ASB: Just talking about emissions reductions “not enough anymore”.
Kiwi businesses are increasingly aware of the need to create plans to reduce their carbon emissions, says ASB Senior Economist and sustainability expert Kim Mundy.
As New Zealand moves to a low carbon economy, she says it’s going to be more important that businesses can show how they are fitting into this new model.
“It’s not enough anymore just to say you are doing it; you have to show it and prove how you will lower emissions. Sustainability has moved from a nice-to-have to a must-have.”
Mundy says businesses must also be aware of changing customer preferences. “Increasingly they are looking for low emission products, or want to know that what they are buying is having less of an impact on the environment.”
Mundy says it is vital that businesses understand, measure, track and show in a transparent way what their emissions look like and how they are working to reduce them.
Mundy says businesses are not only seeing changes in customer preferences but also investor requirements. “A really good example of this is that a few years ago Riksbank, Sweden’s Reserve Bank, said it will no longer hold some Canadian and Australian bonds because of their exposure to high emission industries.
“For an increasing number of New Zealand businesses, it’s almost as common now to be asked about your emissions reduction plan as it is your profit and loss statement. If they are trying to raise capital, investors want to understand their emissions reduction plan as part of their broader investment decisions,” Mundy says.
The carbon emissions reduction drive began with the 2015 Paris Agreement in which 196 countries signed the pledge to keep the rise in global temperatures to 2°C, and even 1.5°, above pre-industrial levels, and thus reduce the effects of climate change.
To stay below 1.5° C of global warming, emissions need to be cut by roughly 50 per cent by 2030. The New Zealand Government has set a target of reducing greenhouse gas emissions to 50 per cent below gross 2005 levels by 2030, and net zero, other than biogenic methane (agriculture and waste sectors), by 2050.
By 2050 biogenic methane emissions are expected to be 24 to 47 per cent below 2017 levels. It means New Zealand’s gross emissions are projected to steadily decrease from 78.8 million tonnes of carbon dioxide equivalent in 2020 to 56.4m tonnes in 2050.
There are six industries required to surrender New Zealand carbon units under the Emissions Trading Scheme (ETS): stationary energy, industrial processing, liquid fossil fuels, waste, synthetic greenhouse gases and forestry (which also includes some voluntary participation).
Combined, these account for just over half of New Zealand’s gross emissions. The remaining 48 per cent of the gross emissions are generated from the agriculture sector. At this stage, agriculture has mandatory reporting requirements under the ETS, but no mandatory surrender obligations. Agriculture is legislated to face an emissions price by 2025.
Mundy says it’s become increasingly obvious that the current economic model, which is heavily focused on consumption, is not sustainable. “Historically, when we’ve produced something, it’s required new inputs (which include finite resources) and then it’s thrown away at the end of its useful life, so ends up in a landfill.
“As much as we’re thinking about reducing emissions, we’re also rethinking a product’s lifecycle. In that essence the economic model becomes about reducing your impact on the planet by repurposing, recycling and reusing what we already have. In turn, this can lower emissions.”
Mundy says in the past economic growth has closely tracked emissions and the use of resources. “It’s about decoupling that. How can we achieve economic growth without depleting the earth’s finite resources at the same time and create fewer emissions than what we have seen previously.”
She says there are a host of businesses now setting voluntary emissions reduction targets – using carbon offsets to lower their emissions and tapping into sustainable loans.
“When it comes to offsets, it’s really important to understand what you are buying because not all offsets are viewed equally and there are concerns that some don’t represent actual emissions reductions. You can only manage what you can measure,” Mundy says.
An offset is generated from a project that has reduced, removed or avoided greenhouse gas emissions, measured in tonnes of carbon dioxide equivalent.
After measuring and reducing a footprint, businesses often need to mitigate or offset the remaining emissions which can be hard to avoid. This is where carbon credits are used to offset emissions with savings from somewhere else - so the emissions go to net zero.
The offsets are predominantly generated in the voluntary carbon market. “Businesses are now voluntarily saying we want to reduce our carbon footprint and we’ve swapped the light bulbs, increased energy/building efficiency and (are) driving electric vehicles,” says Mundy.
“But we’ve still got some emissions that are really hard to remove, so we are going to offset those emissions by buying carbon credits from emissions-reducing projects happening around the world.”
Mundy says, however, there is a closer examination on carbon offsetting projects with some now questioning whether certain projects generate additional emissions reductions, or if the reductions would have occurred anyway in the absence of the project?
“This scrutiny is adding more confusion for businesses in a time of already heightened uncertainty as we face an economic transition to a low carbon economy,” she says. “But it also highlights how important it is for businesses at the moment to stay up to date with sustainability-related developments.”
Find out how the ASB Business Sustainability Loan could support your sustainability journey at asb.co.nz/banking-with-asb/business-sustainability-loan.html