Microsoft New Zealand recently released an extensive study of how NZ businesses are performing on sustainability and carbon reduction. It highlighted that our net emissions have increased 60% since 1990, one of the fastest growth rates in the world, despite the fact that 76% of businesses planned to be carbon neutral by 2050. It also found that one third of the organisations surveyed expected to miss their target.
Not having a sustainability plan or failing to achieve it is fast becoming a critical business risk.
For some time now – getting ahead of your sustainability initiatives has been seen as a proactive strategy, playing into a competitive advantage for many. However things have been heating up (pun intended) for sometime now and sustainability has, as the HBR suggests, now become mainstream.
The reality is that no business is immune to the impacts of our climate crises, therefore not having a handle on the sustainability factors of your business actually imposes a massive risk to the future of it. It most definitely is not a “nice to have”.
“Over eight in 10 (84%) investment managers stated that issues with supply chain sustainability and (a lack of) ESG standards are a financial threat to their investments. Further, 85% believe that businesses who do not have supply chain sustainability standards will see share prices fall as a result over the next decade.”
”Companies who are not up to speed on sustainability will be left behind. I like to compare it to the digital revolution, or Industry 4.0. Companies who aren’t quick enough to adapt to the advancing digital revolution are falling rapidly behind. The same goes for sustainability. It’s the fifth industrial revolution,” says Dr Annemarie Conrath-Hargreaves.
Whether you believe in climate change or not is largely irrelevant. The world is fully committed to becoming carbon neutral and all businesses will need to fall in line or suffer the consequences. The evidence is right in front of us.
In December 2020 New Zealand joined 32 other countries to declare a climate emergency and commit to taking urgent actions to reduce our carbon emissions. This followed the passing of the Climate Change Response (Zero Carbon) Amendment Act 2019. Public Act. 2019.
The Zero Carbon Act outlines the government’s plans to reduce net greenhouse gas emissions to zero, excluding biogenic methane, by 2050. It also requires the government to develop and implement policies for climate change adaptation and mitigation, including the establishment of a Climate Change Commission to track and monitor progress.
These new policies and targets ultimately mean we will all need to dramatically reduce the use of carbon over the next 10-20 years. The cost of carbon will increase significantly and as the New Zealand economy is predominantly a carbon economy and very dependent on fossil fuels, businesses will face increased costs. This in turn will require the new emissions targets to be front and centre of any future decisions around strategy, infrastructure, systems and investments.
In addition to the increased costs, businesses will also face a considerably restrictive playing field.
Capital – As evidenced by the Westpac 2025 sustainability strategy, access to capital (both debt and equity) will likely be easier and cheaper for businesses that have a positive impact on the world. This is because regulatory and market pressures will encourage banks and investors to be much more selective in the way they channel funds.
Procurement – It’s increasingly common for companies to include sustainability performance in their tender process, comparing suppliers’ products or services against a set of criteria that align with their own values and performance. This is particularly true of large corporate and government contracts.
Exporting – Sustainable business processes and product or service credentials will become table stakes for New Zealand exporters as international markets, facing similar sustainable pressure and challenges, factor in the distance our products need to travel.
Employees – According to Colmar Brunton nearly 75 percent of Kiwis say it is important to work for a company that is socially and environmentally responsible. Sustainability will help attract, retain and engage staff – especially those from Gen X, Gen Y or Millennials.
But it’s not all about increased costs and restrictions. As sustainability becomes increasingly mainstream there is plenty of opportunity for those who are willing to embrace it.
According to a report by the CDP, a global disclosure system for companies to manage their environmental impacts, businesses that plan for climate change make an 18 per cent higher return on investment than companies that don’t.
In order to reduce our greenhouse gas emissions to zero, businesses will be required to change and innovate their current practices. It is expected that these changes will be supported, if not rewarded, by future governments.
As evidenced by the studies published over the last decade by numerous researchers – Colmar Brunton, Nielsen – sustainability is no longer a niche market. The majority of consumers (71%) are willing to pay a premium for sustainably and ethically produced products.
And as we all know, younger generations are passionate, outspoken, and do not shy away from calling out unsustainable business practices. Cancel-culture is increasing and a single negative post on social media can catch on fast and be shared to generate terrible press for companies that fail to live up to green standards.
So whether you have personal proclivity to do your best to be sustainable or not, your business can’t afford to not get on this bandwagon and to be proactive and realistic about how this will impact the way you operate in the future.
I’ve also included a number of articles outlining some practical steps you can take to building a sustainable business. Feel free to check them out or give me a call if you’d like to discuss your or BJ Ball’s sustainability in more detail.