Climate-related disclosure is a boon for countering greenwashing

By Richard Gordon

Almost a day doesn’t go past without another announcement by a leading local or international brand on how they are responding to climate change – whether it is ordering hydrogen-powered jets or breeding low methane-producing cows.

Brands that offer consumers a false impression of how a company’s products are good for the environment—a practice known as “greenwashing” —can damage a brand’s reputation. Greenwashing involves brands trying to get credit for playing in the sustainable space without having any intention of long-term environmental benefit or exaggerating the eco-friendly steps they’re taking.

But it is relatively simple to avoid the tag of greenwashing. The best method is to stay truthful, embrace credible third-party verification such as the B-Corp programme, and get into the habit of disclosing good quality information about what your organisation is doing to either reduce emissions or build resilience to the impact of climate change.

For very large companies and asset owners, a new prompt to disclose data has arrived in the form of the Aotearoa New Zealand Climate Standards, just released by the New Zealand External Reporting Board (XRB).

The development of the standards by the XRB followed a New Zealand Government announcement in September 2020 of its intention to implement mandatory reporting on climate-related risks and opportunities.

It became clear that rather than re-invent the wheel, the XRB would base the development of New Zealand standards on the already internationally accepted Task Force on Climate-related Financial Disclosures (TCFD) that several local companies such as Genesis and Z Energy had already adopted.

However, instead of doing a quick cut and paste from the TCFD, the XRB then went through a two-year programme of development and consultation with reporting entities and others.

At the end of the day, the final standards, released just as everyone went home for Christmas, look a lot like the TCFD, with the same four-part framework – Governance, Strategy, Risk Management, and Metrics & Targets. Consultation and a review of evolving international standards, such as the International Sustainability Standards Board, resulted in further fine tuning of the local standards.

The starting date for the new standards, which apply to around 200 companies and entities, was 1 January 2023. In early 2024 we can expect to see the first public disclosure using the standards for organisations with a 31 December 2023 balance date. For many listed companies, that have a 30 June balance date, we won’t see the first public disclosure until the middle of 2024.

The XRB is agnostic about where the climate related disclosures are published – they can be in an annual report, a sustainability report or as a stand-alone climate disclosure report.

From what we have seen in the past year, climate disclosure reports can be lengthy, repetitive, and not exactly retail investor friendly. Many companies struggle to tell their climate risk and exposure story in a succinct report, with 10,000 word reports common.

No doubt, communications writers and sustainability managers will hone their skills over the next year to deliver tighter yet compliant climate disclosure statements.

What is the point of these new reporting standards and how can they help companies avoid the tag of greenwashing?

The standards have two main goals: one, ensuring that large companies and asset owners in New Zealand take climate-related financial risk into account when making big decisions, and secondly, giving investors comparable data so they can make informed decisions about where to invest their capital.

A reader of a climate disclosure statement should be able to see clearly how climate change is impacting and may further impact an entity’s ability to deliver on its core strategy.

There are companies that proclaim big sustainability goals in the future, setting certain targets by 2030 or another far-off year. That strategy has the potential to be perceived by consumers as greenwashing, especially if there is no roadmap for the next decade.

Under the new standards, investors and consumers will be able to see what an entity is doing to achieve a better strategic position and build resilience (which is increasingly now expected to be communicated through a credible transition plan).

Companies will be expected to clearly show their exposure to risks, under at least three scenarios, and what they are doing to mitigate those risks.

As climate change materialises, with increasingly extreme weather events around the word, strategies without substance and marketing claims that a company has a commitment to the environment are no longer enough.

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

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