of an entity’s climate-related disclosures but also to assist
with comparability of disclosures. Responding to feedback received earlier in the consultation
period that these disclosure requirements could result in voluminous disclosures, the XRB
Board decided to clarify in ED NZ CS 3 that an entity must focus on those significant
assumptions and other sources of significant estimation uncertainty that require an entity’s mostdifficult, subjective or complex judgements.
BC59. The XRB Board received feedback on ED NZ CS 3 that the section on methods, assumptions
and estimation uncertainty as drafted focused on ‘amounts’ included in an entity’s climaterelated disclosures. Respondents felt that this may inadvertently narrow the disclosures anentity would make. The XRB Board agreed with the views expressed and amended therequirements.
BC60. During the exposure draft period, the XRB Board received feedback that it should also require
an entity to include specific reference to data limitations (including as to assumptions andavailability of data) so that the expectation to disclose limitations around the uncertainty and/or
availability of data is explicit. Responding to this feedback the XRB Board decided to add arequirement for an entity to disclose aspects of its disclosures that involve data uncertainty.
BC61. Also responding to feedback received that, for some of the disclosures, the methods available
to an entity are relatively novel or uncertain. The XRB included an explanation in this Standard
that using a relatively novel or uncertain method does not undermine the usefulness of theinformation disclosed as long as the use of that method is accurately and transparently
described and explained.
BC62. Some respondents to ED NZ CS 3 stated a preference that the methods and assumptions
employed by entities be mandated by the XRB. The XRB noted that in some cases, it will taketime and a degree of trial and error before methods are widely accepted, robust datasets areavailable, and greater certainty around disclosures is attained. In the interim, it is important that
entities actively engage in the process of sourcing new methods and new data sources, andresearch the appropriate assumptions, which are required to tackle some aspects ofclimate-related disclosure. To that end, the XRB Board considered that the choice of methods
and assumptions, and data and estimations that entities use should be the entities own
decision.
BC63. The XRB Board also removed the term ‘significant’ from paragraph 50 of this Standard (seeparagraph BC39). The XRB Board clarified that when deciding how much information todisclose in relation to assumptions, and data and estimation uncertainty, an entity must focus
on those assumptions and other sources of estimation and data uncertainly that have the mostinfluence on an entity’s climate-related disclosures, or that required an entity’s most difficult orcomplex judgements.
BC64. In ED NZ CS 3, the terms ‘methodology’ and ‘methodologies’ were sometimes used. The XRB
Board decided to exclusively use the terms ‘method’ or ‘methods’ in the final version of thisStandard both for the sake of consistency across disclosure requirements, and forsimplification. The XRB Board noted that, in common parlance, there is little distinction between
what is understood as a method versus a methodology.

Scenario analysis and assumptions
BC65. The XRB Board decided to include disclosures on methods and assumptions relating toscenario analysis, and to draw these from TCFD guidance. The XRB Board noted that the
TCFD guidance recommended disclosure on specific aspects of scenario analysis methods
and assumptions because of their importance for primary users, namely enabling primary users

27

NZ CS 3

to understand the process of the scenario analysis undertaken and the assumptions within the
scenarios. The XRB Board noted that the intent is to avoid a situation where scenarios are a‘black box’ to primary users. The XRB Board also noted that some of the requirements in thisStandard are additional to the TCFD guidance because they reflect New Zealand-specificcircumstances. For example, this Standard contains a more explicit reference to ‘carbon
sequestration from afforestation and nature-based solutions’, given their relative importance in
New Zealand’s emissions reduction pathways.
BC66. Some respondents to ED NZ CS 3 expressed concerns that the disclosure requirement inparagraph 51(b)(iii) relating to what modelling an entity has undertaken and why an entity had
chosen a model, could require a wide assessment of all available models which may not bepracticable, and may result in voluminous disclosures. The XRB Board noted that therequirement in paragraph 51(b)(iii) is not to provide an evaluation of models against all others,
it is simply to provide a rationale for the choice given.
BC67. The XRB Board considered the compliance costs associated with the proposed disclosures on
methods and assumptions relating to scenario analysis. The XRB Board also considered theconcerns raised by respondents that the proposed disclosures could potentially lead to thedisclosure of immaterial detail which could obscure material information. The XRB Board
concluded that these disclosures are fundamental for primary users to be able to achieve alevel of comparability across the disclosures made by different entities 5 , and also provide
primary users with the ability to understand assumptions.6 The XRB Board also noted that crossreferencing enables an entity to disclose detailed information relating to methods andassumptions in a location where it does not inhibit primary users from understanding otherdisclosures.

GHG emissions methods, assumptions and estimation uncertainty
BC68. When the requirement to prepare a GHG emissions report was removed following the
SMT consultation (see NZ CS 1, paragraph BC65), the XRB Board added additional disclosure
requirements in relation to GHG emissions (see paragraphs 52 to 54) to ensure that an entity
would provide enough information for primary users to be able to understand how they havemeasured their GHG emissions. The XRB Board noted that these disclosure requirements havebeen informed by the GHG Protocol, ISO 14064-1:2018 and ISAE NZ 3410.
BC69. The XRB Board received feedback that it should consider whether a data quality score orsomething similar should also be disclosed for GHG emissions so as to provide more useful
information to users. The XRB considered this could be disclosed by an entity depending on
their choice of measurement standard (for example, if an entity employed the PCAF method it
would disclose a data quality score).

Statement of complianceBC70. The XRB Board received feedback that entities were concerned with the requirement to makean explicit and unreserved statement of compliance with Aotearoa New Zealand Climate
Standards while the new regime is implemented and reporting entities build up their expertiseand capacity. Respondents suggested that a statement of compliance should not be requiredin the early years of the regime.
BC71. This feedback indicated to the XRB Board that there may be a lack of understanding regarding
the statement of compliance. The XRB Board noted that Aotearoa New Zealand Standards aresecondary legislation and are legally required to be complied with under the FMCA 2013. The
XRB Board acknowledged the need to build expertise and capacity and has issued NZ CS 2
5

The Investor Group on Climate Change notes that the ‘inputs affect the results, and are not transparent enough... Publicscenarios have weaknesses; but bespoke scenarios are opaque and prohibit comparison. Where bespoke scenarios aredeveloped and applied, transparency on the assumptions and relationship to existing scenarios is even more critical.’Investor Group on Climate Change. 2020. ‘Full disclosure: Improving corporate reporting on climate risk’. Available athttps://igcc.org.au/wp-content/uploads/2020/09/IGCCReport_Full-Disclosure_FINAL.pdf (pages 27 to 28).

6

The TCFD notes that ‘[u]nderstanding the underlying assumptions of different pathways is critical for understanding
company-level risks, impacts, and uncertainties. Differences in assumptions (and hence different pathways) can make big
differences in company-level impacts.’ TCFD. 2020. ‘Guidance on scenario analysis for non-financial companies’. Available
at https://assets.bbhub.io/company/sites/60/2020/09/2020-TCFD_Guidance-Scenario-Analysis-Guidance.pdf (page 26).

28

NZ CS 3

which provides optional adoption provisions for some of the more challenging disclosuresrequired by Aotearoa New Zealand Climate Standards. The XRB Board is firmly of the view that
entities can state compliance with the disclosure requirements in Aotearoa New Zealand
Climate Standards notwithstanding that the underlying practices supporting the disclosure
requirements will become more sophisticated over time.

29