Explainer | Greenwashing in New Zealand: Do Current ESG Disclosure Regulations Go Far Enough?
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Written by Regina Balbalosa
Environmental, Social, and Governance (ESG) reporting has become increasingly important in business and investment decisions. As consumers, investors, and governments place greater emphasis on sustainability, companies face growing pressure to demonstrate their environmental commitments and manage climate-related risks.
In New Zealand, this shift has been reflected in the introduction of mandatory climate-related disclosure requirements for large financial institutions and listed organisations. These reforms aim to improve transparency by requiring businesses to publicly report how climate change may affect their operations and financial performance (Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021).
However, alongside the rise of ESG reporting has emerged a growing concern: greenwashing. As environmental credentials become more valuable, questions have arisen about whether some organisations are overstating their sustainability efforts or presenting misleading environmental claims.
This article examines New Zealand's current ESG disclosure framework and considers whether existing regulations are sufficient to address greenwashing risks.
The Rise of ESG Reporting
Over the past decade, ESG considerations have moved from a niche area of corporate responsibility into mainstream financial governance.
Investors increasingly assess companies not only on financial performance but also on environmental risks, labour practices, governance standards, and long-term sustainability strategies. Supporters argue that ESG reporting provides stakeholders with information that traditional financial reporting may not capture.
New Zealand became a global leader in this area through the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021. The legislation requires certain large financial institutions and publicly listed organisations to disclose climate-related risks and opportunities using standards developed by the External Reporting Board (External Reporting Board [XRB], 2023).
Supporters of the reforms argue that mandatory disclosure improves transparency, encourages better risk management, and helps investors make more informed decisions (Financial Markets Authority [FMA], 2024).
What Is Greenwashing?
Greenwashing refers to situations where businesses exaggerate, misrepresent, or selectively present information about their environmental performance (Commerce Commission, 2020).
This can take many forms. Some organisations may use vague terms such as "eco-friendly" or "sustainable" without providing evidence. Others may highlight small environmental initiatives while downplaying more significant environmental impacts.
In some cases, businesses may make ambitious climate commitments, such as achieving net-zero emissions, without providing clear plans or measurable targets for achieving those goals. The Financial Markets Authority has warned that sustainability-related claims must be accurate, substantiated, and not misleading to investors (FMA, 2022).
As sustainability becomes increasingly important to consumers and investors, the commercial incentives for appearing environmentally responsible have also increased. This creates a risk that ESG reporting may sometimes function more as a marketing strategy than as a genuine accountability mechanism.
Strengths of New Zealand's Current Framework
New Zealand's climate disclosure regime has several strengths.
First, mandatory reporting requirements improve transparency. By requiring organisations to disclose climate-related risks and governance processes, the framework reduces reliance on purely voluntary sustainability reporting (FMA, 2024).
Second, the use of standardised reporting requirements developed by the XRB helps improve consistency across organisations. Greater consistency allows investors and stakeholders to make more meaningful comparisons between companies (XRB, 2023).
Third, the reforms recognise that climate change presents financial as well as environmental risks. This reflects a broader shift in thinking that sustainability issues can have significant economic consequences for businesses and financial markets.
Finally, New Zealand's early adoption of mandatory climate disclosures has positioned the country as an international leader in climate-related financial reporting.
Where Are the Challenges?
Despite these strengths, several challenges remain.
One concern is that disclosure does not necessarily guarantee accountability. Companies may comply with reporting requirements while still presenting overly optimistic or selective narratives regarding their environmental performance.
Another challenge is the lack of universally accepted definitions for some ESG-related terms. Concepts such as "sustainable," "green," and "net zero" can be interpreted differently across industries, creating opportunities for inconsistent or potentially misleading claims (Commerce Commission, 2020).
There are also questions regarding the scope of current regulations. New Zealand's climate disclosure requirements primarily apply to large entities, meaning many smaller businesses remain outside the framework despite making environmental claims to consumers.
Enforcement presents an additional challenge. Effective regulation requires regulators to possess sufficient resources and expertise to identify misleading claims and monitor compliance. Without active oversight, greenwashing risks may persist even under stronger disclosure regimes (FMA, 2022).
How Does New Zealand Compare Internationally?
Internationally, governments are increasingly strengthening measures to combat greenwashing.
Regulators around the world have introduced stricter reporting requirements and increased scrutiny of sustainability-related claims. Investors are demanding more consistent, reliable, and comparable information regarding environmental performance.
Compared with some overseas jurisdictions, New Zealand's framework remains relatively focused on climate-related financial disclosures rather than broader ESG accountability measures. While this has allowed the country to become an early leader in climate disclosure regulation, future policy discussions may increasingly focus on whether current rules go far enough to address misleading sustainability claims.
As global expectations around ESG reporting continue to evolve, New Zealand may face pressure to strengthen both enforcement mechanisms and disclosure requirements.
Conclusion
New Zealand has taken significant steps to improve ESG transparency through mandatory climate-related disclosure requirements. These reforms have strengthened reporting standards and positioned the country as an international leader in climate-related financial governance.
However, disclosure alone may not be sufficient to eliminate greenwashing. Ambiguous sustainability language, limited regulatory scope, and enforcement challenges continue to create opportunities for misleading environmental claims.
As ESG investing and sustainability reporting continue to grow, policymakers may face increasing pressure to strengthen oversight mechanisms, improve reporting standards, and ensure that environmental claims are supported by credible evidence.
Ultimately, the success of ESG regulation will depend not only on what organisations disclose, but also on whether those disclosures genuinely reflect meaningful environmental responsibility.
References
Commerce Commission. (2020). Environmental claims guidelines. https://comcom.govt.nz/business/dealing-with-typical-situations/environmental claims
External Reporting Board. (2023). Aotearoa New Zealand Climate Standards. https://www.xrb.govt.nz/standards/climate-related-disclosures/
Financial Markets Authority. (2022). Integrated financial products and greenwashing: Risks and expectations. Integrated financial products: Review of managed fund documentation | Financial Markets Authority
Financial Markets Authority. (2024). Climate-related disclosures: Guidance for reporting entities. Climate Reporting Entities (CREs) | Financial Markets Authority
Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021.
External Reporting Board. (2023). Climate-related disclosures framework. https://www.xrb.govt.nz/climate-related-disclosures/
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