Businesses that generate emissions through transport or energy use will need to consider whether their existing model can be retained, assuming that the costs associated with carbon emissions will increase
Are we really ready for the changes needed to get to ‘zero carbon’? – By Rachel Devine and Phil O’Reilly
The introduction of the Climate Change Response (Zero Carbon) Bill to Parliament is one of the most important milestones in New Zealand’s journey to net zero carbon by 2050. The bill has been a long time coming, but for all the right reasons.
Minister James Shaw has sought wide-ranging cross-party support for the legislation, so what emerges from the protracted process is much more likely to be enduring and a more powerful investment and business change lever than it would have been if it was subject to the usual political whims.
Many countries are taking similar steps to avoid the consequences of non-consensus on climate change. Just look across the ditch where climate and energy policy has been a running sore with politicians and the electorate for many years now, lessening faith in public policy-making and political institutions.
Business both here and abroad has consistently called for an approach to climate and related energy and industrial policies that run beyond a political term. This ensures certainty and allows business to plan ahead for the investments needed to meet the targets set in our international obligations and the expectations of customers and communities.
However, increased political certainty doesn’t mean challenges to business governance and management go away. Just the opposite. The approaches the new bill proposes for governance and transparency are likely to be challenging for boards. Boards will need to think carefully about how they tackle the new policies and requirements set out in the bill and make submissions accordingly.
Governing in a changing climateEstablishing interim targets and budgets means that the longer-term goal of ‘zero carbon’ becomes both relevant and of immediate consequence – and zero-carbon initiatives will be unavoidable. The five-yearly targets set out in the bill will be accompanied by government policies and actions aimed at reducing emissions across New Zealand.
Boards must shift to reviewing risk matrices to ensure they adequately evaluate climate risk and prepare for increased transparency on this issue. Investors will need to consider whether investments are aligned with businesses that are resilient to climate change.
Businesses that generate emissions through transport (for example, executive flights or trucks on the road) or energy use will need to consider whether their existing model can be retained, assuming that the costs associated with carbon emissions will increase.
Businesses reliant on certain climate conditions (hot or cold, dry or wet) or a particular location for creating their goods and services must assess whether existing production methods will still work in the future. Physical and regulatory changes might suggest a transition is required over time. The primary sector, not just farming, but also aquaculture and horticulture sectors, will be acutely aware of this need.
Greater transparency demanded by governmentThe climate change minister can ask for a wide range of information from public bodies – government departments, councils, council-controlled organisations – about how they will be affected by climate change and what they are doing to adapt, including their relationships with suppliers in the private sector. The expectation is that more than policies and proposals will need to be disclosed; timeframes, benchmarks and ongoing progress reports against actions to adapt to the effects of climate change must all be provided to the minister.
To answer the questions of public bodies, decision-makers and procurement processes, more information about emissions is required. This is not limited to a business’s transport fleet; it also captures energy consumption and, potentially, the nature of materials used in products created in New Zealand. To obtain and understand this information requires work.
The level of transparency demanded in the bill for public bodies also applies to lifeline utilities – bodies who support the country in times of emergency and who aren’t necessarily public bodies – like ports, energy and telecommunication companies.
While it will be unnerving for private bodies to share information publicly, there is an inevitability about demands for climate data. A focus of New Zealand’s Climate Leaders Coalition is to reduce emissions within participants’ supply chains. Even if a business isn’t directly caught by a reporting requirement in the short term, it may indirectly have to report in the future.
Scrutiny set to riseWith transparency comes greater public scrutiny and accountability. Given the speed that reputations can be lost due to bad communications, it is safe to say people will be very careful and deliberate with released information.
Once commitments are made, businesses will need to take care implementing the necessary actions and be prepared to withstand questioning on the robustness of the approaches taken.
Information once published is quickly dissected and disseminated and can be used against companies for years to come in a manner that can be described as ‘weaponising of disclosures’. With climate litigation already on the rise in New Zealand and around the world, it will only increase as more data is released.
Decision-making bodies are empowered to consider the zero-carbon target when making public decisions in the bill. This could mean that disputed proposals could fail due to the amount of emissions associated with them. Without much clarity, resource consent processes might start taking into account the emissions from trucks, and the type of fuel used in manufacturing and industrial processes may become more relevant than before.
Ride the wave of changeBetween public decision-making processes, transparency about emissions, regulatory change to drive behaviours, physical changes to the environment, and supply chain requirements, there is a perfect storm for change.
As New Zealand’s business community manages its way through the economic transition risks – the more subtle and broader risks that arise, whether or not the physical risks of climate change eventuate – leaders can expect more regulation, increased reactions from investors and consumers, and a shift in business models to avoid stranded assets.
The more businesses get ahead of the wave of changes coming, the easier it will be for New Zealand to get through the transition process and build a sustainable economy. Now is the time to consider the bill’s implications and take the steps necessary to guard against its impact on business. (Submissions on the bill closed on 16 July 2019.)
MinterEllisonRuddWatts partner Rachel Devine has practised environmental and resource management law for more than 20 years, acting for the government and the private sector; Phil O’Reilly OMNZ is a New Zealand and global business leader and advocate and is the managing director of Iron Duke Partners