Fran O'Sullivan and Gill South sat down with leading players from the Aotearoa Circle for a roundtable on its role in leading business to face up to climate change. In the discussion: British environmentalist Sir Jonathon Porritt, board members Sir Robert Fenwick — an environmental entrepreneur — and, banker Karen Silk together with Circle CEO Vicki Watson.
In the past year, a number of disturbing and irrefutable reports have come out on the effects of climate change. As a consequence, citizens are walking out of schools and workplaces and marching about their concerns that not enough is being done to mitigate its effects.
The science gets more and more robust and more disturbing, says British environmentalist Sir Jonathon Porritt a founding member of the Aotearoa Circle.
According to Sir Robert Fenwick, fellow board member of the Aotearoa Circle, the voluntary initiative bringing together leaders from the public and private sectors to investigate the state of our natural resources, and commit to priority actions to halt and reverse their decline, was born out of a response to the growing urgency business leaders see.
"We talked about the possible response from the business community for yet another organisation - another one with a membership fee - but we felt that the Aotearoa Circle was a real call to arms for corporate leaders who really felt something in their hearts," says Fenwick.
Leaders of more than 35 of New Zealand's largest companies were feeling the need to do something beyond their organisation, he says.
"I'm sitting on the boards of Fonterra, Air NZ, Westpac and it's interesting to see how leadership plays out. The role to stretch targets and encourage boards of directors to be more ambitious. And those individuals who lead those companies have been the first to put their hands up. The Aotearoa Circle has enabled the business leaders on its board to engage with government ministries and departments.
"Green Party leader James Shaw and Finance Minister Grant Robertson are very interested so it's good to be seen to be useful," says Fenwick.
The finance members of the circle are also seen to be business-ready.
Such has been the "tsunami of interest" in the Circle from corporates, the business community seems to be more engaged on finding solutions to climate change than the Government, says Circle chief executive Vicki Watson.
Of the Circle's six priority areas, it has purposefully started with sustainable finance, says Watson.
"We all have to contemplate the ravages of living in a climate environment of the future and it's horrible and desperate imagining how we all will live," says Fenwick.
And the role the finance sector plays in anticipating and fixing the effects of climate change and making things liveable is immense, he says.
Sustainable Finance is something that plays right across all of the strengths. It's an important piece of ensuring it - change-transformation - happens, said Karen Silk, co-chair of the Sustainable Finance Forum and a Westpac GM.
How business can make a real impact
While businesses have been doing things individually on issues affecting them, such as water use, what the Circle offers is a connectedness, says Silk. The Secretary for the Environment, Vicky Robertson, has told Silk it has to be about taking the conversation mainstream and incentivising good behaviour.
The challenge business is trying to understand is: How do you have a real impact? What does a bank do? How can we be impactful as a financial intermediary on outcomes? It has to be part of our business," says Silk.
In the past 12 to 18 months, there has been a much broader recognition that investors have a role in terms of the work that they do, says the Sustainable Finance Forum co-chair.
Silk says she is starting to see a moving away from negative screening, such as not investing in armaments but rather than that we some positive allocation.
"If you think of the cost of transition risk and adaptation risk, the numbers are phenomenal", and for New Zealand to cope with that, we will have to shift capital she says.
"There are whole communities where houses are at risk, natural disasters have seen increased flooding. I'm from Whanganui, that river has never flooded into the city. The last flood took out a whole swathe; these things are increasingly frequent."
The cost of building and shifting communities to a much safer environment, an estimated $70b of houses — people are only just starting to think about it, says Silk. This will have an impact on asset values.
Meanwhile, at what point do companies have to start looking at their own futures?
Firms are assessing their risks and disclosing on a voluntary basis.
For the banking sector, there are UN Principles for Responsible Banking, and people are joining those on a voluntary basis but at some point that's going to be mandatory and those standards will evolve, says Silk.
"New Zealand business needs good quality data to assess risk and that's not easy."
Meanwhile, waiting for legislation and policy, that's a compliance mindset, which Fenwick advises against. "We've got to understand this well ahead of that. That's what we are trying to do and why it's important to have those global groups. TCFD (Task Force on Climate-related Financial Disclosure) standards will evolve as people get to understand more about science."
The data is on climate modelling and risk, he says. Thinking about the future, it's looking where and how that risk will come through.
Which companies are exemplars?
According to Silk, Meridian has done its first TCFD but it doesn't have modelling in it. "We are working on that data modelling right now."
It's a National Science Challenge to produce an earth system model that allows New Zealand to better anticipate climate based on the British earth system model, says Fenwick.
A supercomputer at Niwa has invested in a massive amount of data on weather and ocean behaviour that affects New Zealand. Then it's about interpreting the data.
Says Porritt: "The data informs AI to give granular advice. It's a form of big detail learning with empirical backing making those software systems. The comparison to climate modelling has been remarkable to see. There is a real granularity which will be of interest to investors."
How to get systemic change in a democratic system?
According to Porritt, the climate community has been very technically driven. It should also be about outreach to people, to really enabling them to understand what climate change means for their families' prospects.
"We have to have this engagement now in democracy so people get a handle on the challenge ahead.
School strikes are bringing stuff back into homes, to parents. Local councils have to have citizen engagement to have a high level of awareness.
Also in businesses, young employees are bringing their contribution.
Adds Silk: "If you want to attract and retain employees, you need to tell your story around climate and natural capital and social issues."
"They are all doing their day jobs on the side and want to make something happen," said Watson.
Progress is inevitable
What has been obvious in the past two or three months has been that progress is inevitable, says Fenwick.
Thanks to protests the country has seen a new awareness. Protesters will get some of it wrong and lose some social licence, but "what's undeniable is politicians are listening and struggling to come up with a response to people who are expressing their anger".
In the United States, among young voters, both Republican and Democratic, under 25 there is no difference in the way they are viewing climate change — it is high up on their list in both cases, says Porritt. If business is on the sidelines, it would be disempowering. There is an opportunity to use the voice of business, as a legitimising factor, he says.
How is New Zealand doing?
According to Porritt, some EU countries are significantly ahead — the discussion around climate change is "literally mainstream". The more familiar people are with it, the more competent they are to make an intervention.
In New Zealand, the debate is not mature enough to get the level of buy-in. It's about allowing conversations to evolve and mature.
The swift formation of the Aotearoa Circle is a good sign. "To do it by bringing together leaders from the public sector and private sector is very rare, I don't know of an Aotearoa Circle equivalent," says Porritt.
"There are only 4 million plus people, and they are people who love their connection with the natural environment — it could only be a tweak and New Zealand could be world leaders.
"It would be incredibly popular to be a country that exemplifies a strategy to preserve natural capital. If you could get public and private sectors to agree, it could be well advanced.
Watson says she is feeling quite hopeful about the collegiality across private and public sectors in a bid to solve the big problems.
"When we are getting our partners together at bio diversity workshop opportunity, MBIE are saying 'How can we help?' DOC used to say 'hands off, we are doing this' (but no more). That was really invigorating," she says. "Everyone is ready, pushing forward. There is a long way to go but the stars are starting to align."
Where will the Aotearoa Circle be in five years' time?
Fenwick says the Circle will have grown numerically and in terms of sophistication. Its agenda will be clearer.
"There will be clarity around what we are going to do in principal domains such as fresh water, land, and soil. We will have a better understanding of how big the problem is. Plans as to what each sector needs to do and there will be real progress in workstreams," he says.
"What will be going on in the wide world in which the Circle operates is a lot more difficult to know.
You can spend time worrying about it but it's not going to make a difference."
Adds Silk, "The roadmap will be out and if we have not hit some key milestones by then, it'll be too late. Some we will have reached that are too important not to."
"One thing we have been lucky with, is that the FMA and RBNZ have been very actively engaged with us."
This should mean there is good alignment, she says.
There is currently a whole swathe of finance that goes outside what these entities regulate. It needs to be all-encompassing.
"The why can't be about compliance and compulsion, with that you have the skeleton, the muscle is about the leadership. The skeleton falls over without the muscle," says the Westpac GM.
Silk feels very positive that something real can come out of this and that there is a mainstream shift. "I also hope that there is a greater awareness at director, trustee, fund manager investor level — that's an absolute tipping point," she says.
If progress is made, there will be opportunities, stresses Silk. "There are significant opportunities for business; this is creating a whole new approach in the economy."
Adds Watson: "The partners in the Circle don't like to fail. The leadership are bloody determined to make something happen.
"Seven partners said last week the power of the Circle is it can convene power in the sandpit. That's when you look at these partners, they genuinely believe they can make things happen," she says.
The third corner is civil society
"One thing that is really important to remember is the way the Circle got designed it very deliberately focuses on two elements of what makes societies work," says Porritt.
"If we don't bring civil society into the Circle we do come up with a white elephant. Civil society is going to become a cajoling voice anyway, and will go to Government and business to respond."
The Circle anticipates a change in civil society, he says. "They are starting to flex their muscles and will be looking to deliver substantively."
There will be enough to get really good collaboration between private and public sectors. The NGO community is an expression of civil society, says Fenwick.
The time is now
"We feel this immense urgency. We have run out of time to obfuscate over why we should delay further, says Fenwick. The Aotearoa Circle is trying to do provide members with milestones and supply chain influence among other thing.
"I agree with Sir Jonathon, there is a problem of using long targets for our milestones. A target of 2050 is hopeless, we'll all be dead. We need to decide to do something significant tomorrow, and the next day and the next day."
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