Air New Zealand is looking at sustainable aviation fuels to reduce carbon emissions and sourcing aircraft that use low carbon technology. Photo / Supplied
A newly-established steering committee is taking the climate change fight into the boardrooms and ensuring directors are match-fit to deal with the risks and opportunities.
The World Economic Forum has estimated that by the year 2100 the potential financial losses arising from climate change could reach as much as US$43 trillion.
Yet, climate change adaptation and mitigation can generate investment opportunities worth up to $26 trillion over the next decade.
The forum says climate change is visibly disrupting business. It is driving unprecedented physical impacts such as rising sea levels and the increased frequency of extreme weather events.
At the same time, policy and technology changes that seek to limit warming and reduce associated physical impacts can also cause disruption to the business. As with any form of disruption, climate change will continue to create risks and opportunities for business in a diverse number of ways, says the forum.
New Zealand company directors are joining the global Climate Governance Initiative (CGI) to better understand the consequences and be prepared to deal with them. The initiative was launched in 2019 in collaboration with the forum and operates through a network of country chapters.
Chapter Zero New Zealand, formed earlier this year by the Institute of Directors, is on a membership drive to mobilise, connect, educate and equip directors to effectively govern businesses in the response to climate change and meet the goal of achieving net zero carbon emissions by 2050.
Dame Therese Walsh, chair of the Chapter Zero New Zealand steering committee, says climate change is a tidal wave that's already here.
"The chapter wants to increase the awareness of climate issues and to improve processes to deal with them. If we ignore them, that will be a problem for the country. The pace of climate change such as global warming is alarming.
"We have a group of directors who cover 40-50 companies. If we have these boards thinking about climate change and what is best practice, then we are in a much better place," she says.
"Climate change is so significant that it should be on every agenda — a decision shouldn't be made without considering climate risks, even if it's locating the head office."
Walsh, who is chair of Air New Zealand and ASB Bank, says when she first became a director 10 years ago climate change wasn't discussed. "In the last five years it's become reasonably prevalent and in the last two years, it's prevalent.
"There's nowhere to hide with climate change, it's there front and centre and we need to build the muscle. We are not match fit at the moment."
Walsh says climate change mitigation provides opportunities for companies to pivot and adjust their business models for long-term resilience.
"Take Air New Zealand. We are looking at sustainable aviation fuels to reduce carbon emissions and sourcing aircraft that use low carbon technology. If we bring in different types of aircraft, then maybe we can fly different routes.
"We are seeing a change in consumers who want to be informed about sustainable products and corporate customers who have to meet their sustainability goals."
There are now a handful of organisations appointing chief sustainability officers — "we certainly didn't see that five or 10 years ago," says Walsh.
Institute of Directors chief executive Kirsten Patterson described the launch of Chapter Zero as a significant milestone in New Zealand's climate emergency response.
Being armed with the most up-to-date climate change information, including the global agenda, New Zealand's obligations, and understanding science-based targets to reduce emissions, is imperative for directors in ensuring the long-term resilience of the companies they serve, she says.
New Zealand's obligations are being driven by a high-powered steering committee. Walsh is joined by:
• Abby Foote, director of listed companies Freightways, Sanford and KMD Brands (formerly Kathmandu)
• Caren Rangi, chair of Arts Council and Pacific Homecare Services, and director of Radio New Zealand and Cook Islands Investment Corporation
• Dr Charles Ehrhart, partner and lead climate change, decarbonisation and sustainability at KPMG
• James Miller, chair of NZX and Channel Infrastructure NZ, director of Mercury Energy and Vista Group
• Julia Hoare, president of Institute of Directors and deputy chair a2 Milk, director of Auckland International Airport, Port of Tauranga and Meridian
• Jonathan Mason, chair of Vector, director of Air New Zealand, Westpac New Zealand and Zespri
• Laurissa Cooney, chair of Tourism Bay of Plenty, director of Air New Zealand, Goodman Property, Accordant Group and The Aotearoa Circle
• Phil Veal, chair of Kea New Zealand and Magic Memories, director of Natural Habitat Landscapes and Skyline Aviation
• Scott St John, chair of Fisher and Paykel Healthcare, director of ANZ Bank NZ, Fonterra, Mercury and Next Foundation
The steering committee is supported by a working group comprising representatives of Akina Foundation, Anthem, Dentons Kensington Swan, KPMG, The Aotearoa Circle, Deloitte, EY, NIWA, Reserve Bank and Centre for Sustainable Finance Toitu Tahua.
The directors' toolkit is built on eight guiding principles of effective climate governance, developed by the CGI for global use.
The principles are:
1. Climate accountability on boards for the long-term stewardship of the company and considering potential shifts in the business landscape that may result from climate change; failure to do so may constitute a breach of directors' duties.
2. Command of the subject — The board should ensure its composition is sufficiently diverse in knowledge, skills, experience and background to effectively debate and take decisions informed by an awareness and understanding of climate-related threats and opportunities.
3. Board structure — as the stewards for long-term performance and resilience, the board should determine the most effective way to integrate climate considerations into its structure and committees.
4. Material risk and opportunity assessment — the board should ensure that management assesses the short, medium and long-term materiality of climate-related risks and opportunities for the company on an ongoing basis.
5. Strategic and organisational integration — the board should ensure that climate systemically informs strategic investment planning and decision-making processes and is embedded into the management of risk and opportunities across the organisation.
6. Incentivisation — the board should ensure that executive incentives are aligned to promote the long-term prosperity of the company. The board may want to consider including climate-related targets and indicators in their executive incentive schemes, where appropriate.
7. Reporting and disclosure — the board should ensure that material climate-related risks, opportunities and strategic decisions are consistently and transparently disclosed to all stakeholders — particularly to investors and, where required, regulators. Such disclosures should be made in financial filings, for example, annual reports and accounts, and be subject to the same disclosure governance as financial reporting.
8. Exchange — maintain regular exchanges and dialogues with peers, policymakers, investors and other stakeholders to encourage the sharing of methodologies and stay informed about the latest climate-relevant risks and regulatory requirements.
The World Economic Forum says there is a dearth of guidance to assist directors in their duty to understand and act on climate.
The guiding principles are intended to enhance the discussions on the climate competence of directors to the extent that climate risk considerations become embedded in normal board processes.
This should enable better-informed investment decision-making, more systemic thinking and an integrated approach to crafting and implementing a business strategy that is informed by consideration of climate impacts in both the short and long term, says the forum.
Walsh says ultimately companies should be required to provide mandatory climate-related disclosures just as they do for financial statements and health and safety.
"We need to get all directors on the same page and form best practices amongst ourselves.
"We are focusing on making sure they have the right tools and resources so they feel accountable, informed and confident about facing up to the challenges of climate change and making the right decisions in the boardroom — for the company and the economy.
"We will continue to have shareholders and stakeholders asking questions on what we are doing about climate and sustainability and how we are protecting their investments," Walsh says.
Chapter Zero New Zealand is hosting a breakfast event at the Cordis Hotel in Auckland on August 18 involving a conversation with Deputy Prime Minister Grant Robertson and Dr Rod Carr, chair of He Pou a Rangi Climate Change Commission.
Carr was recently appointed a member of the United Nations High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities.
Robertson and Carr, along with Walsh, will be discussing how directors can make climate a boardroom priority.
Local directors can also join the second online Climate Governance Initiative summit, involving chapters from 13 countries, on October 12.
The trial involved 17,000 customers, shifting water heating to off-peak times.