July 02, 2018

OPINION: Sir Jonathon Porritt – CSR and raising the bar

New Zealanders are much more alert to the impact of climate change than citizens in many other countries. 

While I was there in March, the tip of the North Island was experiencing the fifth tropical cyclone in just a few months, way outside the ‘normal’ frequency of such extreme weather events. The Tasman Sea has been more than 4oC hotter this year than on average.  

And then came the windstorm of 10th April in Auckland, where a combination of different factors brought winds of between 140km/hour and 170km/hour, far higher than the 120km/hour peak that was forecast by New Zealand’s MetService, with one gust that reached an astonishing 213km/hour.

This ‘perfect storm’ of different factors caused widespread damage.  

It was precisely this kind of extreme weather event that the Chief Executive of New Zealand’s Insurance Council warned about back in January, commenting that New Zealand was particularly vulnerable to extreme weather, and suggesting that the costs from such events could exceed NZ $1.5bn every year. That may not sound much, but New Zealand is a small country, and that amounts to nearly 1% of its GDP. 

Forum for the Future has a number of cracking partnerships in New Zealand, including Air New Zealand (where I chair an amazing international Sustainability Advisory Panel), Fonterra (the largest exporter of dairy products  in the world), Vector (a wonderfully ‘on it’ energy company, intent on disrupting the entire energy system!) and New Zealand’s biggest port, Ports of Auckland. All of them are very aware of their respective carbon challenges, which, in the case of both Air New Zealand and Fonterra, are obviously very substantial.  

But that’s not necessarily true of New Zealand companies as a whole. On my last day in New Zealand, I had the privilege of giving a keynote talk at the New Zealand Chief Finance Officers’ Summit, and focussed on the growing pressures on all companies to start reporting to investors on their exposure to carbon risk. Not at all sure how well my rather stark warnings were received!

So, what’s going to change things? First and foremost, the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) are starting to resonate across many different sectors.

Indeed, a report in March this year from the Climate Disclosure Standards Board (looking at 1,600 companies in 14 different countries) spelled out in no uncertain terms that the ‘gap between the way that companies identify climate-related risks and opportunities, and how they are preparing to tackle them’ was no longer acceptable. The Task Force itself has been keen to recommend the use of scenarios as a ‘well-established method for developing strategic plans that are more flexible or robust to a range of future plausible states.’ 

To be honest, this may well sound like another great dollop of global gobbledegook on the climate risk front! But as soon as any CFO (or, at least, any CFO worth his or her salt!) starts digging down into it, this becomes a game-changer in terms of the way every large company now needs to engage with its investors. 

And here’s another very telling signal. Just a week or so ago, the Department for Work and Pensions in the UK launched a consultation on reforms to workplace pension schemes, indicating that new duties will now be placed on all Trustees of workplace pension schemes to ensure that they formally consider (as part of their fiduciary duties) all environmental, social and governance (ESG) risks, including climate risk. The UK’s top financial regulator (the Financial Conduct Authority) simultaneously stated that climate risk should be considered as ‘equally important’ as other financial risks such as liquidity and inflation in pension scheme strategies. 

So, I think you’d have to agree that these are real game-changers, but the reality is still that a lot of companies, both in the UK and in New Zealand, just don’t know where to start with this whole climate risk story. 

 We know from our experience around the world that climate risk can get dumped into the ‘too difficult’ basket for lack of useful points of traction. So, Forum for the Future has produced eight very simple ‘ground rules’ for any company that wants to think through its exposure to climate risk: 

  1. Climate change will not only impact corporate assets and operations – it will also impact supply chains, markets, workforces, and the broader infrastructure upon which they depend.
  2. It is important to consider the widest possible range of impacts, including low-probability outcomes with potentially large consequences.
  3. As well as posing discrete risks of its own, climate change will interact with and exacerbate other risks (e.g. relationships with government and/or commercial partners, or the availability and efficiency of labour).
  4. Current climate impacts/trends are not a reliable indicator of impacts-to-come – the future will be more disruptive, and will include ‘surprises’ as well as trends.
  5. The corporate approach to climate risk must therefore be dynamic and adaptive.
  6. Climate change poses significant enough risk to mandate regular consideration and discussion at senior management and board level.
  7. A consideration of climate risk must be built into standard business management processes and embedded across all corporate divisions (i.e., it cannot be the sole responsibility of the sustainability team).
  8. No one company acting alone can truly ‘protect itself’ against climate risk. Partnership and collaboration – pre-competitive, in and across industries, and with government and communities – will be key.

And it’s the second of those ground rules that provides the easiest way in, just by thinking through (with the CFO and Chief Sustainability Officer working hand in hand, wherever possible!) a proper climate risk framework. This is the one that Forum for the Future recommends:  

Physical risk diagram

And we’re all going to have to get really good at this, as those physical risks just go on getting worse and worse. Just a couple of weeks ago, the results of a new study looking at ice in the Antarctic were published in Nature. Involving 84 scientists from 44 different international organisations, the findings were truly chilling. Essentially, the study found that the rate of melting from the Antarctic ice sheet has accelerated threefold just in the past five years – before 2012, the Antarctic was losing ice at a steady rate of around 76 billion tonnes a year, but since then there has been a sharp increase, resulting in the loss of around 219 billion tonnes of ice a year.

All of that then has to be translated into the implications for sea level rise. A separate study in Nature warns that unless ‘urgent action is taken in the next decade’, melting of this kind could contribute more than 25 centimetres of a total global sea level rise of more than a metre by 2070. 

That’s right: a metre by 2070. 

Jonathon Porritt, co-founder of Forum for the Future, is an eminent writer, broadcaster and commentator on sustainable development.  Established in 1996, Forum for the Future is now the UK’s leading sustainable development charity, with 70 staff and over 100 partner organisations including some of the world’s leading companies. He is a Trustee of the Ashden Awards for Sustainable Energy, and is involved in the work of many NGOs and charities as Patron, Chair or Special Adviser. Jonathon received a CBE in January 2000 for services to environmental protection.

He has a strong connection to New Zealand through family and work. His father, Lord Porritt, was the 11th Governor-General of New Zealand. Jonathon is on the Sustainability Advisory Panel of Air New Zealand and Forum for the Future has partnerships with Ports of Auckland, Vector and Fonterra. 

Site Map