Watts urges directors to lead on climate

Boards have the power to get New Zealand to its 2050 climate targets, Minister of Climate Change Simon Watts said at an Institute of Directors (IoD) Chapter Zero New Zealand event on Friday.

Speaking at a gathering of almost 400 directors and business leaders in Auckland, Watts took the opportunity to urge boards to be courageous and innovative in their approach to the climate challenge.

Decisions on how much to invest in research and development, the appetite for developing renewable energy, or the ability to drive the creation of innovative technology, are all areas where boards have the lead, he said.

“I look out there and see the leaders who have the ability to effect the change required in this country,” Watts said.

“Those are decisions that are made around the board table. You do have the power to effect change. I would encourage you to use that power, and to be ambitious.”

The panel event explored how boards and chief executives could work together more effectively on climate issues. It featured representatives from the energy, banking and agricultural sectors, which are estimated to account for around 90 per cent of New Zealand’s gross emissions between them.

The discussion revealed the difficulties the companies are facing as they try to balance long-term climate goals with short-term business pressures.

For example, responding to the recent surge in electricity spot prices has proved challenging in terms of Genesis Energy’s 2024 climate goals, said Chief Executive Malcolm Johns.

Ramping up gas-powered generation to ease the crisis would definitely have an impact.

“The price of electricity went through the roof a few weeks ago. We have had to look very much at the short-term imperatives because we crossed a non-negotiable line – as an energy sector – in the way that market played out.”

While that does not change Genesis’ long-term climate objectives, it highlights that boards and executives need to be able to pivot in response to unexpected events, he said.

While that does not change Genesis’ long-term climate objectives, it highlights that boards and executives need to be able to pivot in response to unexpected events, he said.

This view was echoed by the other panellists, ASB Chief Executive Vittoria Shortt and Fonterra Chief Executive Miles Hurrell MInstD.

Hurrell said the dairy community sees climate change as an intergenerational issue. It requires long-term commitments that can only be delivered if businesses stay viable in the short term.

The difficulty, he said, is trying to meet public expectations and do the right thing, while maintaining the profitability and confidence of shareholders – in Fonterra’s case, that means more than 11,000 dairy farmers.

While boards should set climate targets and map out a path to achieving them, they also need to ensure their executive team has the flexibility to manage the way forward, Hurrell said.

“The realities of everyday life mean you are going to bounce around on that journey.”

The alternative – sticking to a rigid path on climate – poses risks to any organisations, the panelists agreed. 

As Johns put it: “If you go down a path without being nimble you could find yourself in a situation where your sustainability at the highest level comes into question – i.e. you don’t exist as an organisation.”

Shortt said the need to be agile in meeting climate change goals was something ASB’s business customers are very clear about. The bank offers low-rate sustainability loans to help businesses reduce their carbon footprints.

For Shortt, a key role of the board is establishing the attitude towards climate for the business.

“The first question is, ‘Where does climate sit in your thinking?’ Is it something on the side? Is it a discrete initiative? Where we landed was that it is part of our purpose.”

That has meant decisions on ASB initiatives, such as partnerships with Pāmu farms and AgriZero, were launched with the confidence the board saw climate change action as integral to the bank.

“It makes decisions like that really easy. When they come up, you can just jump on them,” Short said.

Moderator Jackie Lloyd CFInstD, a company director and President of the IoD, noted the interdependence of New Zealand companies when it comes to meeting the Government’s target – for the economy to be net zero (excluding biogenic methane) by 2050.

“It’s one thing we can’t do by ourselves. That’s really clear from today’s conversation. We are not going to solve this problem alone. Collaboration and how we work together is going to be critical,” Lloyd said. “It will be interesting how that interplays with competition.”