Emerging Questions

30 August 2021

Emerging Questions

As we finalise the first consultation paper on Governance and Risk Management (to be released on 20 October), work is also underway on the more complex Strategy and Targets & Metrics sections of the disclosure standards.   

The exploration has identified several challenging issues, specifically in relation to scenario planning and accounting for GHG emissions. We are working through these issues and are engaging with stakeholders to determine appropriate ways forward.

Scenario analysis 

A scenario is a plausible description of how the future may develop based on a coherent and internally consistent set of assumptions about key driving forces (e.g., rate of technological change, prices) and relationships. Scenarios are neither predictions nor forecasts but are useful for providing a view of the implications of developments and actions.  

The Strategy section of the TFCD recommends organisations describe the resilience of their strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario, where such information is material​.  

We are currently working through scenario analysis options for the New Zealand climate-related disclosure regime and are working through the following key questions:  

  • Should or could reference scenarios be provided freely for all entities to use?  
  • How many and to what level of detail could these be provided?​ 
  • Who should be responsible to coordinate the availability of data, so that sectoral groups, or individual entities can develop their own scenarios? 
  • What would transaction costs for both investors and reporting entities be for this?​

We are currently working through these issues as we develop the climate-related disclosure standards. Our first discussion document is due out on 20 October 2021. 

GHG accounting requirements 

Under the Metrics & Targets section of the TCFD, entities are asked to disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG) emissions and the related risks: 

  • Scope 1 emissions are direct emissions from sources owned or controlled by the organisation (e.g., emissions from company vehicles). ​
  • Scope 2 emissions are indirect emissions from sources owned or controlled by the organisation (e.g., emissions resulting from generating the electricity that is then purchased by the company). ​
  • Scope 3 emissions relate to all other organisational activities (e.g., waste disposal, employee commuting, or upstream or downstream distribution channels)​.

There are several different ways in which entities can make decisions about calculating their Scope 3 emissions. For example, many entities use the GHG Protocol to guide these decisions, but this is not the only approach.  

Assurance of GHG emissions will be required within three years of the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill receiving Royal Assent. We are currently assessing what updates may be required to the existing assurance standard for GHG statements (ISAE (NZ) 3410).