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New emissions tools help firms flex on the world stage
The watered, air-conditioned turfs of the 'carbon neutral' FIFA World Cup are criticised as the ultimate in greenwashing – but here in NZ, new transparent targets, flexible strategies and verifiable measurements are being developed to help our companies do better
The original article was written by Jonathan Milne, Newsroom
There's an old adage from the British teaching journal Housecraft in 1978: weighing the pig doesn't make it any fatter.
The same could be applied to addressing climate change, as the world is discovering to its distress at COP27: measuring greenhouse gas emissions won't make them diminish any faster.
It's a reminder that to get to net zero, households, companies and governments need more measurements and better measurements (perhaps the pig's inputs and, err, outputs?) and, critically, they need good, flexible tools to achieve their targets.
Deloitte senior partner Grant Frear contrasts the financing of measured climate targets at the likes of the professional services firm and more recently at Yealands Wine, with the unfolding fiasco of the FIFA World Cup, beginning this month in Qatar.
As the consultancy's leader on New Zealand financial services industry practice, he's been watching with a degree of frustration Qatar's bold promise to host football's first carbon neutral World Cup. "I think it's a great example of the market and the public expecting trustworthy, verifiable data, and pulling apart some of those claims."
Analysts and lobby groups like Carbon Market Watch have highlighted that Qatar and FIFA aren't measuring all the emissions that have gone into building a new metro system, highways, high-rises and a futuristic football city.
And even those emissions that have been counted in the 3.6 million metric tonnes of carbon dioxide, like “air conditioning” the grass and the construction of seven new stadiums, are being divided over the anticipated lifespan of the buildings.
“Even if it is a net zero carbon tournament in that four-week period," says Professor Simon Chadwick, in an interview with The Guardian, "you have to consider not just the stadiums but the infrastructure."
Doha is ranked one of the 10 most polluted cities in the world – a result of intensive construction and the associated disturbance to the natural environment.
“They are trying to adhere to international standards but it is open to question what is being measured, and how it is being measured," Chadwick says. “It’s almost like a diversionary tactic and maybe that’s what greenwashing is."
Qatari organisers have pledged to buy 1.8 million carbon offsets from the Global Carbon Council, a Doha-based carbon credit registry. But carbon analysts say the credits are "some of the lowest quality that exist", and it’s unclear that they fund carbon-reducing projects that would not have otherwise existed.
As renewable energy infrastructure grows cheaper and more common across the world, it becomes less likely that investing in them through carbon credits is actually helping the environment, AFP notes. Approved projects registered to Qatari World Cup organisers so far include wind and hydropower energy projects in Turkey and Serbia.
Trustworthy, verifiable, timely measures
Credible and verifiable measures are a widespread problem. A German consumer group is suing Deutsche Bank's asset management unit for allegedly misrepresenting a fund's green credentials in marketing materials. The UK's advertising regulator has banned two HSBC advertisements as misleading, for "omitting material information" about the company's work to tackle climate change.
It's not just overseas projects that are missing the mark. Here in New Zealand, climate and transport advocates sued Auckland Council and Auckland Transport this year, saying their calculations didn’t take into account the expected continued growth of Auckland – and that in fact, the city's transport emissions would increase over the next 10 years.
(That's despite Auckland Council's loudly publicised plan for a 64 percent drop in transport emissions.)
The court case failed. The judge accepted that the council plan was a high-level and aspirational document, that didn’t oblige Auckland Transport to “meet or support any specific emissions reduction target”.
What do all these problems have in common? They've announced targets. But they haven't disclosed trustworthy, verifiable, timely baselines and interventions to get there. The World Cup organisers issued a statement to the AP news service this week, saying they would explain any discrepancies after the World Cup.
Concerns like these jeopardise businesses that are seeking funding for critical and increasingly urgent climate actions. Why would investors put their money in banks and finance companies, or directly into producers and infrastructure providers, if they can't be confident that their funds will deliver what's promised?
"Sometimes the data is not sufficient to accurately estimate lifetime emissions; in these cases, more accurate data may be obtained over time."
– NZ Green Investment Finance
That's prompted the development, here and overseas, of tools to help companies set their baselines, and measure their progress in achieving their targets. It's been sped up by the Government's carbon neutral programme and climate-related disclosures mandate, to drive down emissions within public and publicly listed organisations.
The creators of these tools talk of the importance of transparent and trustworthy reporting, good data platforms, data providers in the market that speed up the tracking and reporting on initiatives, and open frameworks that allow the best practices to be shared.
At NZ Green Investment Finance, that meant joining the global Green Bank Network, to share knowledge and data and understand global best practices. "We do our best to form a complete picture of emissions reductions based on available data," NZGIF's Statement of Performance Expectations says. "Sometimes the data is not sufficient to accurately estimate lifetime emissions; in these cases, more accurate data may be obtained over time."
At ASB, that is framed around Taskforce for Climate-Related Financial Disclosures report, setting out the bank's understanding of climate-related risk, uncertainty as that modelling may be, and the strategies the bank and its customers are developing in response. ASB has provided sustainability-linked loans to companies like Craigmore Sustainables, whose chief executive Che Charteris is promising to develop a proof-of-concept net-zero dairy farm by 2035. "This is a tough challenge, and one that we will achieve through internal commitment and support of our partners," Charteris says.
BNZ's strategy entails supporting its customers and suppliers, economy wide, to measure, reduce, and report on their climate impacts. It's the first New Zealand bank to sign up to the Net Zero Banking Alliance, a UN-convened group of 116 banks from 41 countries, and it provided Deloitte with the company's three year sustainability-linked loan.
The terms of that loan require Deloitte to hit gender and diversity targets, and reduce its greenhouse gas emissions by 50 to 70 percent.
Deloitte's Auckland office is just upstairs from BNZ. Up there, the consultancy's climate specialists have concluded that companies and their financiers needed a tool to support them in setting science-based targets, defining emissions abatement strategies, and managing emissions budgets to zero.
"The business case grows almost day by day, given the ramping of costs of fossil fuel based energy."
– Rikki Stancich, Deloitte
Sustainability and climate director Rikki Stancich and consulting director Andrew Wood were concerned that all the protests and placards are designed achieved little more than sparking conversation. So they and their team built Accelerate2zero, a piece of software enabling firms to fully understand the impact of their emissions strategy on their balance sheet and profit and loss.
For those companies focused first on reducing their emissions, Stancich says it helps them understand their baseline, set a science-based target, and clarify what steps they need to take to get there. For those pursuing an offset strategy, it provides a clear view of their position in terms of carbon price exposure and carbon price shields.
Does she ever hear a visceral community reaction to the idea of putting a dollar value on climate impacts? "I've been working in sustainability pretty much my entire career," she responds. "And to be honest, I've found the only way that you can get any forward momentum on sustainability and emissions reduction, is to demonstrate the financial benefit, the dollar value of doing so. Without that you don't get anywhere with a business and let's face it, it is business, it is production, that causes anthropogenic emissions. So that's where we've always traditionally focused – in demonstrating the business case.
"The business case grows almost day by day, given the ramping of costs of fossil fuel based energy."
Those developing these tools are standing on the shoulders of those who have gone before. Stancich cites the Europe-based Triodos Bank as an example of what can happen when finance, people and the planet are integrated in a strategy.
"At Triodos, you turn up and the bank manager believes in what you're doing. And I know that sounds very soft and soppy, but actually, it makes a huge difference to how you work."
– Glen Saunders
"Triodos is the vanguard of sustainable finance," she says. "They were the first to empirically demonstrate that sustainable investment equities outperform, and that sustainable business models are more resilient in times of economic downturn."
She gives the example of the 2008 credit crunch, when traditional retail banks had their backs against the wall, but Triodos Banks' stable deposit base provided it more capital. "Not only did this enable Triodos to weather the credit crunch; they doubled their renewable energy finance team and incurred an influx of capital as investors sought a safe haven," she recalls.
"Triodos credited this to their modest risk appetite, an aversion to complex financial instruments, and a commitment to investing only in ethical and sustainable businesses with a proven track record."
'The bank manager believes in what you're doing'
On his small lifestyle block in Charteris Bay, across the water from Lyttelton, Glen Saunders knows better than most the importance and the difficulty of building green finance vehicles.
In 1995 he founded Triodos Bank UK. He served as managing director for seven years, before love and lifestyle brought him to New Zealand, where he continued to serve as a senior advisor to the Triodos board. Over the past 20 years in this country, he's also served as a director of the NZ Superannuation Fund, chair of the Sustainable Business Network and acting chair of the United Nations Principles for Responsible Investment network.
Now, the 70-year-old is retired. He's restoring some native bush on his 5000 square metre property, "I dabble, really," he says. "Mainly vegetable growing, for a number of friends around here, because I've had a little bit of land and I could do that sort of thing. I'm not claiming it is anything special, I'm just doing it because I enjoy doing it."
But he remains a big champion of Triodos Bank's focus on clearly measurable progress towards flexible and evolving sustainability targets. "At Triodos, you turn up and the bank manager believes in what you're doing. And I know that sounds very soft and soppy, but actually, it makes a huge difference to how you work."
"There's an old saying that you only manage what you measure. So if you don't measure you've got nothing. But the problem is, you only manage what you measure. So keep it intelligent rather than formulaic."
– Glen Saunders
Back in 2007, he oversaw the purchase of a small Wellington-based credit union called Prometheus Finance, by Triodos Bank, Tyndall Foundation and other investors with a focus on sustainability.
It's an untold story, until now. Restructured into a finance company, Prometheus lent $21 million to organisations developing renewable energy, resource recovery and recycling, climate friendly transport, habitat protection, and social and environmental housing initiatives like an iwi programme in Kaikōura.
The failure rate on its loans was about 0.1 percent, he says. "Most banks would give their hind legs to get to that."
Saunders was executive chair for nine years – but it ended sadly, he says. The investors agreed to put it into liquidation; the big shareholders waived their rights as unsecured creditors and smaller investors were repaid all their principal and interest.
What went wrong? New Zealand simply wasn't ready for it, he reckons. The right regulations weren't in place, and Prometheus didn't have sufficient scale. That's why he's hopeful today about bigger New Zealand banks and finance companies moving into sustainability-linked loans and other finance solutions.
Rather than setting targets at the start of five years, and adhering to them rigidly, he encourages the same flexibility that Grant Frear describes.
Saunders says: "If measures are used, they are used to genuinely provide indicators, and then to assess the performance of loans for companies. Seeing what the real intentions of the owners and directors are, and then monitoring against that, rather than what sometimes happens with some other sustainability finances, a little bit more of a tick box approach."
He describes a problem similar to weighing the pig. "There's an old saying that you only manage what you measure. So if you don't measure you've got nothing. But the problem is, you only manage what you measure.
"So keep it intelligent rather than formulaic. That was the idea. Otherwise what seems to happen is that people work out how they can get round it."
Ideas so good they shouldn't be bottled
When Yealands Wine began selling wine in PET recyclable plastic bottles, to reduce the carbon footprint in its shipping, it got headlines around the world. But soon management realised PET wasn't the right answer ("we need to take into account how people actually disposed of the bottles") so it adopted new solutions like lightweight glass bottles, shipping wine overseas in big bladders in 20-foot containers and, for their Swedish market, retailing the wine in 2L and 3L cardboard casks.
Yealands released 100 guinea pigs in its Marlborough vineyard to keep the grass down and reduce the need for mowing – but they began escaping under the miniature electric fence. So it rehomed them to local families and replaced them with more than 100 babydoll sheep – a short-legged breed that don't threaten the grapes!
It's a company whose approach to sustainability shows a flexibility – an ability to learn and change – that's applauded by both Saunders and Frear.
Yealands is one of the latest New Zealand businesses to announce a sustainability-linked loan: it's rolled over $96m from ASB for another five years, but this time, the interest rates are linked to driving down CO2 emissions and diesel consumption, reducing carbon intensity, increasing its renewable energy use from 20 to 60 percent, generated onsite, and executing the company's long term biodiversity plan. Its targets are independently verified by KPMG.
"A lot comes down to how willing and receptive consumers or shoppers are at the coalface – whether they're prepared to accept new or innovative or lighter-weight packaging."
– Michael Wentworth, Yealands
"What I liked was that all parties have started the process without 100 percent certainty regarding how the targets will be achieved at outer years," Frear says. "This demonstrates good leadership to my mind, with the confidence that the way forward can be monitored and measured through good reporting and data collection."
Yealands has been Toitū carbon zero certified from day one. It's installed boilers that convert vine prunings into energy, and built a big solar panel array and a purpose-built composting facility. But 65 percent of its emissions are scope 3, from outside the vineyard fences, in everything from packaging and freighting to disposal of the bottles after the wine is drunk. So to achieve net zero, it's chosen to buy carbon offsets – most of them from offshore.
Its membership of the International Wineries for Climate Action and the associated UN Race to Zero accreditation requires cutting emissions 50 percent by 2020, and ultimately getting to carbon positive by 2050. That mean reducing its scope 1, 2 and 3 emissions to zero, so it no longer needs to buy offsets.
Michael Wentworth, Yealands' general manager of sustainability and strategic projects, has been with the company since it opened its door in 2008.
"To get to carbon positive, we can't utilise the offsetting of credits," he says.
"There's plenty of opportunity for improvement. A lot comes down to how willing and receptive consumers or shoppers are at the coalface – whether they're prepared to accept new or innovative or lighter-weight packaging.
"Here in New Zealand and Australia, cask wine has typically been at the bottom end of the spectrum. But over in Europe, Sweden in particular, you'll find all the very best wine packaged into bag-and-boxes. And it's got amazing consumer acceptance over there."
"We've gone through our supply chain – those that we purchase goods and services from – and we've cascaded down our obligations to our sustainability-linked loan."
– Grant Frear, Deloitte
Measurement is critical, he says. ESP (previously BraveGen) automates all Yealands' carbon reporting, so the company can use it as a budgeting and management tool. "We can talk to the managers about how they're tracking with their carbon footprint on a month-by-month basis. And of course, compare that to years gone by. That's probably the most vital piece of information that we have.
"So when we're having discussions with our winery team, we're talking to them about electricity or LPG use, whereas when we're in the vineyard we're talking to the guys about their diesel use."
Critically, supplier invoices will help ESP assess the other emissions, outside the fence. "So for argument's sake, the electricity bill that we receive from Meridian will have the kilowatts produced, to give us our our footprint. So if you imagine that replicated over all our various suppliers, it's quite a complex system that generates some some great data for our team to utilise."
How to not be guilty of greenwashing
And that's the point to which Grant Frear returns. Trustworthy data, verifiable data, timely data, sharable data. A key point of these sustainability-linked loans, and new baselining, measurement and management tools, is that the information be shared.
"What we found through our own experience was that the cascading effect of is quite fascinating," Frear muses. "We've gone through our supply chain – those that we purchase goods and services from – and we've cascaded down our obligations to our sustainability-linked loan.
"We're saying to our supply chain, it's not good enough for you to just claim these things you've got to show us. We want to see it. We want to verify that it is based on good reputable data, that it's based on good science based targets."
"The more people that can get into these financing instruments, the more there will be this cascading effect down into the economy, which will lift everybody up."
"They have to stress-test their systems to make sure they can deliver – because otherwise there's a very real risk that companies will exposing themselves to accusations of greenwashing."
– Rikki Stancich, Deloitte
As the FIFA World Cup is showing, businesses and event will be scrutinised. "I think that's fascinating." Frear says. "Claims made in the public realm about the carbon neutrality of that event, have been pulled apart, with respect to the baseline calculation. "What are they actually including? What are they not including? The sources of data, are they reputable or not? And then, the method of achieving the outcome in terms of junk carbon credits?"
Rikki Stancich chips in. She's been telling customers that they should refrain from loudly announcing bold targets, until they're confident in their baselines, in their measurements, that they and their suppliers are evolving strategies to reach their targets.
"What is actually achievable?" she asks them. "They have to stress-test their systems to make sure they can deliver – because otherwise there's a very real risk that companies will exposing themselves to accusations of greenwashing."