Climate compliance or climate stewardship? The choice boards must make

Boards now operate in a corporate landscape where climate change has shifted from a peripheral issue to a defining business challenge. Climate risks are no longer distant – they present material financial, operational and reputational exposures that demand sustained board governance. From rising insurance premiums to stranded asset risks and intensifying global investor scrutiny, climate-related threats increasingly shape corporate performance and valuation.

New Zealand’s pioneering climate-related disclosure (CRD) regime places directors at the forefront of this response. Under Part 7A of the Financial Markets Conduct Act 2013, amended in 2021, climate reporting entities (CREs) must publish annual climate statements consistent with the Aotearoa New Zealand Climate Standards. These obligations extend beyond technical compliance. They demand that directors integrate climate considerations into core boardroom deliberations, risk management frameworks and long-term strategic decision-making.

CRD should not be treated as a box-ticking exercise. Done well, disclosure offers boards a strategic blueprint for adaptation and transition, and helps guide decisions toward resilience and decarbonisation.

The Financial Markets Authority (FMA’s) 2025 monitoring report noted genuine board-level engagement with climate reporting, but wide variation in disclosure quality. These inconsistencies highlight the pressing need for a more principled, strategy-led approach to disclosure – one that frames climate reporting not merely as a duty of compliance but as a central aspect of directors’ fiduciary obligations and stewardship responsibilities. In essence, the effectiveness of the CRD regime will hinge on how directors interpret their role: as climate compliance or climate stewardship.

Directors face a fundamental governance dilemma: should they disclose because they have to (a compliance mindset), or because they ought to (a duty-based mindset)?

A purely consequentialist approach risks reducing disclosure to a cost–benefit calculation, focused narrowly on penalties. Directors in this worldview might risk doubting their moral duty of stewardship in the consideration to manoeuvre their CRD practices.

On the flipside, a deontological approach grounds board decisions in ethical responsibility. Directors disclose not for fear of sanction or to court short-term rewards, but because they recognise obligations to shareholders, stakeholders and society. This is consistent with fiduciary duties under the Companies Act 1993, including the 2023 amendment that requires directors to consider environmental, social and governance (ESG) factors when determining the company’s best interests.

Climate disclosure operationalises these obligations by bringing into view risks that were once hidden or ignored. Through the principle of stewardship, directors bear responsibility not only to current shareholders but also to future generations.

New Zealand’s CRD regime transcends compliance. It envisages climate judgments to be integrated into boardroom decisions and fundamentally woven throughout the company’s decision-making framework, rather than confined to sustainability teams or compliance officers.

This shift reflects a duty-driven logic: directors report because they are responsible for governing the organisation’s long-term future. Transparent climate disclosure becomes a moral foundation for board accountability and resilience. Seen in this light, disclosure is not a burden but a moral responsibility, anchored in ethical principles that ensure the organisation operates in alignment with societal expectations.

A proposed reduction of in-scope CREs may come with easing of compliance costs, which is a genuine concern. However, the more subtle impact is a shift towards minimal motivation to pursue high-quality climate reporting and accountability, even among those still in scope.

This may create a culture of minimalism, where firms act on climate only when convenient. Put simply, immediate cost savings come at the expense of climate accountability, with boards potentially overlooking broader consequences. Such reasoning is short-sighted and could weaken climate governance. Crucially, fewer firms disclosing means less systemic information on climate risks, making it harder to anticipate shocks or coordinate national responses.

The ability of boards to embed climate duty into governance is shaped by their composition and structures. Companies with at least one-third female directors achieve significantly stronger alignment with climate disclosure standards. Diverse boards are more likely to challenge assumptions, broaden perspectives and integrate stakeholder concerns more effectively into governance decisions. Importantly, diversity strengthens the moral compass of boards, making them more likely to treat disclosure as obligation rather than compliance.

Additionally, boards that have a formal sustainability committee or a dedicated sustainability member of the board, consistently outperform peers in integrating climate risk into strategic decision-making. These structures elevate sustainability to board priority, creating accountability and signalling sincerity to investors and stakeholders. The FMA's monitoring confirms that entities with clear governance structures and delineated responsibilities demonstrate superior integration of climate considerations across management.

Duty-driven CRD builds strategic trust and demonstrates genuine compliance by reducing intervention risks and fostering constructive oversight. Besides, transparent acknowledgment of climate responsibilities enhances trust that translates into meaningful operational advantages based on deontological logic.  

To lead with duty, boards must reaffirm disclosure as critical board-level governance. This includes ensuring access to high-quality data, using performance benchmarks and asking the right questions. 

Above all, directors must resist backsliding by engaging in strong disclosure practices, and carefully balancing short-term compliance savings with long-term resilience.

Directors now face a pivotal choice: treat climate disclosure as a mere compliance task or embrace it as an ethical obligation. A duty-based approach strengthens governance, builds  investor trust and enhances resilience.