18 Apr 2024

Webinar Recap | CRD Reporting - What businesses in the value chain need to know

Posted in: Measure and Report Emissions

CRD Reporting

What businesses in the value chain need to know

On Thursday 18th April 2024, Toitū experts and Port of Auckland Simonne Elliot, discussed the impacts of the newly introduced Climate-Related Disclosures (CRD) regime. This new legislation has significant implications for both Climate Reporting Entities (CREs) and businesses in their value chain. No matter your business size, location, or sector, understanding the CRD legislation and how it might impact your business is crucial. Listen as out experts discuss the role of businesses within the supply chain of CREs and how you can prepare for the growing requirement of climate reporting.

Our experts discussed

  • An overview of the CRD framework and its implications for your business.
  • Your business’ relevance in the CRE value chain, including expectations you should meet.
  • Practical approaches to support CREs and align with best climate practice.
  • The opportunities and advantages of aligning with the Disclosures.
  • How emissions data sharing benefits your business.
  • Insights into the global CRD landscape and its local implications.

Key takeaways

  • There is no better time to start measuring, managing, and reporting on your emissions and climate action than today.
  • Climate Related Financial Disclosures are a global movement to support the allocation of capital to climate transition that will continue to grow in impact and breadth over time.
  • There are strategic business benefits to aligning with the CRD reporting that go beyond reducing emissions.
  • The demand for high quality emissions data  reporting will only increase.
  • Following international GHG standards will ensure information is comprehensive and comparable.
  • Climate action requires a collaborative value chain approach.

Our speakers

Prashant Kim, Senior Business Development Manager | Toitū Envirocare
Walter Poulsen, Senior Account Manager | Toitū Envirocare
Dustin Courage, Sector Lead - Finance & Built Environment | Toitū Envirocare
Simonne Elliot, Senior Sustainability and Environment Advisor | Port of Auckland

Watch the recording

Access full presentation

Download slides

Additional Q&A

Q1: How are companies disclosing their climate related risks? Interested in knowing more on the format and structure for the reports generated, as well as any examples.

Take a look at some of the already published Climate-Related Disclosures, for example those of ANZ, Summerset, Zespri, Meridian and Westpac. These Disclosures not only provide datasets and charts but also extensive commentary across the four pillars of the CRD requirements. Format and structure of the disclosure report aligns to the 4 thematic areas of Governance, Strategy, Risk Management, and Metrics and Targets. The strategy section includes the reporting entities transition plan.

Q2: What do the reporting timelines look like for CRE's and when should suppliers expect clients to be needing this information? When should suppliers aim to have this data / credentials completed by?

A CRE must prepare its Climate-Related Disclosures for the same reporting period as its annual financial statements, annually.

  • Required within 4 months of end of financial year.
  • Mandatory disclosure period began 1 January 2024.
  • Mandatory assurance over GHG emissions for reporting periods that end on or after 27 October 2024.

Q3: Could you please clarify the CRD requirement on levels of assurance for Scope 1, 2 and 3?

Climate Reporting Entities are required to have their entire value chain GHG emissions verified to at least limited assurance. Here is the wording of the standard issued by XRB:

25. Part 7A of the Financial Markets Conduct Act 2013 requires that the disclosure of an entity’s GHG emissions as required by Aotearoa New Zealand Climate Standards are the subject of an assurance engagement. This Standard requires that this assurance engagement is a limited assurance engagement at a minimum.

26. For the avoidance of doubt, the following information required by Aotearoa New Zealand Climate Standards is subject to an assurance engagement: (a) GHG emissions: gross emissions in metric tonnes of CO2e classified as (see paragraph 22(a)): (i) scope 1; (ii) scope 2 (calculated using the location-based method); (iii) scope 3; (b) additional requirements for the disclosure of GHG emissions (see paragraph 24); (c) GHG emissions methods, assumptions and estimation uncertainty (see NZ CS 3 General Requirements for Climate-related Disclosures paragraphs 52 to 54).

Q4: Must all NZX publicly listed companies with a market cap of over $60 million complete CRD? Do they need to be a bank, investment, or insurance organisation or could they be a building company/developer?

There are several listed non-financial entities that fall under the CRD’s mandate, including Fletcher Building, Fonterra, Delegate Wines, and Port of Tauranga. Supply chains for these entities will look very different to that of a financial firm due to the comparative lack of Scope 3, Category 15, financed emissions.

Q5: What are the legislative impacts of reporting CRD incorrectly?

There are legal and financial implications for not complying with the Climate-Related Disclosures legislative regime. More details on these implications can be found on the FMA website here.
Reference: Financial Markets Conduct Act, section 461ZG 'Offence to knowingly fail to comply with climate standards'

Q6: Are there any resources suppliers can easily access to check who is a Climate Reporting Entity?

NZ Companies Office: Climate-related Disclosures | Companies Office

Q7: When disclosing financed emissions, do you need to disclose your borrower’s Scope 1 and 2 only, or their Scope 3 also? Is this requirement dependant on the sector your borrower is in?

If the business is an FMA classified CRE following the XRB standards, the full value chain Scope 3 emissions would need to be reported. There is an adoption provision of 1 year's grace. The XRB acknowledges that full value chain Scope 3 data will require estimations where data is unavailable.

Q8: What value do you see from assurance over scope 3 emissions when data is limited, and is based on a number of estimates which are likely to change over time? Do auditors understand and accept this uncertainty?

The XRB standards require limited assurance over GHG measurement. It is critical that to achieve the principles of the Disclosure, reporting entities must; ensure information is relevant, accurate, verifiable, comparable, consistent and timely.

Assurance over Scope 3 is required to a level of "limited assurance" due to the level of estimation. The XRB has acknowledged the high degree of uncertainty within Scope 3 value chain data. Therefore information on methodology, assumptions, and estimation uncertainty must be disclosed. Best practice GHG accounting standards, such as PCAF, require a data quality score that provides transparency on estimates vs supplier specific information, among other metrics like coverage. All GHG accounting standards require reporting on data quality and improvement.

If methods change creating a material impact on GHG emissions, there must be a re-baseline completed.

Q9: When entities are asked to describe the targets used to manage their climate-related risks and opportunities, is this different to their emissions reduction targets or the same?

There are many other metrics and targets that can be used to manage climate risks and opportunities such as those below:

  • Transition risks - % of assets or business activities exposed to transition risks.
  • Physical risks - % of assets or business activities exposed to transition risks.
  • Climate-related opportunities - amount or percentage of assets, or business activities aligned with climate-related opportunities.
  • Capital deployment - amount of capital expenditure, financing, or investment deployed toward climate-related risks and opportunities.
  • Internal emissions price- price per metric tonne of CO2e used internally by an entity.
  • Remuneration - management remuneration linked to climate-related risks and opportunities in the current period, expressed as a percentage, weighting, description or amount of overall management remuneration.

Q10: What are the implications and considerations, if any, of this change in relation to Māori and Iwi relationships for organisations to understand and consider?

XRB are working on a conceptual framework to integrate Te Ao Maori: Project Ngā pou o te kawa ora.

Ngā pou o te kawa ora refers to the pillars that are the principles of life and is a project that aims to establish a voluntary, non-financial reporting framework from an Aotearoa New Zealand perspective. Learn more here.

Q11: From the Port of Auckland perspective, how useful was the XRB scenario planning exercise?

The XRB scenario planning has been a bit of a journey, especially given the uncertainties over how individual CRE’s are expected to report on their subsidiaries under the new regulations and the evolving understanding of effective scenario planning. Initially Auckland Council, CCOs and POAL developed a common climate risk assessment methodology which included 2 physical and 2 transitional scenarios and each organisation undertook the risk assessment using this common methodology. As noted in my presentation for the trial 2023 disclosure report Auckland Council elected to report emissions, climate risks and other requirements by each entity. However, given feedback from XRB/Audit NZ, Auckland Council are now required to prepare a CRE disclosure report that incorporates all entities as one. At the same time the scenario planning guidance changed and the recommendations from XRB/Audit NZ are now that scenarios used in assessment and planning work should be combined physical and transitional scenarios. In light of these changes Auckland Council has embarked on a process, in conjunction with CCOs and POAL, of identifying its group climate risks based on 3 combined scenarios. POAL has continued to assess its risks using the initial assessment methodology, but has also been asked by Auckland Council to assess the impacts of the new priority group risks on the business.

Q12: How do we ensure we aren't double counting supplier/value chain Scope 3 emissions as part of our own Scope 3 emissions? Please elaborate on the example in Toitū's presentation which highlighted that a portion of Supplier A's direct emissions become the indirect emissions of the reporting organisation.

This a technical area with nuance which our experts can support you on. In general, double counting of Scope 1 & 2 emissions of one company into another companies Scope 1 and 2 should always be avoided. Double counting of emissions in Scope 3 across the value chain is common and imbedded within corporate GHG accounting to force collaborative action on these areas of shared responsibility. Double counting of offsets should also always be avoided.

Looking into the GHG Protocol value chain standard, Section 9.6 goes into some detail:

“Double counting or double claiming occurs when two or more companies claim ownership for a single GHG reduction within the same scope. The GHG Protocol Corporate Standard defines Scope 1 and Scope 2 to ensure that two or more companies do not account for the same emissions within the same scope. By properly accounting for emissions as Scope 1, Scope 2, and Scope 3, companies avoid double counting within Scope 1 and Scope 2.

Double counting within scope 3 occurs when two entities in the same value chain account for the scope 3 emissions from a single emissions source – for example, if a manufacturer and a retailer both account for the scope 3 emissions resulting from the third-party transportation of goods between them. This type of double counting is an inherent part of scope 3 accounting. Each entity in the value chain has some degree of influence over emissions and reductions. Scope 3 accounting facilitates the simultaneous action of multiple entities to reduce emissions throughout society.

To ensure transparency and avoid misinterpretation of data, companies should acknowledge any potential double counting of reductions or credits when making claims about scope 3 reductions. For example, a company may claim that it is working jointly with partners to reduce emissions, rather than taking exclusive credit for scope 3 reductions.”

Q13: Is there a list of the attribution/emission factors publicly available so that an entity can calculate its footprint itself?

The allocation or attribution factors are defined by the calculation method used and can be found in the GHG Protocol, ISO 14064, and PCAF standards.

The Ministry for the Environment (MfE) publicly publish emissions factors which are a useful starting point and free to access. Measuring emissions: A guide for organisations: 2023 emission factors summary | Ministry for the Environment.

The GHG Protocol Corporate Accounting and Reporting Standard is also free to access.

Q14: Is the use of clean energy still counted as part of carbon emission accounting? Are there different methods of counting emissions between the energy sources globally? (e.g. coal combustion energy vs. clean energy)

The XRB climate standards require the reporting of location based electricity emissions. This means that the low carbon renewable energy generation within our grid is acknowledged. Other jurisdictions and disclosures will require emissions from other respective electricity grids to be disclosed.

The Ministry of Business, Innovation and Employment (MBIE) annual report on the energy sector shows 87% of electricity generated in 2022 came from renewable sources. Electrification of business operations and vehicles within New Zealand is a major emissions reduction opportunity.

Q15: What would a CRE require from a supplier if their services make up less than 1% of the CRE's footprint?

CREs, especially financial institutions, will have many investors / lenders that make up a very small portion of their overall footprint but in aggregate may be over 700x higher than their operational emissions.

CREs will need to disclose information on exclusions and estimate uncertainty of their value chain emissions. This includes disclosing the level of coverage of their value chain and where actual vs. estimated data is being used. This is also a requirement of the PCAF standard, which is the international GHG accounting standard for financial intuitions.

Disclosure of supplier GHG information could be excluded if deemed immaterial by the entity. XRB states “Materiality is entity-specific, based on the nature, magnitude, or both, of the items to which the information relates. 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.”

Q16: Most professional service organisations have tiny footprints, why is it still important for them to measure/reduce their footprint or have an environmental management system in general?

Though professional services may have smaller emission footprints when compared to other sectors, their influence on other businesses is significant. For example, they can influence the GHG emissions and sustainability of their designs. The associated emissions with designs would be a Scope 3 emission source for a design firm and shared with the end client and owner of the product.

For the building and built environment sector, there are international standards to support decarbonisation which include best practice on design phase GHG accounting such as PAS 2080.

Q17: How does the Port of Auckland consider and compare itself to other Ports and is such comparisons considered valuable? How do you understand and evaluate your similarities and differences when it comes to emissions?

Although there are commonalities between ports, every Port has unique qualities in regard to geography, port access, types of cargo, and associated operations. Therefore a direct comparison of Port total emissions isn’t considered valuable, as you’re not comparing apples with apples. It is also worth noting that due to the differing types of cargo, individual ports have their own emission metrics suited to their specific operations, aimed at being relatable to the operators within their business to drive emissions reductions. Some have an emissions per cargo tonne, others per twenty-foot-equivalent unit (TEU), others a percentage reduction. As there is no consistency between port metrics, you cannot make comparisons here either. As comparison isn’t considered useful, there is no need to understand and evaluate our similarities and differences regarding emissions in detail - we just focus on all that we can do to reduce our emissions here at the port and keep abreast of developments nationally and internationally to identify any new approaches/technologies that would be applicable to us that can help us on our journey.

Q18: How can Ports in New Zealand learn from global peers and use the USA EPA emissions guidance for measuring emissions within a Port?

There are various guidance documents (including the US EPA Ports Emissions Inventory Guidance, April 22) that we are aware of, have reviewed and are keeping abreast of. Ports in NZ can certainly, and currently do, learn from these documents. Every port has unique components, and internationally there are differing regulations applicable, so it is not often suitable to cut-and-paste the international guidance directly for any port, but there are components that we can work with. Although each NZ Port has unique qualities in regard to geography, port access, types of cargo and associated operations, there are criss-crossing commonalities between us. Therefore we are embarking on a NZ Port Sector Scope 3 best practice document, where global guidance documents are to be assessed and best practice recommendations for the NZ Port Sector will be formulated, which then each port will be able to align themselves with as appropriate.

Q19: How aligned/different is the New Zealand CRD to the climate related financial reporting in Australia?

The Australian Accounting Standards Board (AASB) has not finalised scope of Australia Climate Disclosure Standards and the proposed bill is not yet law as legislation has not been passed.

Both are based on TCFD framework so the pillars of Governance, Strategy, Risk Management, Metrics and Targets will be similar. The Australian AASB – Australian Sustainability Reporting Standards (ASRS S1 S2 ) are based on IFRS ISSB S1 and S2 and therefore is more prescriptive than the current XRB Climate Standards.

Further similarities include full value chain Scope 3 GHG emissions to be reported of as of the second year. Assurance of GHG emissions is required to ensure that the information is credible and comprehensive.

The AASB exposure draft includes market based and location based reporting for Scope 2. Whereas NZ XRB requires only location based Scope 2 reporting.

Australia have 25,000 entities including both the public and private sectors, where as NZ has 200 entities and excludes unlisted (not on NZX) private and public companies.

The XRB recently hosted a webinar on the mandatory climate reporting in Australia.

Q20: If you currently disclose to CDP as part of a global organisation, would you still need to comply with the CRD?

CDP is a voluntary disclosure and does not align directly with the NZ CRD requirements.
CDP does however align with the four pillars of the TCFD framework; Governance, Strategy, Risk Management, and Metrics and targets.

Q21: Do finance entities covered by PCAF need to disclose to PCAF standards?

The FMA and XRB disclosure standards do not mandate the type of GHG accounting standard used. Disclosures must include the methodology, assumptions, and estimation uncertainty. PCAF is the only international standard for carbon accounting for financial institutions and is built of the foundations of the international GHG protocol. Financial institutions following best practice will align to PCAF GHG accounting.

From the XRB: "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".

Q22: How is POAL tracking for short term overall emissions target of FY24?

We are currently on-target to achieving our goals for FY24 and to date POAL has achieved a 20% reduction in our total gross emissions from our 2017 baseline.

Q23: Can automated carbon measurement software (e.g. Cogo or CarbonTrail) be used to provide carbon data as a supplier to a CRE?

Yes, there are a number of software providers that can assist in compiling your emissions inventory to be used to pass on to a CRE. These will have varying degrees of detail, for example in their emission factors and report generating capabilities. It is important to understand the software alignment to international standards and the methodology used to develop the inventory.

Toitū are software agnostic however to verify to international standards we need to ensure the software is aligned with international standards. Value chains can be a complex web of organisations for some reporting entities. In this case, using some of the tools on the market to collect GHG information from suppliers in a robust way that meet standards can be beneficial. For other organisations the majority of their emissions and impact may be with only a few suppliers and therefore direct engagement could be relatively simple and efficient. The first step is the mapping of the supply chain by using expenditure and financial reports.

Q24: The current set-up through Toitū appears to dis-incentivise future inclusion of previously omitted or un-measurable Scope 3 emissions (in that, there doesn't seem to be an ability to compare like-for-like). If reporting is only going to show an increase in absolute emissions, then Boards are going to be less likely to continue to support expensive sustainability initiatives.

The changes in reporting boundaries can be accompanied by split metrics and targets to ensure visibility of progress on current emissions reductions is not lost.

Full Scope 3 reporting is the new normal being forced by standards such as the IFRS ISSB S2 which is the global standard for climate related disclosures. There are many benefits to an organisations sustainability strategy to engage the full value chain on ESG matters. Toitū programmes are evolving to include full Scope 3 in 2024.

Q25: Is blockchain being used in supply chains to 'tag' products/services with actual Scope 1 and 2 emissions, to provide accurate data through the whole supply chain?

Sophisticated software with AI integration is emerging to assess emissions intensities of industries and companies across global investment portfolios. You can find some of the latest insights on Net Zero Financial Data and Analytics Providers here.

“Demand for net zero financial data and analytics has grown in recent years, due to current and upcoming climate disclosure regulations, changing climate policy landscapes and investor demand. Financial market firms are increasingly turning to net zero financial data and analytics to help them identify, monitor, and address their climate risk exposure, as well as seize the opportunities created by the changing landscape.”

Q26: Given that there's evidence we're already at or above 1.5 degrees increase in average global temperatures, what does that mean for science aligned reductions to 1.5 as per SBTi?

The latest IPCC AR6 reported the multiyear average global surface temperature at 1.1C over preindustrial levels as of 2020. Various annual global temperature measurements have been done since the AR6 report which signal the annual global average temperature for 2023 of 1.5C which was recorded by the European Union’s Copernicus Climate Change Service. This is not the same metric/ target as the multiyear average temperature referenced in by IPCC and Paris Agreement.

Regardless of current global temperatures, science aligned 1.5C targets are the required decarbonisation by business, industry, and sectors, based on global emissions budgets per sector to limit the global multiyear average temperature increase to 1.5C. These targets and decarbonisation pathways are critically important to assess the climate performance of a business, sector, nation, and globe. These metrics and targets do not guarantee there will not be a global overshoot beyond 1.5C but it facilitates critical and timely climate action.