Climate crunch time

“The battle for 1.5 degrees will be won or lost in the 2020s – under the watch of leaders today. All depends on the decisions those leaders take – or fail to take – especially in the next eighteen months. It’s climate crunch time.”
- UN Secretary General Antonio Guterres, June 2024 

Not too many years ago it would have been considered alarmist to describe a world with climate refugees and isolated communities, Antarctic ice sheets heading towards total collapse, and flooded ports and disrupted airports. But under a ‘hot house world’ in the Transport Sector Climate Change Scenarios released in June, this is a plausible and challenging description of how the future may develop.

Climate scenarios are designed to challenge and support boards to plan and make decisions. For directors, climate change presents both a responsibility and opportunity to be a driving force for change, according to Chapter Zero New Zealand steering committee member and independent director Abby Foote CFInstD.

Speaking at Mott MacDonald’s Aotearoa Carbon Crunch last month, Foote said business and asset owners have a responsibility to protect the future of their businesses. “Climate change and the transition to a low emissions climate-resilient economy is already having significant and disruptive implications for business competitiveness, viability and shareholder value,” she said.

Governments around the world are implementing stricter regulations and policies to address climate change. New Zealand may have been the first to mandate climate disclosures but over 60 per cent of the world’s GDP is now subject to mandatory climate disclosure – either proposed or already in force. Organisations that fail to comply with these laws may face legal penalties, fines and litigation. They may find themselves barred from export markets or key supply chains.

But compliance isn’t the goal – the goal is long-term resilience of both infrastructure and businesses and the climate competitiveness of our economy. Integrating climate into governance structures is a strategic necessity for organisations looking for long-term sustainability in a rapidly changing business landscape.

Foote says that time horizons are one of the biggest impediments to action. “Climate governance requires us to take action now in response to risks that we know are likely, but which won’t show their full impact for years to come.” 

We need long-term solutions. However, responding to this requires us to step out of the noise of business as usual to have challenging and curious conversations.

The complexity of the challenge and pace of change are also significant impediments to action, according to Foote. It presents a steep learning curve with directors needing to build understanding of the science, the technology behind emissions reduction options and regulatory requirements. 

“Boards are forced to look for increased granularity in data, enhanced metrics for performance measurement, forecasting many years into the future and dealing with financial and non-financial challenges. We need to ensure these conversations are prioritised alongside the immediate challenge of the real and present short-term issues we are all facing and investor pressure for returns.”

The 3 Cs of meaningful action for directors

1. Commitment

Directors need to send a clear message that emissions reduction is important – both in strategy and in action. In making that commitment leaders need to empower the organisation and provide a mandate to find solutions.

The chair of the Climate Commission – He Pou a Rangi Rod Carr recently commented that we are facing a “failure of funding and distribution – not a failure of technology”.  The solutions exist to meet our carbon reduction aspirations, the question is the extent to which we are prepared to disrupt our business models to harness them.

• How have you demonstrated your commitment to climate change – voluntary reporting, target setting, engagement with supply chain etc?

2. Collaboration

To find these solutions management teams need to be empowered (and motivated) to look for solutions that solve carbon challenges as well as economic challenges. Often this will require collaboration with others. Collective effort will amplify outcomes, enhance knowledge and reduce costs. We can also create momentum through collective commitments.

• Are you working across your industry or supply chain to understand where the opportunities lie?

3. Capability

Organisations need to build the internal capability to not only to support collaboration but also to understand the complexity involved in climate change. As directors think about transition planning based on possible future scenarios, they need to consider the capabilities organisations will need in the future and how to start developing those.

• How are you resourcing and building the capability (and capacity) within your organisation to support the transition to a low-emissions economy?