New Zealand has been at the forefront of mandating climate-related financial disclosures for big corporates. Following a landmark law change in 2021, about 200 large financial institutions and publicly listed companies are now required to report annually on their climate-related actions.

This law change was part of a broader initiative to improve transparency and accountability regarding climate risks, aligning with global sustainability efforts, and helping ensure businesses integrated climate considerations into their financial decisions.

Just four years later, the government is proposing to soften the rules, primarily in response to claims of high compliance costs. A discussion document released by the Ministry of Business, Innovation and Employment cited concerns that current settings are cost-prohibitive and encourage a focus on compliance rather than building businesses’ capability to respond to climate change.

Of the options canvassed in the discussion document, the most significant included raising the reporting threshold so only companies with a market value of $550 million would have to report their climate risks. The existing threshold is $60 million. Such a change would reduce the number of companies required to report to just 54.

Admittedly, compliance with climate-related financial disclosures rules comes with a cost. Yet changes to current settings risk losing capability gains already achieved.

Climate reporting lessons

Our recent research provides insights on how Aotearoa might sustain its position as a leader in transparent and accountable climate reporting, instead of slipping backwards.

Our analysis of climate disclosure readiness in New Zealand, Australia, and the United Kingdom examined companies’ preparedness for mandatory climate reporting. New Zealand firms showed a high level of alignment (91 percent) with the governance recommendations of the Task Force on Climate-related Financial Disclosures—which provides the foundational framework for climate reporting standards here and in other countries.

However, one critical takeaway from our research was that while governance and risk-management frameworks were well established, the ability to set clear, science-based targets and provide quantifiable climate data remains a challenge. Just 55 percent of firms aligned with the task force recommendations for metrics and targets. This trend is not unique to New Zealand and was seen across all three countries in the study.

We also identified two factors that stood out as important for enhancing climate disclosures: board gender diversity and the presence of sustainability committees.

Generally, companies with a higher proportion of female directors demonstrated better alignment with task force recommendations. Those that had a third of board members who were women had 42 percent higher alignment. An organisational culture that allows women to flourish and constitute a critical mass of female directorship brings a heightened sensitivity to environmental and social concerns, which has a direct link to stronger climate governance.

In a similar vein, organisations with a dedicated sustainability committee were found to have significantly better alignment with the recommendations. These committees play a crucial role in driving strategic climate action and ensuring climate-related risks are embedded in long-term business planning.

The risks of backtracking

As Aotearoa debates the future of its climate disclosure regime, the choice should not be whether to disclose, but how to improve and sustain reporting. Evidence from research underscores the need for continuous refinement rather than regulatory retreat. A well-structured climate-related financial disclosures framework does not just serve regulatory compliance; it is a strategic tool for risk management, investor confidence, and long-term business resilience.

New Zealand’s leadership in this area could be undermined by softening the disclosure rules. Any reform that weakens the rules will also make it harder for investors and others to assess climate-related risks, potentially leading to reduced investment confidence and higher financial volatility for firms, especially those operating in high-emission industries or with significant exposure to climate change consequences.

Strengthening, not weakening, climate disclosures is the way forward. Aotearoa needs an effective strategy that includes enhancing support mechanisms to ease compliance burdens and sustain emerging gains. For example, up-skilling companies on the use of metrics and targets to assess and manage climate risks is a key area needing support. Our research found this is a critical gap, linked to the technical complexity and specialised expertise required. This is where effort might be best-placed, rather than a broad-based softening of reporting thresholds.

Providing technical support for businesses, particularly small and medium-sized enterprises that struggle with technical aspects of climate reporting, could be a useful way to help ensure collective success. Establishing advisory services or digital reporting tools could also help streamline compliance costs.

Given our findings on the important role of sustainability committees and gender diversity on boards, the path to climate reporting effectiveness should also include prioritising these governance attributes.

New Zealand has played a leadership role in climate reporting, but to maintain this position it must resist the temptation to dilute its original ambitions. As international sustainability regulations tighten and investors demand higher transparency, firms in Aotearoa must look beyond compliance and view climate disclosure as a fundamental business strategy, one that ensures long-term sustainability, financial stability, and global competitiveness.

This article was originally published on Newsroom.

Yinka Moses is a senior lecturer in the School of Accounting and Commercial Law at Te Herenga Waka—Victoria University of Wellington.