ESG backlash – what is it all about?

The announcement from Air New Zealand that it is removing its 2030 science-based carbon intensity reduction target and withdrawing from the Science Based Targets initiative sent shockwaves through the business and professional services sector. 

Apart from the global reputational optics not being great (the BBC reported the move as ‘Air NZ becomes first big carrier to drop climate goal’), it certainly puts paid to Air New Zealand’s leadership reputation around corporate sustainability – ironically, at its heyday under Christopher Luxon.

Air New Zealand blames “levers outside our control”, such as the availability of new aircraft, the affordability and availability of alternative jet fuels, and global and domestic regulatory and policy support. They will be considering a new near-term carbon emissions reduction target that could better reflect the challenges relating to aircraft and alternative jet fuel availability within the industry. 

So, in short: too hard, too expensive and too many unwilling trade-offs. Those of us who believe targets are a representation of ambition and drive all gasp in trepidation. It can be no coincidence, surely, the venerable and conscientious Sir Jonathon Porritt had left the Air New Zealand Sustainability Advisory Group just weeks before. He would have held their feet to the flames. And what of his replacement, James Shaw? Where does that leave him?

It’s a tricky conundrum – is the target really the point? Or is it the getting there? Do you stubbornly stick with saying you’re going to lose five kilos/quit sugar/give up booze when you know you realistically can’t (due to a lack of global supply chain interoperability, not of course to your lack of will)? 

Or do you say, “I have lost four kilos, I’ve cut out 100 grams of sugar a day and reduced my alcohol intake by four units a week” and that’s what I have done, despite not sticking absolutely to my goal? Which is worse – saying you’re going to do something and not making it, or not saying it but talking about the things you have done, instead? Surely one is just marketing, and one is activation and operationalisation, right?

The concern here, of course, with a brand as iconic and influential as Air New Zealand, is that this gives licence to everyone else to now say they couldn’t realistically hit their targets, so they are going to drop them – and replace them with nothing. 

Unhelpfully, this arguably couldn’t have come at a worse time, with the big end of town grumbling about how hard and expensive working up their climate statements has been, and questioning whether they are making a practical difference anyway. 

You can see how it feels safer not to say anything at all, than say loud and proud what your ambition is, knowing you are not going to get there. The risk of being accused of ‘greenwashing’ – and the threat of litigation as a result – has led to the silencing of ambition, and become what is now known as ‘greenhushing’. 

Some companies are purposely keeping quiet about their sustainability goals, even if they are well-intentioned or plausible, for fear of a backlash or even litigation against them. This steep increase in litigation against those who are most transparent about their emissions, and what they plan to do about them, is an obvious deterrent for hard-to-abate emitters from disclosing their impact and what they plan to do about it. 

The number of cases concerning ‘climate-washing’ has grown rapidly in recent years, with more than 70 per cent of completed cases decided in favour of the claimants.

I don’t, for one second, think this is a decision Air New Zealand has taken lightly, nor quickly. I was at Z Energy while we grappled for years over what to do about Z’s $50m investment in a sustainable biofuel plant, and tried to reason with the government to help us to make it a viably commercial operation, which it would have been had there been a mandated levy in place. 

The ultimate decision to mothball the plant – putting aside the key, material, thing a fuel retailer can do with their sustainable fuel alternative – was gruelling and heartbreaking. I respect Air New Zealand for their honesty, and I feel huge empathy with this move.

I don’t, however, think throwing your hands up and claiming supply chain constraints should be where we all end up as a result of planning our way out of this hot mess that is our warming world. The objective of global ESG reporting regimes is to provide a structured framework for companies to disclose their efforts and impacts in these critical areas. 

It offers a lens through which the broader community – investors, customers, employees and regulators – can assess and engage with a company’s commitment to sustainability and ethical practices. When we get through the reporting to the pointy end, what you do about those commitments is where the value comes into its own.  

This is where board leadership is critical to solving the climate crisis. Thanks to these reporting regimes, we now know precisely what our impact is on emissions, where our risks and opportunities lie, and how they interact with our business operating model. We can choose to pivot towards a capital reallocation plan, a revised structure that enables decarbonisation and profitability, or we can turn away, make excuses, and risk losing competitive advantage. 

Setting targets should not be confused with virtue-signalling – they are the north star to get us to where we need to go because there is no shortage of evidence that we need to go there. There is no option but to. As Dr Rod Carr says, “Don’t wait to do yesterday’s business, poorly, tomorrow.”

The brilliant annual Carbon and ESG Ratings Report from Katie Beith at Forsyth Barr converts more than 8,300 pieces of data across 58 of New Zealand’s largest listed companies, and rates how portfolio companies are performing on important C&ESG metrics. Last year’s report showed New Zealand companies are genuinely focused on enhancing their sustainability practices. 

On a global scale, navigating the path to a net-zero economy became more complex because of escalating geopolitical tensions, which led to higher energy prices. Additionally, a backlash against ESG initiatives in the US, supply chain challenges, elevated interest rates, increased input costs, and slow economic growth collectively posed significant hurdles for companies aiming to advance their sustainability efforts. 

In New Zealand, most companies are actively engaging with this trend, though not all are fully on board. Some remain motivated primarily by compliance. Nonetheless, the general trend indicates they are steadfast in their commitment to sustainability and show no signs of retreating from their goals.

We are at a critical juncture where we choose whether to continue to take the hard road. Hundreds of businesses are grappling with measuring, integrating, reporting on and transitioning away from their deleterious impacts. This sets us up so powerfully to move into the next phase, of figuring how much we can save, and make, by decarbonising and embracing new opportunities. To turn away now would rob us, and the future guardians of our businesses and place, from realising that opportunity.

Just as the key to achieving your goals is having a tangible plan to realise them, the key to achieving ESG-related targets is having a solid, realisable plan to see them through.

This is where materiality assessments can be so beneficial – knowing that the material thing you can do to reach your own stated targets relies on critical inputs, such as sustainable aviation fuel/a government-mandated levy/low-carbon technologies being readily available when you need them and helping inform the target you set.

This is where the backlash against greenwashing is constructive. It has, arguably, forced us all to know exactly where our most material impacts lie, and what we will need to do, have, and invest in, to most effectively transform our businesses.

The ESG backlash is based on a fear of the unknown, not a fear of doing nothing about what we do know. If knowledge is power, then choosing not to act on what you do know is giving away your power to do what you know needs to be done. Worse, it risks deferring the ability or chance to do anything about it to future leaders, or to the next generation. 

The most important thing a board director sitting at the decision-making table today can do is to keep walking down the path of decarbonisation. Even if the signals end up changing, they are just targets. Don’t let them deter you from doing what it takes to realise a thriving future.