Responsible governance: Solid Energy’s burning commitment

The team at the top of Solid Energy has an impressive commercial and governance pedigree and track record. Chairman John Palmer and chief executive Don Elder have proven themselves in other organisations. Now together, they have both cleaned and fired up the former, grubby government department – State Coal.
The stakes required to stay in the coal mining game, however, keep getting higher. The swirl of environmental politics, energy demands, economic necessity and world competition all converge around this business. And yet, again this month NZ Management’s annual survey of New Zealand’s Most Reputable Organisations, ranks Solid Energy as the nation’s Most Reputable SOE as rated by leaders or enterprise.
“There’s no question we govern responsibly,” says Elder. “Not because we have to, which we must under our mandate, but because it’s good business to do so. Many people, myself included, work for Solid Energy because its purpose is inextricably linked with the betterment of the country. This brings with it high profile and strong sense of responsibility to always ‘do the right thing’ even if, in the short term, that carries some sort of cost.”
The Government spells out its responsible governance requirements in Shareholder Expectations Manual. Solid Energy’s statement of corporate intent is also annually agreed with its shareholder. And finally, the company’s business sustainability principles and values statement are all enshrined in its How We Work publication which defines the company’s approach to health and safety, people issues, environmental management, reputation and value creation and, thereby, how it expects its people to behave when carrying out its business.
The company is, says Elder, currently working to “draw line of sight” between these policy statements and individual employees to provide “clear and concise” expectations for their behaviour and performance. “We will then undertake training to include compliance and behavioural expectations as ‘key results area’ in our annual individual performance assessments,” he adds.
Solid Energy’s interpretation of responsible governance means the board and senior management give priority to ongoing commitments to:
• maximise the company’s value to New Zealand through responsible custodianship and development of strategic natural resources to generate sustained long-term return;
• the company’s people – employees, customers, communities in which the company operates, stakeholders – and their interdependence;
• implement sustainable health, safety and environmental protection practices.
Responsible governance throws up numerous benefits for Solid Energy, starting with the most obvious, licence to operate. “But equally important, it helps us develop innovative solutions to complex opportunities, and generates trust among and respect for our employees and other stakeholders,” says Elder. “Consequently, it is great place to work. The world-class skills we attract, our business achievements in the last decade and the opportunities we generate are the evidence of this.”
The Securities Commission’s Corporate Governance Principles were incorporated into the Owner’s Expectations Manual after they were promulgated back in 2004. The board observes and complies with these principles, says Elder, “particularly with regard to fostering high ethical standards at board level and throughout the business”.
The company also operates continuous performance disclosure regime aligned with NZX expectations. “We were the first SOE to hold public annual meeting. Being an SOE means we cannot operate without being acutely aware of stakeholder interest in our business and their expectations of the way in which we conduct business,” he adds.
But it is Solid Energy’s approach to environmental management that perhaps best illustrates its unrelenting commitment to responsible governance. The company has, over the past decade, moved from what Solid Energy’s general manager environment Mark Pizey calls “compliance culture” to being something more. Solid Energy now tries to “find solutions to performance problems even before the problems exist”.
And that approach, according to Pizey, resulted in “a shift in the culture of the business from the very top down to the operating level”. decade ago, the company measured success in terms of prosecutions avoided. Now it pays constant attention to its environmental footprint impacts and takes these potential impacts into account at the planning stage to identify mitigating actions that ensure the business achieves its corporate objective of net environmental gain on each project.
The company’s flick in thinking and commitment to embrace best practice environmental management began in 2002 when it adopted an environmental policy. That policy is now embedded in the organisation’s DNA. Its provisions are considered core business rather than an add-on to any given project.
The push for change was internal, but the leadership came from Elder and board that could see the increasingly green writing on the global mining wall. Solid Energy would, everyone agreed, henceforth be driven by net gain imperative from every possible business activity.
To be both authentic and credible, Solid Energy’s approach to more responsible governance demanded greater transparency in not just its environmental management policies, but also in its company-wide approach to management and governance. It became particularly transparent in its community interactions. Visible leadership and behaviour are now accepted expressions of the company’s more open governance and management practices.
The company’s commitment to it people, to health and safety and to ethical business practices is embedded in the corporate culture. But it is in environmental management that its responsible governance strategies are both most evident and globally innovative.
Each new Solid Energy project starts with the creation of an often significant negative environmental footprint. So to effect its net gain strategy, the company has developed unique and verified environmental impact measurement tools. It uses these in conjunction with increasingly innovative and leading-edge carbon and other environmental credit purchases and offsets.
Its activity versus actuality predicament led Solid Energy to become an early adopter of biodiversity offset methodology in New Zealand. As an increasing number of conservation experts, including the director-general of the Department of Conservation Al Morrison, have pointed out: the only practical way to preserve New Zealand’s natural biodiversity and conservation estate is to invest in it. With the Government’s enforced austerity it has cut DOC funding. The likelihood of more state-funded conservation programmes in the near future is bleaker than bleak.
Solid Energy’s approach is to adopt user-pays approach and invest in DOC projects to build glory box of offset credits and simultaneously contribute to the preservation of New Zealand’s natural environment – commercially pragmatic preservation policy.
When, for example, the company applied for resource consent to start mining in the Cypress Mine on the South Island’s West Coast, Solid Energy was required to provide an environmental offset to mitigate the impact its activities would have on kiwi in the surrounding bush. The project now proposed will create more kiwi than would have inhabited the area had it not been mined, says Pizey. The number of kiwi in the bush will be at least equivalent to those removed and taken to mainland island for safety and breeding. The result is an environmental gain with two, rather than one, equivalent size clans of kiwi.
“We expect this approach to be adopted as standard practice in future,” says Pizey. “We hope it will lead the industry generally to work more closely with partners like DOC to create these kinds of offsets.
“The next logical step for us is to create credits ahead of our need to us