New Zealand ESG newsletter - July 2023
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Welcome to the New Zealand ESG newsletter, a monthly newsletter focusing on ESG legal updates and trends from New Zealand prepared by Dentons Kensington Swan.
Biodiversity gets enhanced protection and a possible biodiversity credits scheme
The?National Policy Statement for Indigenous Biodiversity 2023 ?(NPS) was gazetted on 7 July 2023, and comes into force on 4 August 2023. The overall objective of the new NPS is to maintain indigenous biodiversity across Aotearoa New Zealand so that there is no overall loss in indigenous biodiversity after the commencement date. To achieve this, adverse effects on significant natural areas must be avoided in RMA decision making unless one of a handful of exceptions applies (e.g. for infrastructure, mining and forestry). You can read about these developments in more detail here .
The Government is separately proposing a new system for biodiversity credits, which could complement the NPS by recognising landholders who protect and restore nature. In essence, the proposed system would allow landowners to earn biodiversity credits for protecting, restoring and enhancing native ecosystems. Private companies (for instance, project developers) could buy those credits to be able to claim a positive impact. Consultation is open until 3 November 2023, with discussion documents available here .?
Carbon reduction in New Zealand
New Zealand is not tracking very well on its carbon reduction path. Based on New Zealand’s achievements to date, Climate tracker ’s rating that the country’s climate commitments as highly insufficient seem correct. The Government’s own report on the progress of New Zealand’s first Emissions Reduction Plan is not positive. While agencies reported implementation was on-track for most actions, the report also highlighted that meeting the first two emissions budgets (up to 2030) was not looking great. This is not surprising, given that this year alone Ministers were told the greenhouse emissions impacts of the climate spend in Budget 2023 would be minimal.
There is little practical support coming from the general public. A new survey shows that New Zealanders generally did not understand how to take individual action to fight climate change, and overestimated the impact of their eco-friendly actions. Recycling rated highest when it has little impact on climate change, while other options (buying less or living car free) that would make more of an impact, rated much lower.
The newly signed trade agreement with the European Union may provide a timely reminder of the need to meet New Zealand’s international commitments. The trade agreement with the European Union (EU) is among the first of the EU’s inter-governmental efforts to ensure countries meet their international environmental and labour obligations, containing an entire chapter on ESG obligations – ranging from women’s rights, employment obligations and international environmental obligations like the ones under the Paris Agreement. Both parties can bring disputes under the agreement if these obligations are not met.
Another timely piece of news from within New Zealand, came in the form of a High Court decision . In December 2022, the Climate Change Commission recommended changes to the price settings in the New Zealand Emissions Trading Scheme to create a two tiered cost containment reserve (CCR) with higher thresholds, and limit the number of available New Zealand Units (NZUs) if the CCR thresholds were met. This would have made it more costly to pollute. Cabinet overrode those recommendations due to a concern they would impact on the cost of living, and resolved to maintain the existing settings. Since that decision, the price of NZUs had been in freefall.
In an action brought by Lawyers for Climate Action , the Minister for Climate Change acknowledged that it had made the decision unlawfully. The High Court ordered that the December 2022 decision on price settings be made again by the Minister before the election. On this news, carbon markets rallied with the NZU price increasing to $47 at the time of writing.
E-product stewardship scheme released
A regulated e-product stewardship scheme may be coming to New Zealand around 2025, another step in the transition to a circular economy . Product stewardship is where producers, brand owners, importers, retailers, or consumers participate in an accredited product stewardship scheme which reduces the harm caused by products at end-of-life and supports the recovery of raw materials that are normally lost when these products become waste.
TechCollect NZ (a not-for-profit organisation) has published recommendations for a regulated product stewardship scheme for e-products, aimed at sustainably managing the disposal of unwanted and end-of-life electrical and electronic products. The scheme seeks to “level the playing field” by ensuring those involved in the design, production, and sale of e-waste contribute to the recovery, re-use, and recycling or disposal of e-waste.
The proposal is for liable parties, such as manufacturers, importers, distributors, to register and self-report data on in-scope e-products that they have imported or manufactured and placed on the market. After this data is verified, scheme fees will be calculated and assigned to liable parties. Once an e-product is broken, the e-product owner can decide to dispose of the e-product at a designated scheme collection site or service.
The earliest the scheme is expected to be in place is 2025, following consultation on regulations in 2024.?
Penalties for fair dealing contraventions
The Financial Markets Authority (FMA) is sharpening its focus on greenwashing as well as the manner in which integrated financial products are promoted – ‘integrated financial products’ are the FMA’s label for ESG or Socially Responsible Investing (SRI) products, which have an environmental or social responsibility focus.
For all offerors of financial products and providers of financial services, a key aspect of the Financial Markets Conduct Act 2013 is the fair dealing obligations which prohibit misleading or deceptive conduct, false or misleading representations, and unsubstantiated representations. Recent enforcement action by the FMA regarding false and misleading representations by banks and insurers shows that the FMA is more readily seeking for pecuniary penalties to be imposed by the courts in respect of fair dealing breaches. Although the FMA, to date, has not taken any enforcement action in relation to greenwashing, it has extensive powers to do so if and when it chooses to exercise those powers.
Our Fact Sheet sets out more information on fair dealing contraventions and the calculation of pecuniary penalties.
The Government issued a National Policy Statement and a National Environmental Standard on industrial process heat in late June 2023. The aim is to achieve a nationally consistent approach to managing and reducing greenhouse gas emissions from industrial process heat. The new requirements will apply to industrial process heat, but not to burning fossil fuels to generate electricity or heating for people’s comfort.
Process heat makes up 33 percent of New Zealand’s overall energy use, with more than half of process heat being supplied by gas or coal. Examples of process heat include converting milk into powder, wood pulp into paper, or producing metals and chemicals.
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Both instruments come into force on 27 July 2023, with the Energy Efficiency and Conservation Authority expected to produce further guidance. For more details about these developments, see our discussion here .?
Make sure you don’t cut yourself with the double edged AI sword
ChatGPT and AI get mentioned in almost every conversation nowadays, usually with dystopian undertones. The potent capabilities of ChatGPT offer remarkable productivity opportunities. However, like all emerging technologies, it also comes bearing dangerous gifts. From an ESG governance perspective, organisations need to be acutely aware of potential risks and consequences from privacy, cybersecurity, and accuracy perspectives.
OpenAI, who developed ChatGPT, collects a broad swathe of user information. This raises the distinct possibility of private and confidential information – for which users are responsible – finding its way into the wrong hands. Using this technology means potentially putting customer, client, and even confidential company data into the public arena. When you ask ChatGPT questions or it performs tasks, any information you input is indexed for future use.
Security researchers have?demonstrated that cybercriminals?want to leverage ?ChatGPT’s writing and code-correcting abilities to craft sophisticated attacks, that are more difficult to detect. They can generate unique variations of phishing emails, making them harder to detect automatically, and even incorporate fictitious email threads to make them more convincing. Not only that, they are able to use reverse prompt engineering and prompt injection techniques to dig up prompts users have given to ChatGPT.
ChatGPT’s knowledge is based on data up until 2021, which can limit its accuracy or lead to outdated responses. OpenAI has?acknowledged this issue ?and the AI’s tendency to create “hallucinations” or plausible but incorrect answers. Given how important accuracy and transparency is when dealing with greenwashing claims, ChatGPT is likely not the most reliable source of information for ESG statements.
It is important to note and continue to remember that these technologies are developed and driven by user interaction and, therefore, can be influenced by arbitrary societal dynamics, creating false truths, disinformation, or at the very least, misinformation based on those who contribute to the data banks. These biases can impact outcomes, decisions and actions with significant consequences. For a more detailed discussion, see here .?
Some progress on diversity and inclusion in the workplace
Women’s participation in the workplace is increasing across New Zealand, albeit slowly.
Champions for Change , an organisation of over 80 leading CEOs and chairs of top companies, are warning that business leaders will fall behind and become disconnected if they are not taking steps to prioritise diversity, equity, and inclusion immediately. The data shows very slow improvement in numbers of, for example, women on boards. The risk is that businesses will flounder if they are not creating work environments, business models, and policies that are attractive to our rapidly changing demographic. CEO of Champions for Change, Antonia Watson, warns that businesses cannot rely on what has worked for them in the past or even what is working for them now. The focus should instead be on the future workforce: who are they, what do they value, and how can businesses inspire and enable them to reach their potential?
New Zealand’s latest country report to the United Nations under the Convention on the Elimination of All Forms of Discrimination Against Women notes progress in women’s educational attainment, labour force participation, and support for women to take on paid work. This is largely due to Te Mahere Whai Mahi Wāhine Women’s Employment Action Plan which focueses on building a better employment future for wāhine Māori, Pacific women, young and older women, disabled women, and women who are former refugees and recent migrants, and the Rainbow communtiy. The Government restated its committment to addressing inequities faced by these communities.
Fore more updates on employment matters, please see our monthly employment newsletter – The Employment Echo .
EVENT: Climate Litigation: what does it mean for directors? A Chapter Zero New Zealand focus breakfast
We hope you can join us on Friday 11 August, in our Wellington Office for the Chapter Zero NZ focus breakfast, discussing the emerging risks of climate litigation internationally and the implications for boards in New Zealand.
The event will be moderated by Partner and Chair of Dentons Kensington Swan, Hayden Wilson , who will be joined by panellists:
For more details about the event and to book your spot, visit the Chapter Zero website .
Chapter Zero NZ Supporters will receive a 50% discount for this event (use the code SUPPORTER11AUG). It is free to become a Supporter, join now .
This newsletter contains contributions from: Liam Bullen , Ana Coculescu , Samantha Fowler , Güne? Haksever , Gina Hopkinson , Anastasia Mishchenko, Mark Schroder.?
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 .?
Solicitor at Hesketh Henry
1 年Great insights Gina Hopkinson and Samantha Fowler!!!!