The business cost of climate change: What’s your plan?

This article originally appeared in Newsroom.

Last year will go down in the history books for a pandemic that brought the world to its knees. But 2020 also broke records as one of the hottest years ever.

Intense bushfires in Australia ripped through 18 million hectares of forest. Twenty-nine Atlantic tropical storms exhausted the English alphabet for names, and the North Pole recorded its second hottest period ever.

Long after Covid-19 is out of the headlines, climate change will still be our defining challenge, and experts warn consumers will be increasingly savvy about greenwashing, or about half-hearted claims from businesses which then fail to make lasting commitments to emissions reductions.

According to a Deloitte report published in November, inaction on climate change could shrink Australia’s economy by 6 percent, resulting in 880,000 fewer jobs by 2070. That will be A$3.4 trillion (NZ$3.6t) lost over the next 50 years.

Increased temperatures would make it difficult to work in labour-intensive industries, like construction and tourism the report said.

Australia’s economy is about four times the size of New Zealand, which means the impact could be much greater here.

Failing to confront the crisis on all fronts, could be “catastrophic”, not only for the planet but for individual businesses, Deloitte New Zealand strategy consulting partner David Lovatt says.

New Zealand has committed to reducing greenhouse gas emissions to 30 percent below 2005 levels by the end of this decade.

But Lovatt says making global commitments without a plan of action for business is pointless long term.

Take carbon offsets. A business or government department buying carbon credits to offset their emissions might feel better now, or sound more committed to its customers and staff. But it might be jeopardising its future.

Lovatt said while buying carbon offsets for $40 or $50 a tonne might be tempting, buying our way out of climate change is not a long-term sustainable plan.

“Many people in the government are focused on carbon-neutral public service by 2025. And the same is true for business with many competing against each other to become carbon-neutral.

But new regulation or a change in the way carbon offsets are priced could damage a company that’s relying for its environmental credentials on some other company somewhere else in the world planting some trees or saving a forest.

“My hope is that carbon offsetting doesn't get in the way of a business putting in place real and lasting change. Often you can have these targets and rush to get to those targets but they don't set you up well for the future.”

Money spent on buying carbon credits could be invested into innovation to reduce a business’ emissions, for instance.

New Zealand’s Climate Change Response (Zero Carbon) Amendment Act aims to reduce net emissions of all greenhouse gases (except ‘biogenic’ methane - methane from our cows and sheep) to zero by 2050.

It also commits New Zealand to reduce biogenic methane emissions to between 24 and 47 percent below 2017 levels by 2050, and 10 percent below 2017 levels by 2030.

Lovatt said these commitments could be overwhelming for business owners.

“Lots of businesses will be standing staring at each other wondering who's going to go first. The Government has an important role to play in laying out the pathway and creating the incentives and boundaries,” Lovatt says.

Earlier this year, Business NZ chief executive Kirk Hope said the Government needed to provide policy certainty for businesses as they sought to meet emissions reductions targets set out in the legislation.

“There will be opportunities for business, but they need a clear direction of travel,” Hope said.

Lovatt says this means creating policies and an economic setting that allows companies to transition their businesses. It also means sharing the costs equitably.

“Countries are outbidding each other in terms of the carbon reductions they're going to deliver. That's the tone at the moment.

“We can't just make those commitments globally and then walk away from them. We have to deliver on them.”

Lovatt’s advice to businesses is to take time out to understand and measure their emissions.

“That’s actually a tough thing, it’s not a trivial exercise.

“You can't just make small changes here and there. If you have to reduce your emissions significantly that means a long-term plan and potentially some tough decisions.

The harsh reality is that in some cases the business that operates today just can’t operate the same way in the future - or might even be replaced, he says.

“That's just part of businesses going through the cycle of growth and adaptation.”

Businesses must be clued into what new opportunities were available they could make the most of.

Deloitte head of corporate responsibility Deborah Lucas says the pandemic has posed both a challenge and an opportunity to reset.

For example, pre-Covid, the Deloitte team relied on meeting clients in person - and the company’s carbon footprint was “overwhelmingly” travel-related, Lucas says.

That changed during lockdown, and Deloitte is looking at how to lock in a large amount of that broader cultural change.

“Now we can ask our clients, do we really need to meet in person every week? If we organise virtual catchups, would that be sufficient?

“These are the conversations we need to be confident to have if we want to meet Deloitte’s targets of reducing travel by 50 percent per person by 2030.”

Lucas said long-term planning involved looking for alternatives through innovation.

“The earlier you start thinking and gathering information about your emissions, the more choices you have.”

Lucas said companies which fail to deliver on our climate change commitments could end up facing reputational damage and lost sales.

“Your social licence to operate is your reputation, it's fragile and takes a long time to build up and can get destroyed pretty quickly.”

Meanwhile, companies that don’t act proactively could find themselves forced to change by legislation and regulation, Lovatt says.

Companies that are slow to think about how they could reduce their plastic waste, for example, or minimise the carbon footprint in their supply chain, may have a shock if regulation suddenly changes.

“If you’re just offsetting your carbon emissions it might be a waste if the Government one day says ‘no more’.”