Are there climate opportunities?
For many boards, climate change sits squarely within the remit of the risk committee.
Climate risks fall into two main categories – physical and transition risks. However, using a risk lens to consider climate change may highlight only the negatives and cause you to overlook opportunities.
Any action taken to adapt, mitigate or transition to a low-carbon, climate-resilient economy comes at a cost, but the costs of delayed action or inaction are escalating and, conversely, the cost of action is reducing.
Cyclone Gabrielle caused significant damage and loss of life in February 2023, with an estimated cost of up to $14.5 billion. The Climate Economic and Fiscal Assessment report produced by Treasury and the Ministry for the Environment in 2023 found the physical impacts of climate change, both domestically and impacts abroad affecting trade, migration, financial flows and global economic activity, are likely to reduce New Zealand’s GDP by 1.2 per cent.
Modelling undertaken by Deloitte New Zealand in 2023 further demonstrated that decisive action on climate change, taken now, could change New Zealand’s future for the better by generating additional economic growth, while avoiding the worst impacts of climate change. Decisive action could deliver $64 billion of additional economic gain to New Zealand’s economy by 2050 if warming is limited to 1.5⁰ centigrade.
“The transition to a low emissions society and adaptation to our changing climate is not just a necessity, it is a vast opportunity for each of us.”
- Dr Rod Carr, Chair, Climate Change Commission
What can be missed in these discussions is the opportunities that climate change also creates.
In What difference can directors make?, a guide to climate governance produced by KPMG and the Institute of Directors for Chapter Zero New Zealand, opportunity identification is considered a critical role for boards. Developing a transition plan – a strategic roadmap for change to address the challenges that climate change poses – needs to be undertaken with an opportunistic mindset, not just a risk mindset. Boards need to consider not just what they need to do differently, but what they need to do that’s new. They should also reflect on how the board should be structured to enable these changes.
“Considered with the right mindset, climate change is a once-in-a-generation opportunity.”
Climate-related opportunities can be identified as part of, or at the same time as, the risk assessment process. They will vary depending on the sector and organisation. According to the Deloitte report, while sectors will have different turning points – the point at which the initial costs of decisive action are outweighed by the benefits of decarbonisation – the renewable energy, services and construction sectors are where major climate opportunities lie.
Decarbonisation is considered a primary opportunity, through resource efficiency and savings as a result of adoption of low-emission energy sources. Science and technology play a significant enabling role in realising some of these opportunities, through the development of new products and services as well as new markets.
In the final report from the Taskforce on Climate-related Financial Disclosures, there are a range of examples of climate-related risks and opportunities and potential financial impacts (refer Table below).
Source: Recommendations of the Task Force on Climate-related Financial Disclosures
Considerations for directors:
- How are you embracing an opportunistic mindset?
- Are opportunities being discussed in the boardroom, with employees, with industry peers, with supply chain partners, with investors?
- What process do you have in place to identify opportunities that are specific to your business or sector?
- How are opportunities being developed to support transition to a low-carbon, climate-resilient economy?
- Are opportunities informing your strategy and business planning?
