Environmental, social and governance challenges
How, for example, does an organisation internalise the costs of the environmental processes used (or used up) in its production process? The current economic system does not provide for this. How should global social challenges, such as poverty, health and corruption, be reflected in an organisation's performance?
Regulatory measures to address 'sustainability'
The New Zealand Emissions Trading Scheme (NZ ETS) is the government's quasi-market mechanism to regulate down the level of national greenhouse gas (GHG) emissions.
The NZ ETS will impact businesses either directly (as participants in the scheme) or indirectly (via the schemes economic consequences).
In the medium term, new regulation may also be introduced on:
- sustainability risk reporting
- assurance of sustainability information
- mandatory reporting of emissions levels
- sustainability-related product/service labelling.
Climate change risks are particularly acute and the economic impacts will vary depending on the sector and industry.
The research on climate change and carbon management shows that firms are finding it difficult to formulate and action an appropriate strategy.
Sustainability strategies need effective governance
Adapting to the new business agenda and developing an appropriate strategy is essentially a change management process. With change comes risk, so risk mitigation and management strategies are essential.
These strategies are important aspects of effective governance and should consider:
- stakeholder management and engagement
- social risk anticipation and response
- climate change risks (direct and indirect)
- communication and reporting of strategy and progress.
What is your strategic response to climate change?
Recent research shows that while business is aware of climate change as an issue, few companies are strategically addressing the risks and opportunities.
Many New Zealand businesses want to address their sustainability challenges but, beyond a GHG emissions inventory (or carbon footprint), are having trouble articulating their next steps. The first stage in the process involves effective corporate governance: quality advice and an understanding of stakeholder expectations and sustainability-related business risks.
A low level of strategic response to climate change
97% of respondents in the New Zealand/Australia carbon disclosure project identified climate change as a risk or opportunity, but only 12% provided evidence of a comprehensive carbon management strategy.
International findings from the 2007 Carbon Disclosure Project are more encouraging. 76% of respondents in the annual FT500 questionnaire reported having a GHG emissions reduction programme. This is up from 48% in 2006.
However, the KPMG UK Business Leaders survey, released in April 2008, found that although 85% of respondents recognised climate change as a significant business issue, this did not correlate to a clear carbon management strategy.
This is reinforced by a December 2007 global McKinsey Quarterly survey. It found that the strategic importance placed on climate change is not leading to concrete action. The KPMG publication Climate changes your business identifies that 'preparedness' for the effects of climate change varies significantly between business sectors.