Dr Paul Winton founded Temple: Capital Investment Specialists. Photo / Supplied
For New Zealand directors, CEOs and executive teams it has been the best of times on climate change.
They have been able to cite their green credentials, maybe reducing printing, turning the lights off or planting a couple of trees, while not having to undergo any meaningful changes to their
business models or investor return profiles. There haven't been that many embarrassing shareholder meetings.
All that may be about to change. And soon.
Our Prime Minister launched her leadership campaign in 2017 with the war cry, "Climate change is my generation's nuclear moment" and saw in the Zero Carbon Act (2019) (ZCA), gaining almost ubiquitous support across the political spectrum.
The latter legislation has as its purpose to provide a framework by which New Zealand can develop and implement clear and stable climate change policies that:
(1) contribute to the global effort under the Paris Agreement to limit the global average temperature increase to 1.5 Celsius above pre-industrial levels; and (2) allow New Zealand to prepare for, and adapt to, the effects of climate change.
The Intergovernmental Panel on Climate Change (IPCC) tells us that this means CO2 emissions need to reduce by at least 45 per cent from 2010 levels by 2030.
Working through the maths and shifting into CO2 — equivalent, a way of comparing gases like-for-like, means New Zealand has to reduce its net emissions by about 60 per cent between now, 2020, and 2030.
Or more if you don't believe in carbon capture and storage and you do believe in global climate equity.
And it doesn't get easier because emissions are cumulative, building in the atmosphere, and from 2018 we only had 420G tonnes we could emit globally before sailing past a likely 1.5C future.
Academic Dr Robbie Andrew illustrates this wonderfully with his mitigation curves which show the declines in emissions to have a 66 per cent chance of staying below 1.5C, the purpose of the ZCA , depending on when we start emissions reductions.
If we, as a planet, had started reducing our emissions around 2000, the mitigation rate, shown as the darkest blue line, would have been a gentle 4 per cent a year.
Unfortunately, since 2000 we've all collectively bought more Hiluxes and burnt more coal meaning from today we'd need to slide down the solid black line. This dark black line is the ~60 per cent reduction between now and 2030 mentioned earlier.
If we continue doing very little, the lines getter redder and steeper until around 2030, we would need to turn the lights off and move back to our cave to stay below 1.5C.
As we move from blue lines to red lines we move from market-led decisions to moving under a government-led mandate. The chance of heavy-handed intervention just grows as does the scale of the intervention needed.
This matters because, in spite of the Prime Minister's war cry, current policies don't get us anywhere near the 60 per cent reduction the science or the ZCA demands of New Zealand by 2030. The Ministry for the Environment estimates that the current policy levers might reduce emissions around 10-15 per cent (~7 million tonnes per annum) by 2030 .
Recent initiatives, like the Sustainable Business Council and Climate Leader's coalition, while laudable for exploring the issue, suggest changes of only 5 per cent by 2030.
Importantly, the elephant in the room is actually a cow. If it's not the cows, then it's everyone else.
Under the ZCA biogenic methane will only fall by 10 per cent by 2030 from 2017 levels. Given that agriculture accounts for around half of our emissions simple maths tells us the other emitters — natural gas, petrol, diesel, coal — will need to fall by 80+ per cent by 2030 for the nation to achieve the purpose of the ZCA.
Our recent election results have given a clear mandate for Labour to act and support for climate action and will only grow as global trade pressure and citizen sentiment shifts.
Company directors and management teams need to look at their businesses in the context of the national reduction targets implied by the ZCA and transform their business accordingly.
If your business processes, sells, uses or depends on carbon emissions you have a transformation in front of you over the next decade. A useful thought exercise is to ask how your business would fare if coal, gas, petrol, diesel and oil were no longer available in 2030.
A failure by directors and executive teams to do so under their own steam will see that change made under mandate by governments who will have no choice in science and public opinion but to drive down emissions faster and faster every year. And that could get very messy very fast if you have carbon in your commercial veins.
• Dr Paul Winton founded Temple: Capital Investment Specialists in 2003 to support higher quality investment decisions for boards, senior executives and sources of funds (Private Equity funds, debt funds and commercial lenders). His expertise is understanding market structures, the conduct of market participants and the performance that results from this as a means of informing entry / exit decisions.
He founded the 1point5 Project, a not-for-profit backed by Sir Stephen Tindall, Phillip Mills and others to focus and amplify the voices of people targeting a 1.5C future. Over the past 18 months Winton has presented extensively on New Zealand's most pragmatic path to delivering its climate obligations and the gaps we need to close to doing so.