The directors’ dilemma: when bold climate goals meet harsh realities

This article was first published on Newsroom

I wasn’t surprised when Air New Zealand announced the slowing of their carbon reduction goals last week when it scrapped the 2030 target.

As chief executive of the Institute of Directors and founder of the climate governance organisation Chapter Zero New Zealand, the only thing that surprised me was that other people were surprised.

For the last year or so, I have talked to directors, standard setters and regulators about how the new climate reporting requirements were likely to have the unintended consequence of boards and directors setting less ambitious carbon reduction targets.

At the same time as we have been encouraging boards to set ambitious emissions reduction targets, we have had parallel streams of work that have increased director liability. And we are seeing a growing trend of boards facing an increasing risk of climate-related litigation. It’s not difficult to see those two things as being competing forces.

The example I have most often used is asking whether you would want to be personally liable as a board member of Air New Zealand or Fonterra and be asked to set an ambitious carbon zero target 30 years in the future? When the science and technology to achieve that goal is not yet known, not yet commercially tested, and not yet guaranteed? The resounding answer is “no thanks”.

We all have a vested interest in the airline sector being able to achieve low-carbon travel. No airline has achieved this yet, including the big international players that have the investment potential and supplier relationships likely needed.

Even the IoD, as a small not-for-profit organisation, cannot achieve its carbon reduction goals without Air New Zealand achieving low-carbon travel or us stopping flying altogether, forever.

Air travel is inherently integrated into most of New Zealand business models and supply chains and, though I agree we need to fly less, we also need to get our products to market and connect with other humans.

That Air New Zealand has revised its carbon reduction targets highlights the complexities of developing a climate transition strategy in sectors where the technology for significant carbon reduction is still evolving, for example air travel and agriculture.

Directors are increasingly aware that setting, and publicising, ambitious targets can create downstream risks. These may include regulatory repercussions, financial liability, and reputational damage if the targets are not met. Directors must make decisions on behalf of their organisations that are based on facts.

Frankly, it appears Air New Zealand is merely being realistic about the limitations of the technological pathway to emissions reductions, but nonetheless remains committed to climate action and finding solutions, and for that it should be congratulated.

It is a reminder that climate goals are never ‘set and forget’. The assumptions need to be tested and the targets need to be regularly monitored, reviewed and revised. And, as Air New Zealand has done, progress should be communicated transparently.

Increased regulatory and legal focus on ‘greenwashing’ is fair and reasonable, and we don’t want organisations deliberately misleading the market about their climate strategy. However, an environment of ‘greenhushing’ – where organisations don’t share their plans, goals and ideas because they are too scared of risk if they do – doesn’t serve us either.

I do wonder whether we have given ourselves space to dream and imagine any more. Where is the space to dream big, to set big hairy audacious goals and to imagine a future that is not yet known? At a time when New Zealand needs green innovators prepared to dream big and ‘aim for the moonshot’, we have created a business environment focused heavily on incremental reporting and short-term compliance.

Chapter Zero NZ is a crucial initiative launched by the IoD to support directors in addressing climate change. The New Zealand chapter is part of a global network that provides directors with the knowledge and tools to integrate climate-related risks and opportunities into their boardroom discussions and decision-making processes. It offers a platform for directors to engage with leading experts, access educational resources and collaborate with peers on best practices for sustainability and environmental stewardship.

The IoD’s founding of, and ongoing support for, Chapter Zero NZ underscores our commitment to fostering responsible governance that not only protects shareholders’ interests but also contributes to the long-term sustainability of organisations and the broader community in New Zealand.

To fulfil their fiduciary duties in the long-term service of their organisations, directors need to be fully aware of the implications of climate change, have the skills, tools, processes and information to act, and commit to stewarding their companies through the challenges. This means embedding climate considerations in their strategic planning. We are aiming to build a community of non-executive directors in New Zealand who are equipped with the tools needed. Chapter Zero NZ supporters are committed to ensuring their companies are fit for the future and that global net zero ambitions are transformed into robust plans and measurable action at a local level.

The Air New Zealand example should be a reminder to us all about the scale and the complexity of the challenge ahead. How do we reach a low-carbon economy and achieve our climate goals? Yes, it’s going to take good reporting, holding to account and appropriate regulation. But achieving our global 2050 climate targets is also going to take some moxie to do what we need to create space for boards and organisations to set ambitious goals. Otherwise, none of us should be surprised if we don’t get there.

Disclosure: The chair of Air New Zealand is the chair of the IoD’s Chapter Zero climate advisory group.