The regulatory void created by the Government’s controversial pullback late last year from plans to introduce carbon tax raises the spectre of stranded corporate assets in directionless and confusing policy vacuum.
Many local businesses are waking up to the notion that climate change matters to them: that it will impact the place that hurts most, the bottom line; and that they, and not solely Government, must take ownership of the issue.
What may be labelled as risk management by some is glint in the eye for others attuned to specific business possibilities. Arguments for sitting up and taking notice can be roughly divided into four strands: direct impacts on our physical environment; external forces such as regulatory pressures; prodding from other stakeholders such as insurers, investors or customers; and win-win “no regrets” benefits and future opportunities.
We’ve boiled it all down into nine main reasons why New Zealand businesses must care about climate change. Even those ones that couldn’t give stuff about polar bears.
1 EXTREME EFFECTS
Nothing will make climate change seem more real to the business bottom line than what’s about to happen to our agricultural sector. Some see signs that it already is. Andy Reisinger paints mixed picture for our agricultural future. Warmer temperatures, at least initially, could be blessing for South Island farmers, who will bask in longer times to grow their crops and reap the associated rewards. The downside is that expected changes in rainfall patterns could lead to more soggy west coast and more arid eastern parts. The risk of drought in regions like Canterbury, Marlborough and Hawkes Bay is very likely to increase.
Reisinger, who is in the process of shifting from his role with the Ministry for the Environment to take up position with the Intergovernmental Panel on Climate Change, says such predictions are not new. What is now known is the extent to which such events will ripple throughout the New Zealand economy. Last year, the Ministry for the Environment and the Ministry of Agriculture and Forestry pooled their resources and asked NIWA to dig into what the impact could be.
“Depending on which emission scenario is assumed for the world,” says Reisinger, “New Zealand’s drought risk could increase by factor of four in some of those eastern regions. That means that drought that now only happens every 20 years – at very rough measure – could occur every five years or even more regularly.”
The knock-on effect on our economy could prove hard to handle. It usually takes drought-stricken region some time to bounce back economically. More frequent dry periods may knock the stuffing out of some less robust areas.
There are host of other climate change issues. Could hotter weather, for example, mean we are better suited to growing more subtropical, low-value grasses and would they supplant our current high production pasture?
Many climate change issues may not appear to translate directly into core business decisions, Reisinger acknowledges, but they can often affect how business operates. “Once you head into resource constraints, say, as changing rainfall patterns create competition for water between rural users, rural lifestyle blocks and urban users, you create new dimension of societal issues that need to be discussed.”
And whenever such long ranging discussions exist, smart businesses come out on top and the slow ones risk getting caught by the inevitable uncertainty.
2 CARBON COUNTS
We’re entering the age of the carbon economy. “The cost of unit of carbon is already becoming critical currency in the way that multinationals are trading,” says New Zealand Business Council for Sustainable Development chair Rob Fenwick. “So whether launching an energy project in China or planting forest in Brazil, the carbon unit is becoming critical part of the business case.”
Opposition to this idea is shrivelling up fast. Even people who shy away from the “carbon economy” nametag don’t deny that we’re on the cusp of new era in which the price, or potential price, of carbon will increasingly have to be factored into business decisions.
As one observer noted: “Any business that denies that we’re entering an economy where carbon will be priced is taking lot of undue risk. If there’s one overriding driver for actions by business now, it has to be this.”
Exactly how it will be done is another story.
3 THE BIG ‘YIKES’ THEORY
The concept of 1.3 billion Chinese concentrates the mind wonderfully. That’s according to Earth Policy Institute president Lester Brown, who made the statement in recent BBC World Service interview about his new book Plan B 2.0: Rescuing planet under stress and civilization in trouble.
He was talking more generally about green development but the message applies equally as well to global climate change. Heaven help the planet should the Chinese hurtle down the western path of “breakneck devastation, heedless auto-centric, throwaway economy” and consequent spewing of greenhouse gases.
This idea, says Brown, is cutting through to corporate and policy-making minds like nothing else. China is big. It’s big idea that people “get”. And it’s helping to spearhead change.
4 INVESTOR MOVES ARE AFOOT
At the start of February this year, the Carbon Disclosure Project (CDP) slipped quietly into New Zealand and Australia. Through the mailboxes of NZX50 and ASX100 companies plopped request for them to divulge their carbon footprint.
Each was asked to share data on the possible impacts on their company’s value of climate change related regulation, new technology, changes in customer behaviour and altered weather patterns.
The request came from coalition of institutional investors who collectively represent more than US$31 trillion in funds under management. Their argument? That as investors, they want to ensure they can identify the likely winners and losers from climate change early on: and adjust their portfolios accordingly.
The CDP has been rapidly gathering steam offshore for some time now. Sean Lucy, practice leader – climate change at Phillips Fox, says that when this bunch of investors first started sending out their questionnaires back in 2002 they had collective stash of US$4.5 trillion behind them. Now they’ve got more than six times that amount.
Until now, the group had focused solely on the world’s FT500 companies. And since few New Zealand or Australian companies rank among the world’s top 500 by market capitalisation, the CDP initiative made few ripples in local boardrooms. Lucy reckons the global rise in investor interest in climate risk has so far passed us by.
Expect perceptions to start to shift little this year as the CDP adopts its new regional model and rolls out its requests to New Zealand’s biggest share market players. They can, of course, refuse to divulge any information. But Lucy says that whatever they do, or do not, choose to share will be posted on the net (see www.cdproject.net). The CDP also uses carrot and stick system through its table of top 60 “climate leaders” and separate “list of shame”.
“Already we are seeing speculation on carbon value for low emission businesses boosting prices for individual stocks,” recent Phillips Fox newsletter reports. It cites two major Australasian transactions in which carbon value was reportedly key component of the final prices paid: Infrastructure Funds Management’s purchase of Pacific Hydro and AGL’s purchase of Southern Hydro from New Zealand’s Meridian Energy.
“With all this focus on the possible upside of low emission technology, it can only be matter of time until attention turns to the downside,” the report says, “and capital starts flowing away from climate risks.” Companies that have failed to engage with investors on climate risk, it warns, will be seen as more risky than those who have communicated effectively from the st
