Tuesday, 8 October 2019

What’s driving business to understand and act on climate change issues now, and what will going forward?

by Catherine Leining, Public Policy Fellow Motu Research
This has been adapted from a keynote address for the 2019 Climate Change & Business Conference

Motu is an independent non-profit research organization. The businesses I work with are the early movers, and they are very well informed and engaged. My impression is that the early movers see climate change as a significant opportunity, a significant threat, or a corporate social responsibility obligation.  I suspect that for many businesses in the middle, decarbonisation is a future problem or someone else’s problem.     

I see three key drivers that will change how businesses will respond to climate change in the future.

The first driver is emission pricing. The current prices in the NZ ETS have to rise significantly to support New Zealand’s Paris target and long-term decarbonisation. Modelling for the Productivity Commission suggested prices ranging from $30-80 by 2030 and $75-250 by 2050. We are still in a policy vacuum about what the emission price pathway will look like and what additional regulations will apply. In the meantime, businesses need to future-proof their investments by factoring in a high and rising shadow emission price or risk stranding their assets. Frankly, that applies to central and local government too.

The second driver is that the social license to emit is rapidly expiring. We are seeing unprecedented demonstrations now; fast forward a decade when we have hit 1.5oC and are competing for entitlements to an exhausted global carbon budget. Pressure from investors and consumers may be more influential in the near term than government targets. To maintain their social license, businesses are going to need to show genuine commitment, transparency and accountability for action to reduce emissions.

The third driver is that climate change creates enormous business opportunities. In our beautiful welcome, we heard about the winds of change. We can harness those winds – or be blown away by them. We need to create the kind of business targets that will unlock innovation and harness the winds. Right now, a lot of business targets involve drawing a boundary, reducing internal emissions by a percentage, and planting trees. We need a mindset shift for targets from constraint to transformer, cost to investment, and self to system. We need targets for collectively changing whole supply chains and financing models, building new partnerships, educating consumers, creating new markets, and replacing technology and infrastructure with unprecedented speed. The biggest business opportunities lie in being not just carbon neutral, but carbon transformational.

My final comment is that policy uncertainty is lethal to long-term low-emission investment.  Reaching strong political consensus on the way ahead would empower the producers, investors, and consumers who will make change happen.

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