New Zealand ESG newsletter - July 2024

No gold medal in ESG for the Olympics

Despite being home to the Paris Climate Agreement, the Olympics aren’t winning any golds for ESG. In the face of the International Olympic Committee’s stated mission to “contribute to global sustainability efforts” there is still significant disgruntlement from athletes and spectators alike.

At the beginning of the planning phase, the Paris Organising Committee was called out for making misleading climate neutral, and even positive, claims. It quickly became clear that no Olympic games could be fully compatible with the Paris Climate Agreement “unless their overall operations are fundamentally reformed”. Carbon Market Watch is one entity which is pushing for greater transparency and detail regarding the Olympic Games’ policies around construction, food supply, non-food purchases, transport, and energy consumption. Carbon Market Watch has also pointed out the missed opportunity in setting climate criteria for selecting sponsors.

Athletes are also proving the power of ethical spending as more than 100 Olympic athletes have urged Coca-Cola and PepsiCo to significantly increase the use of reusable packaging and ensure that future Olympics and major sporting events advocate for legally binding targets to increase reuse in national legislation.

The Olympic village was initially designed to use as little energy as possible, using geothermal heating and cooling and passive design strategies like thick insulation and shading, as well as solar powered roofs, which would in theory produce 50 per cent fewer greenhouse gas emissions than standard construction. Further, the aim is to transform this former industrial zone to a sustainable new neighbourhood after the games are over. Despite this, some delegations remain uneasy about relying on a geothermal cooling system and as a result the Olympic village will be fitted with 2,500 temporary cooling units.

Climate Related Financial Disclosure – new guidelines and current struggles

On 19 June, External Reporting Board (XRB) and Financial Markets Authority released a set of guides that aim to help people understand the climate-related disclosures regime and information provided in the climate statements published by climate reporting entities.

The ‘What You Need to Know’ guide includes information on the purpose of climate-related disclosures along with key considerations and context about the information contained in climate statements. The ‘Navigating Climate Statements’ guide provides detailed explanations of the information disclosed, including climate statements, and highlights the importance of topics such as uncertainty, comparability and context when evaluating and judging the information they contain. The guide also confirms that users must make their own judgements and assessments of climate statements and that care should be taken when making comparisons.

Meanwhile, companies are reportedly struggling with the new climate change reporting standards. PricewaterhouseCoopers’ (PwC) analysis of NZX-listed companies?found a larger proportion of reporters mentioned climate change in their financial statements compared to last year. Despite commitments to reduce carbon emissions, most companies reported that there were no material impacts on the financial statements from climate-related matters.

Six companies were the first to comply with the New Zealand Climate Standards (NZCS) by preparing their climate-related disclosures (CRD) issued by the XRB. Among the six companies, three discussed climate-related risks in their financial statements, four addressed the impacts of extreme weather events in 2023, and one company disclosed the use of green finance. PwC noted that developing the capability to produce high-quality CRD alongside annual reports may take time. Despite this, three of the six reporters did not publish their CRD at the same time as their annual reports and instead released a separate statement almost four months after their reporting date.

PwC’s chief risk officer Karen Shires claimed that most of the companies chose to report after the release of their annual reports – which they were entitled to do, showed they were struggling with the new climate reporting standards.

Although disclosures are improving, discussions on financial reporting impacts of climate-related matters remain brief overall. To address the challenges associated with adopting and implementing NZCS, the XRB is taking a phased approach, providing exemptions to certain disclosure requirements in the initial three reporting periods.

A windfall of climate policy

Over the past few months, the Government has made several announcements in relation to climate change.

Firstly, Parliament has asked the Finance and Expenditure Committee to conduct an inquiry into climate adaptation in New Zealand. Climate Change Minister Simon Watts has said that “[an] enduring and long-term approach is needed to provide New Zealanders and the economy with certainty as the climate continues to change”. The purpose of the inquiry is to develop and recommend guiding objectives and principles for the design of a climate adaptation framework for New Zealand. The adaptation framework is intended to:

• set out the Government’s approach to cost-sharing;
• help communities and businesses understand what climate adaptation investment is planned in their area, and what support will be available to help recover from climate-related events;
• improve information sharing; and
• guide decisions before a severe weather event happens, as well as long-term recovery after such an event.

The Committee is due to report back on 5 September 2024.

In addition, earlier this month the Government released a new high level climate strategy,?‘Responding to a Changing Climate’, which sets out its approach to how it will deliver on New Zealand’s climate goals. There are five ‘pillars’ to the strategy, focused on making sure:?

• infrastructure is resilient and communities are well prepared;
• credible markets support the climate transition;
• clean energy is abundant and affordable;
• world-leading climate innovation boosts the economy; and
• nature-based solutions address climate change.

Criticism has been levelled at the three-page strategy, with Labour climate spokesperson Megan Woods?stating that?the strategy was “flimsy and backwards looking”.

A Carbon Capture, Utilisation and Storage (CCUS) framework has also been released by the Government for consultation. The CCUS framework will provide an opportunity for industry to reduce net CO2 emissions from gas use and production, Energy Minister Simeon Brown says.

CCUS involves the extraction and capture of CO2 from industrial activity or directly from the air. It can be most easily extracted from large point sources (such as the emissions from upstream natural gas extraction and production facilities, power generation, or industrial facilities that use fossil fuels or biomass as fuel). The CO2 that gets captured can then be used commercially for things like dry-ice, or used in greenhouses to promote plant growth. Alternatively, the CO2 can be permanently stored in the ground. Minister Brown has said that the proposed CCUS framework is estimated to reduce the country's net CO2 emissions by 4.65 megatonnes over the next two Emission Reduction Plan periods (2026-30 and 2031-35).

Submissions on the CCUS framework are open until 6 August 2024.

LCANZI legal action looms

Climate spokespeople continue to raise concerns over the Government’s commitments to climate legislation in the transport space.

In June 2024, the Government released its final Government Policy Statement on land transport. On 1 July 2024, Lawyers for Climate Action NZ Incorporated (LCANZI) sent an open letter to Climate Change Minister Simon Watts and Minister of Transport Simeon Brown stating they considered it unlawful for the Government’s Policy Statement on Land Transport (GPS) to ignore the first Emissions Reduction Plan. LCANZI continue to put pressure on the Government to adhere to the Emissions Reduction Plan.

Parliamentary Commissioner for the Environment, Simon Upton, also wrote an open letter to the Minister of Transport regarding the now in-effect changes to the Land Transport Act 1998. The changes, passed under urgency, brought forward the ability of the Minister to set emissions targets by three years, replacing those previously set. Although the Commissioner’s suggestions in that letter were not given effect, it demonstrates that the spotlight remains on the Government’s decision-making in environmental matters.

Introducing policy scaffolding to fix the housing crisis?

Housing Minister Chris Bishop has recently announced his plans to “fix the housing crisis,” which he says could benefit New Zealand in three main ways; economically, productively, and ‘morally’. The ‘moral case’ refers to the issue of “intergenerational equity” - an acknowledgement on behalf of the Minister that young people lack opportunity to enter the housing market.

The overarching Government agenda consists of five interlocking actions:

• Going for Housing Growth (GFHG): quickly aims to address the root cause of the housing crisis;
• making it easier for landlords and for tenants by restoring interest deductibility;
• building and construction changes enabling better competition and thus lowering building costs;
• better social housing policy; and
• a reaffirmation of the coalition Government’s continued commitment towards holistic Resource Management Act (‘RMA’) reform.

The GFHG agenda focuses on three core pillars:

• unlocking land for urban development, including the removal of “unnecessary planning barriers”;
• improving infrastructure and financing to support urban growth; and
• providing incentives for communities and councils to support growth.

While details of the second and third pillars will be released over the 2024/2025 period, six key stages have been detailed for the first pillar:

• tier 1 and 2 councils would be required to meet housing growth targets in which live zone feasible development capacity would have to provide for at least 30 years of housing demand at any one time;
• new rules would require cities to be allowed to expand outwards at the urban fringe;
• strengthening of the intensification provisions in the National Policy Statement on Urban Development allowing upward growth;
• new rules allowing mixed use development to be facilitated;
• the abolition of the minimum floor area and balcony requirement; and
• legislating to make the Medium Density Residential Standards optional for councils.

You can read more about the Governments plans for urban growth in our Insight, here.

Civil penalties for privacy breaches

The New Zealand Deputy Privacy Commissioner has recently commented in the Office of the Privacy Commissioner’s Newsletter on 27 June 2024?(Newsletter), on New Zealand’s lack of a civil penalty regime for interferences with the privacy of individuals. The Deputy Privacy Commissioner noted in the Newsletter that New Zealand that “a civil penalty regime is a critical tool missing” from the Office of the Privacy Commissioner’s regulatory toolkit.

We can only speculate on what a potential civil penalty regime may look like in New Zealand, however historic discussions on this topic and recent legislative activity may be hinting at what is to come. For example, the previous Privacy Commissioner, John Edwards, had recommended to the Government that a civil penalty of up to NZ$100,000 for individuals and up to NZ$1 million for public and private sector organisations, for serious breaches should be adopted.

New Zealand’s privacy regime was recently granted ‘adequacy status’ from the European Commission. This status is important to enable the free flow of personal data in support of New Zealand’s international trade agenda. If New Zealand’s privacy regime becomes increasingly misaligned with other jurisdictions we may lose our prized adequacy status thereby significantly increasing the compliance burden on New Zealand businesses processing personal data on behalf of EU-based customers.

You can read more about these updates in our Insight.

Gloriavale granted leave to appeal to the Court of Appeal

Gloriavale is a Christian community that has been engaged in an ongoing dispute as to whether its residents are employees or volunteers. Last year, the Employment Court found that six ex-Gloriavale residents were employees and not volunteers. This meant that the ex-residents would be entitled to employee protections such as minimum wage and holiday pay (see our August 2023 issue of The Employment Echo).

Gloriavale have now been granted leave to appeal their case to the Court of Appeal. The ongoing legal saga has provided important guidance on the distinction between employees and volunteers, and we expect the appeal to do so also – so watch this space.

You can read more employment updates in the July edition of the Employment Echo.

Hold That Thought Podcast: Tackling New Zealand's infrastructure challenges

Our latest Hold That Thought episode tackles New Zealand's infrastructure challenges. Partner Katrina Van Houtte talks with Aurecon New Zealand’s Managing Director Tracey Ryan and Fulton Hogan's CEO Ben Hayward as they dive deep into the heart of infrastructure in New Zealand, exploring the hurdles faced in having a secure pipeline, prioritisation, and the timely execution of critical projects.

In this episode they discuss in detail:

• the impact that constant changing of infrastructure policy and priorities have on the sector;
• opportunities to de-politicise infrastructure development;
• how the current budget addresses infrastructure investments;
• decarbonising infrastructure delivery and how New Zealand can best respond.

Listen via your favourite podcast platform or on our website here.

Subscribe to our podcast to receive updates.

This newsletter contains contributions from: Samantha Fowler, Tayla Gordon O’Meara, Hermione Kemp, Lomalani-sini Pauli Seiuli Ahkam, Harriet Phillips, Josh Pierson, and Monica Sayani.

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.