New Zealand firms seem to be distinctly unprepared for future where governments, consumers and investors worldwide gang up against carbon emissions and practices which affect the environment.
Analysts say we are now close to tipping point where climate change’s importance to business performance and investors will escalate.
A new study of 800 global corporates by Goldman Sachs in May this year says “the equity market is only just beginning to reflect the magnitude of change that lies ahead”.
It is increasingly certain that the world will reach new agreement at Copenhagen in December to replace the Kyoto treaty, and possibly impose lower world cap on emissions, and tougher reduction targets as result.
Emissions trading schemes, to price carbon, are now operating or planned in 59 jurisdictions.
It’s brave investor or manager who has not started factoring in the price of carbon.
Goldman Sachs found 68 percent of the 800 global companies, with market
cap over US$3 billion, report on their climate-related performance, and 60 percent have established board or senior management responsibility for climate change performance. However, the differences in responses are creating opportunities to lose or establish competitive advantage.
Recent indications make it almost certain New Zealand will keep its emissions trading scheme, even if modified.
It’s even more certain our businesses will face price on carbon, to provide an incentive to cut emissions, adjust to lower-carbon economy – and spur investment in new low-carbon opportunities which actually help solve the issue.
At carbon cost of US$60/tCO2e, Goldman Sachs found that as much as 10 percent of the total cash flow of listed companies could be transferred from companies with below-average carbon efficiency to those with above-average efficiency.
Some 90 percent of this cashflow transfer – from more to less carbon-efficient companies – occurs in just handful of sectors: oil and gas, airlines, other transport, chemicals, mining, steel and aluminium, power utilities and non-power utilities. Goldman Sachs says that given its analysis implies carbon costs may rise significantly higher than US$60/tCO2e, it is clear the impact on industry structures will be significant.
After Copenhagen, expect an accelerated pace of change to be forced on industries. Goldman Sachs says the relatively slow speed with which most organisations are able to redesign operations and reposition their business models will provide window of competitive advantage to those that have taken early action.
Failure to adapt, and adapt early, will spell significant loss and lost opportunity.
Just how ready are we?
The results of nationwide ShapeNZ survey of 2455 respondents in September last year showed only seven out of every 100 firms have put foot on first base – and measured their emissions.
CEOs, boards and shareholders are not being told about risks to their businesses. The sectors facing the biggest bills from the price on carbon – and the opportunities to cut or avoid them – seem to be poorly prepared:
• 38 percent of respondents in manufacturing, 43 percent in the primary sector and 22 percent in transport or storage know they will be affected by the mandatory emissions trading scheme, yet,
• emissions have been measured by only 21 percent in manufacturing, five percent in agriculture, forestry and fishing, and eight percent in transport.
Only 12 percent or fewer in the three sectors have already implemented an emissions reduction plan.
Regular reports are being prepared for between only two and six percent of chief executives, boards or shareholders in the most affected sectors.
Yet the gains to be had are huge. In Canada, for example, companies are increasingly building sustainability into companies’ key performance indicators.
Just-in-time inventory delivery is one example, along with cradle-to-cradle design which includes resource reduction, the ability to upgrade, easily disassemble, reuse, recycle or dispose of the product and design for long life.
Total quality environmental management allows company to overcome trade-offs and orient its stakeholders. It helps the company do things right the first time rather than having to overcome mistakes.
Companies are monitoring the percentage of recyclable materials, hazardous by-products and their products’ life-cycle costs and using environmental balanced score cards to measure their progress: card combines financial numbers, consumer satisfaction and image, internal business processes such as waste reduction, ethical sourcing and recycling, and learning and growth processes, such as awards and certifications.
Savings usually result.
Peter Neilson is chief executive of the New Zealand Business Council for Sustainable Development.
• The Goldman Sachs research is available at http://www.nzbcsd.org.nz/story.asp?id=995, and ShapeNZ research on New Zealand firms’ preparedness at http://www.nzbcsd.org.nz/story.asp?id=940
