Not enough NZ businesses know the true cost of reducing emissions.
In recent years, decarbonisation has moved from something just a few, "eco-conscious" businesses or big emitters have focused on to being embraced by the majority of New Zealand businesses.
Further pressure to address climate change has been added by the government's Climate Change Response Act, enshrining the net zero carbon by 2050 target in law, as well as a raft of other legislation and consumer demand.
The message to businesses is clear – they need to get with the programme, or get left behind.
In fact, as Microsoft's recent Accelerating the Journey to Net Zero report showed, more than three quarters of New Zealand businesses now have carbon reduction plans and policies. But that's where the green wave crashes into a wall – and uncertainty about costs is a major factor.
The report, led by Dr Chris Brauer of Goldsmiths, University of London, found that a third of businesses are also predicting they'll fail to meet their targets. That's borne out by some pretty stark statistics on New Zealand's performance as a whole. Since 1990, our emissions have grown 60 per cent as other countries' have reduced. Our emissions growth rate is the second fastest in the world after Turkey.
Two related reasons stand out. One is that businesses are unsure how to monitor their emissions, giving them no clear baseline or way to chart their progress. As we observed in a recent presentation to the CIO Summit: "If you can't measure it, you can't manage it." The other is cost.
According to the Accelerating the Journey report, only 43 per cent of New Zealand organisations have the financial resources needed to execute their carbon reduction policies. That's assuming they've made accurate calculations.
While 77 per cent had tried to estimate the costs of implementing their plans, many struggled to do so – hence the significant gap between our ambitions and our actions. It's hard to make a clear business case and create a roadmap for change without the right facts and figures.
There are also significant disparities between sectors when it comes to making these estimates. On average, New Zealand businesses expected their decarbonisation strategies would cost around 9 per cent of their current annual revenue to implement.
For many small businesses who are surviving but not thriving in the current climate, this could seem completely unrealistic. On the other hand, with 9 per cent of revenue potentially amounting to millions of dollars for major enterprises, making a business case could also be difficult at the other end of the scale.
However, estimates differ. The highest-emitting sectors (such as agriculture, transport, energy and mining) tended to be more optimistic, forecasting around 6 per cent – with financial services businesses estimating twice that.
This may be because the heavy hitters are already further down the track when it comes to addressing emissions. But the main picture revealed by all these statistics is that businesses need to be much better at understanding the cost of decarbonisation – and also its value – if we're going to make meaningful progress towards our net zero targets.
Decarbonisation - cost vs value
Businesses need to look past simple, up-front investments. Many calculations relating to sustainable "costs" ignore significant efficiency gains that can be made, a point made at the CIO Summit by Total Utilities sustainability director, David Spratt.
He referenced a manufacturing customer looking to purchase a new transformer worth $1 million. Yet by placing IoT sensors in its factories to measure the actual demand on the system, Total Utilities demonstrated that significant efficiencies could be made that meant the transformer wasn't needed. As Spratt observed, a well-researched sustainability plan can save both utilities and capex costs.
Total Utilities is a business that has dramatically pivoted its model in the past 18 months from supporting businesses to monitor and reduce their utilities overheads, from gas, water, electricity and cloud consumption, to using that data to measure their carbon footprint and support a sustainable transition. This is a mark of how conversations around sustainability have moved beyond cost to driving added value.
"You have to consider the cost to your business of not transforming, and the opportunity to increase market share if you do," Spratt says.
"We had another client, a construction firm, who put in bids for five major projects. Every single one of their clients wanted to know their sustainability credentials, and when they visited other builders' websites, those credentials were on the home page. Sustainability and communicating what actions you've taken to achieve this, have become essential to doing business in the sector."
As he points out, businesses also have to consider their employer brand, in view of today's skills shortages. People are looking for employers whose values align with theirs and, in many cases, who are actively demonstrating their progress on sustainability and decarbonisation.
"When we talk about investing in sustainability, we're not just talking about environmental sustainability but business sustainability – your ability to retain staff and customers, and their perception that your business is viable into the future," says Spratt.
There's no doubt achieving net zero carbon will require investment and commitment right across the board, but turning New Zealand's poor performance around relies on rapidly changing our mindset about cost. As the Dasgupta Review team told the researchers compiling the UK version of the report: "The cost of not doing this is far greater than the cost of taking action. And the longer we delay, the greater that cost will be."