Companies’ response to climate change is ours to own

Trish Oakley
Trish Oakley
I live in a house of four, plus pets, but their opinion is harder to garner.

The others not so much — pick any topic and the debate is pretty fulsome.

Climate change is no different — we all bring our own lens to the conversation and as such see it slightly differently.

We are just one family in one street, in one community, in one country. We go to different schools and workplaces and we interact with others who individually and collectively determine a cost and a value to a net zero New Zealand by 2050.

Different perspectives and approaches aside, there is no doubt to me that this is ‘‘our’’ problem to own and the time to own it is now.

I will leave the scientists to represent the facts, but offer just one. Using the carbon dioxide equivalent unit (a common unit measurement), I understand New Zealand greenhouse gas emissions are around 80million tonnes, while our forests sequester about 20-25million tonnes.

That’s a gap. A gap that helps put the Climate Change Response Act into sharp focus.

Open it up and head straight to the purpose, it has a number of them, but best simplified to one point I carry easily with me, and that is to: allow New Zealand to prepare for, and adapt to, the effects of climate change.

It doesn’t matter if you are a director, business owner, worker, consumer, commuter or avid debater in my home, you now have a mandate to consider the choices you make every day.

Stepping it back up to the board table and driving the tone from the top, how do you determine what hazards and threats you face or what aspects of your business are influenced by climate change?

Do you take a purely analytical approach to assessing degradation of land arising from sea level rise or drought?

Potable water supply availability or waste and storm water systems capacity can be turned into data on a page, as too, can biodiversity loss, ecosystem change or immediate insurance impacts from extreme weather events.

Not everything, however, can be simplified to inputs and outputs. Forming a considered view on, for example, the impacts on social cohesion, increasing inequities and wellbeing of societies as they navigate through the disruption and impacts of climate-related events is much harder to quantify.

Thankfully, we all come with a set of values and when we as a group come together at the board table and define our entity’s values, it helps allow us to view long-term performance and value creation rather than focusing solely on short term-thinking and delivering shareholder returns.

It is through these discussions that we can give voice to holistic and aspirational approaches rather than, just for example, a least-cost pathway to net zero.

Of course, globally and nationally, this long-term thinking is partly at play with the 17 UN sustainable development goals, the Paris Agreement and our own Climate Change Response (zero carbon) Amendment Act.

Helpful background, but as you dust off your strategic plan and seek a reset for the coming period and start building sustainability into the conversation, what is the nature of the discussions you are having?

Is it a box-ticking compliance-oriented focus devolved to the junior ranks, perhaps a millennial or Gen Z employee who showed passion for the topic at the Christmas function and now owns the task.

Or is it something deeper, an opportunity to have new words and phrases enter your lexicon as you seek to understand sequestering, offsetting, insetting, and embedded carbon alongside actual measurement of your current footprint.

Still feels like we are at the analytical end of the conversation and a defining issue of our time surely deserves more.

The board is where ownership of a future oriented vision and strategy that captures your organisation’s contribution to change sits.

If that all sounds fluffy and you are yet to be convinced that the groundswell of public support is going to mean anything, then pause for a moment and take it back to basics.

Section 131 of the Companies Act records a duty to act in good faith and best interests and S137 speaks to the duty of care.

It is hard to argue that climate change is not now a foreseeable risk that requires consideration as you would do with other risks in your register.

Damage to physical assets and infrastructure is one standpoint but what of the potential for stranded assets or the transition risk increase as Government regulation and investor reaction increases.

What might activist litigation look like or what about your passionate consumer taking you to task on their favourite social channel? Did your recent insurance renewal remind you it’s a ‘‘hard market’’?

The World Economic Forum reports that since 2000, 59million hectares of trees have grown back globally (that’s like the size of France and enough to store more carbon dioxide than America emits each year), but between 2001 and 2019, we lost seven times as much as we grew.

What this quickly tells me is how important the role of technology and innovation will become as part of the overall solution and as it advances, what does it mean to the viability of your existing products or services?

Strategy and risk management is one aspect, but what of transparency and reporting against progress?

Central banks and other supervisory authorities have elevated climate change as a risk to financial stability resulting in the Task Force on Climate-related Financial Disclosures (TCFD). Unsurprisingly, transparency is one of their focus points because it’s transparency that leaves markets to price risk and opportunities allowing investors and consumers to make informed assessments.

Here in New Zealand, we are seeing this manifest with the Government announcement of mandatory climate-related financial disclosures for certain financial entities including registered banks, licensed insurers and fund managers subject to certain scale parameters. Certain Crown financial institutions (ACC and the NZ Super Fund) and equity and debt issuers on NZX are also captured.

While consultation on the legislation has just closed, and the final decisions still to be made, this is a clear direction signal by the Government and it is not hard to imagine the mandated entities expanding over time. Indeed in the recent KiwiSaver default provider review, we saw new requirements around fossil fuel exclusions (alongside munitions).

Climate change discussion has moved a long way from my dinner table to mainstream activism to the boardroom. Be the change, make it your ‘‘our and now’’ by tabling it and advancing further discussions at your next board meeting.

  • Trish Oakley is the chairwoman of the Otago Southland branch of the Institute of Directors (IOD). This article is opinion only and not intended as governance advice. IOD is the professional body for directors and is at the heart of New Zealand's governance community.

 

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