New Zealand ESG newsletter – January 2024

Welcome to the New Zealand ESG newsletter, a monthly newsletter to keep you up to date on ESG insights, trends and challenges. A uniquely New Zealand focus, what to think about and how it may affect business, prepared by Dentons.

Environmental reforms

True to its word, the new coalition Government repealed the Natural and Built Environment (NBEA) and Spatial Planning Acts (SPA). The Government estimates its own resource management reform will take up to three years , so in the meantime, the Resource Management Act (RMA) is reinstated as our primary resource management system. A few consequences of the repeal are:

• The NBEA fast-track consenting process has been retained until an alternative fast-track consenting regime can be introduced to the RMA, expected in the first 100 days of office . Any consent issued will be treated like a consent under the RMA.
• Any freshwater consents applied for since 24 August 2023 that have not been decided will now have their duration determined in accordance with the 35-year maximum duration under the RMA.
• The repeal reverses all compliance and enforcement amendments that applied under the NBEA from 24 August 2023 and reverts to the RMA. For example, maximum fines of NZ$10,000,000 under the NBEA are reverting to a maximum of NZ$600,000 under the RMA.
• The repeal halts any Mana Whakahono ā Rohe initiated under the NBEA, but allows them to be restarted under the RMA.

Looking back on the RMA and RMA reform more broadly , the Parliamentary Commissioner for the Environment suggests that any RMA reforms must endure. Simon Upton suggests that New Zealand’s failure to deliver better environmental outcomes had nothing to do with the text of the legislation, but rather three politically based problems, including a lack of willingness to use some of the powers in the RMA and insufficient investment in high quality information.

The Government is expected to replace the National Policy Statement for Freshwater Management 2020 (NPS-FM) in a process that could take between 18 to 24 months . The Coalition Agreements claim this change will allow district councils more flexibility in how they meet environmental limits and will rebalance Te Mana o te Wai to ‘better reflect the interests of all water users’. For a more in-depth analysis on policy shifts in the Resource Management sector, read our Insight .

Outside of the RMA regime, as forecasted , the Government has also agreed to introduce legislation in early 2024 that will repeal the Water Services Entities Act 2022, Water Services Entities Amendment Act 2023, and Water Services Legislation Act 2023. The Government plans to reinstate previous legislation relating to water, including local government legislation.

The energy sector is expected to benefit from a number of changes to enhance renewable energy generation so as to meet the Government’s commitment to achieving Net Zero by 2050. For discussion on the top ‘areas to watch’ read our Insight .

Climate Change Commission advice on emissions reduction scheme

In December last year, the Climate Change Commission released its report on the Government’s second emissions reduction plan, which will cover the second emissions budget period (2026 – 2030). Under the Climate Change Response Act 2002, the Government sets emissions budgets – which confirm the total allowable net emissions across a five-year period – and emissions reduction plans, which outline the actions it will take to achieve those budgets.

Ultimately, the Commission found that emissions are decreasing but further government action is needed to achieve our 2050 target. For the second emissions budget, the total quantity of emissions reductions needed is estimated at 43.5 million tonnes of carbon dioxide, about the same as what 3.6 million cars would produce over the same timeframe. Under the latest government projections, published in December 2022, meeting the second emissions budget will require an emissions reduction of 20.7 million tonnes of carbon dioxide in addition to the policies and measures already in place.

The Commission made 27 recommendations for the Government to incorporate in its second emissions reduction plan, including to: ?

• Prioritise and accelerate renewable electricity generation;
• Ameliorate the Emissions Trading Scheme and advance agricultural emissions pricing;
• Accelerate the uptake of zero emissions vehicles and upscale vehicle charging infrastructure;
• Directly resource iwi/Māori efforts to reduce climate pollution;
• Support moves to swap fossil fuels for renewable energy in heating and industry;
• Retrofit buildings to be healthier, more resilient, and lower emissions, and avoid installing new fossil gas in buildings where there are low emissions alternatives;
• Optimise public and active transport networks; and
• Commit to specific levels of gross GHG emissions and carbon dioxide removals for the next emissions budgets and align policies to achieve or exceed these.??

By taking more climate action the Government could create new jobs and save businesses and households about $2 billion a year by 2040, the Commission said . The Commission also highlighted that decisions made in this second emissions budget period will impact New Zealand’s ability to meet the third emissions budget and that small delays in the near-term can lead to much higher costs and/or emissions over a budget period.

The Government has until the end of 2024 to publish its second emissions reduction plan, which will be shaped by the Commission’s advice, as well as public consultation.

The Commission’s report has been based on government policies as of October 2023. Commentators have highlighted that some of the new Government’s first actions on climate, spelled out in the 100-day plan and coalition agreements, do not align with the Commission’s recommendations. These have included an announcement that on-going reforms of the Emissions Trading Scheme were halted . The rationale for this decision was the expected failure of the final carbon auction of 2023. The auction failed to clear with none of the nearly 15 million New Zealand Units (NZU) selling. While, in the short term, this deprived the Government of income from the sale of carbon credits, it resulted in a reduction of supply – all unsold NZUs are now written off. In the long term, this should bring NZU prices up and assist New Zealand to minimise its large NZU stockpile.

Approaches to climate change within the construction industry

Developments within New Zealand’s construction industry reflect movement in the market towards the adoption of more climate friendly policy initiatives. This has been particularly identifiable in the context of private construction companies. For instance, earlier in 2023, Fletcher Building committed to an initiative aimed at decarbonising the concrete production process . While these developments are apparent, they are slow moving. It will likely take some time for the adoption of similar policies to become the norm. Another example is Hamilton-based Kayasand’s initiative to produce concrete grade sand from recycled materials . Our May 2023 ESG Newsletter issue discusses decarbonising the built environment in more depth.

Compared to the private market, the public sector’s trends are more uncertain. While the Labour government initiated several measures to adopt a more climate friendly approach, the new Government’s plans are to abolish many of these. Alongside repealing the NBEA and SPA, the Government has also scrapped public transport projects such as Let’s Get Wellington Moving, Auckland Light Rail and the Interislander Ferry Replacement, aimed at modernising road and sea based public transport systems. The new Government has seen these as an inefficient use of resources and are prioritising other areas.

New Zealand specific Carbon & ESG ratings

In December 2023, Forsyth Barr released their Carbon & ESG (CESG) report which rated 58 NZX-listed companies on their policies and practices. Based on their overall grade, companies are categorised as leaders (11), fast followers (22), explorers (12) and beginners (1).

While carbon emissions are still increasing, this report showed continued improvement in CESG measurement and data collection. The average score declined from last year, but this is largely due to Forsyth Barr tightening its criteria to have emphasis on real actions and outcomes, rather than inputs and corporate policies. This should result in more material changes, with no more easy emissions wins for NZX companies. This change of criteria will help identify companies guilty of greenwashing, as the stronger criteria requires companies to put robust accountability mechanisms behind their commitments and policies.

Forsyth Barr’s head of ESG , Katie Beith, comments that there is a tension between companies experienced with CESG which now need to tackle the ‘hard stuff’, compared to companies new to CESG which are able to have ‘easy wins.’ For example, an easy win would be switching electricity suppliers to a renewable source to cut scope 2 emissions. Harder improvements include reporting on scope 3 emissions which encompass a company’s entire supply chain.

Meridian Energy came in at number 1 for the second year running. The property sector was the ‘most improved’ sector, largely due to tenant demand from large organisations wanting green buildings to help reach their own carbon targets.

Air New Zealand was listed as one of five entities which held the leaver to driving real change in terms of reducing scope 1 and scope 2 emissions. This is timely as Air New Zealand has recently revealed its first battery-powered electric aircraft . This aircraft is set to join the fleet in 2026 and will operate as a cargo-only service with NZ Post. Aviation is an emission-heavy sector, and this purchase ‘cements the airline’s commitment to flying lower-emissions aircraft in New Zealand’. This aircraft will be used for routes of around 150km in length, and takes up to an hour to charge to full battery.

Updates on pay gap reporting

Last year the NZ Herald reported that women in New Zealand effectively worked for free from 30 November to the end of the year, while men were paid 365 days. This disparity comes down to an 8.6% gender pay gap – which is only a 0.6% improvement from 2022, equating to 52 hours and 32 minutes.

The gap is wider still for Māori and Pasifika women; a 14.4% gap between all men and wāhine Māori and 15.2% between all men and Pasifika women.

Pay transparency can help reduce gender and ethnic pay gaps. Last year, the previous Labour government proposed legislation requiring companies with more than 250 employees to publicly report their gender pay gap. Pay gap reporting in the public sector has been underway for several years. At the time, National Party’s Nicola Grigg said she supported such a requirement, while Act leader David Seymour said the proposal was more “red tape”. The? Coalition agreements do not reference pay gap reporting.

Meanwhile in Australia, the Workplace Gender Equality Act 2012 passed Federal Parliament in 2023. As a result, the Workplace Gender Equality Agency will publish the median gender pay gap for reporting organisations with a workforce of 100 or more employees. In 2025, reporting requirements extend to Commonwealth Public Sector employers and private sector employers with 100 or more employees. Before these reporting requirements were law, Dentons Australia recorded a gender pay gap of just 5.6%, compared to the Australian average of 21.7%, with Dentons Australia named as a WGEA Employer of choice in 2023.

Guidelines issued for businesses considering collaborating with competitors to pursue sustainability goals

Businesses have an important role to play in meeting New Zealand’s climate change and sustainability goals. Switching production techniques to lower emissions or to reduce the impact packaging, distribution or disposal has on the environment can be a costly step; but what if businesses who generally compete, take the leap together?

The Commerce Commission is encouraging lawful collaboration between businesses to achieve sustainability objectives. The Commission has released guidelines setting out the factors it considers when assessing collaboration between competing businesses for sustainability objectives.

The Commerce Act can accommodate collaboration, even where it may adversely affect competition, for example, in certain circumstances where collaboration creates sufficient public benefits which outweigh any competitive harm. Where a collaboration impacts competition, parties can apply to the Commission for an authorisation, (this is also available for collaborations that may involve cartel conduct or may otherwise lessen competition). However, the Commission will not allow the use of sustainability objectives and initiatives as an excuse for collusion, or other anti-competitive behaviour that harms New Zealanders.

Businesses considering collaboration for sustainability purposes should read the guidelines, consider whether collaboration affects competition, and if so, seek legal advice on the Commerce Act, and consider the benefits of collaboration and whether a collaborative activity clearance or authorisation might be appropriate.

We are keen to hear from what you would like to see in future editions. Please click here to complete a short survey to share ESG topics you are interested in reading about throughout 2024.?

This newsletter contains contributions from: Ana Coculescu , Samantha Fowler , Ella Harkness, Hermione Kemp , Katie Morrison , Melissa Tahere

?For further information on ESG, please visit our ESG: Global Solutions Hub where you can find updates from many jurisdictions, including New Zealand or reach out to Partner Nicky McIndoe .