Climate change is not ‘fake news’ and sustainability is not just about the environment.
In fact, climate change is becoming main stream and is now critical to long-term business sustainability.
Despite popular opinion, directors are focused on the long-term sustainability of organisations they govern, not just short-term share prices.
Take the 2016 Paris Agreement on climate change, which was signed by 175 countries including New Zealand.
The goal is to stabilise global warming at less than 2 degrees Celsius below pre-industrial levels and move towards a net zero carbon emissions economy by the second half of the century.
The Trump administration announced is was “definitely, completely and undoubtedly leaving the accord”, yet over 1,500 United States businesses worth more than $1.4 trillion, including Google and Apple, announced in June that “We’re still in” and have committed to the Agreement, despite their President’s opposition.
Modern governance allows boards to take a position on economic and social issues they could not, or would not have done 20 years ago.
Boards care about climate change. Sustainability is no longer a fringe issue but is on the agenda for many boards, with 56 per cent of directors in the Institute of of Directors (IoD) Sentiment Survey saying environmental and social issues were very important to their business.
To help directors thrive in today’s disruptive and challenging environment and help them navigate through these volatile and uncertain times, the IoD’s cornerstone publication: The Four Pillars of Governance Best Practice has been updated. Released to IoD members earlier this month, it reflects today’s new normal, including a brand new chapter on sustainability.
Focusing on key strategic, social, governance and environmental risks, and long-term business sustainability is fundamental to good governance. Transparency of corporate activities and intentions helps build trust, and aids business resilience and long-term sustainability.
Chair and CEO of the world’s largest investment firm, BlackRock’s Larry Fink, said in his 2016 corporate governance letter to CEOs: “At companies where ESG [environmental, social and governance] issues are handled well, they are often a signal of operational excellence.”
Investors, shareholders and consumers are asking more of businesses and are getting tough on environmental and social issues. Consumers want to know more about the origins and composition (including supply chain) of products, employee conditions and treatment, and corporate practices. They want to know they are not buying products of child labour or environmental damage, and that their choices contribute to social good.
In recent weeks, the $35 billion NZ Super Fund announced its reduction in high-carbon stocks, with 40 per cent of the overall fund now low-carbon with the goal of making it more resilient to climate change. NZ Super Fund CEO Adrian Orr, said its “focus on addressing climate change risk is in line with current global best practice by institutional investors.”
The NZ Super Fund transition involved relocating $950 million worth of shares away from companies with exposure to high carbon emissions. This is both a global and a local issue, and New Zealand companies affected include Genesis Energy and NZ Oil & Gas.
It’s now just weeks away until the new NZX Corporate Governance Code comes into effect. It means companies will have to disclose – on a comply or explain basis – information in relation to environmental, economic and social sustainability risks, how those risks will be managed and how targets are measured. This brings New Zealand into line with many other countries and is critical for trust and confidence in our companies and our markets.
Climate change is not just a political issue but a business issue. It’s not about compliance, it’s about survival. We need leadership and genuine commitment from all boards for long-term sustainability.
The business conversation on climate change is heating up, and if your business doesn’t have the issue on the agenda, then you’re likely to get left out in the cold.
Kirsten Patterson is Chief Executive of the Institute of Directors.
– Sunday Star Times