New Zealand ESG newsletter - September 2024
Dentons New Zealand
Disrupting the status quo to better serve clients in New Zealand and around the world.
Falling Behind the Forecast: NZ Climate Action Stalls
The past month brought stark reminders of the varied impacts of climate change and the rebuild costs involved. Internationally, floods caused by Storm Boris brought death and destruction in Central Europe with the European Union announcing EUR10 billion in aid to affected member States. The Austrian capital, Vienna, while affected by the storm, remained relatively unscathed having prepared for a 1 in 5000 year flood (Boris caused a 1 in 500 year flood).
In New Zealand, NIWA released detailed local projections of the effects of climate change, predicting among other things that the country is getting hotter faster than previously expected. The information is likely going to influence local decision making, despite the lack of managed retreat legislation, leaving local communities to grapple with the difficult question of who should bear the loss, the affected owners or the community.
These events show the level of mitigation and adaptation work required to minimise climate change effects while preparing communities for its impacts.
Trends in New Zealand indicate it is not keeping up with work on either the mitigation or adaptation fronts. The gap continues to widen between actual emissions, on one hand and, on the other hand, New Zealand’s national emissions budgets and Paris Agreement international obligations (the nationally determined contribution (NDC)).
The budgets are based on all activities in New Zealand, whether or not these activities are covered by the Emissions Trading Scheme. As of July 2024, New Zealand was on track to meet its 2022-2025 budget, however that was less certain for the 2026-2030 budget. With more Government policy announcements that will increase the country’s emissions, or at least not contribute to their reduction, it is unclear whether New Zealand will meet either of the two budgets. Some of the policies includes:
?At the same time, the limited information available for private sector efforts to reduce emissions is not encouraging, suggesting that these efforts are insufficient to make up for the reduced Government action (see here and here).
This trend has broader national and international ramifications. The national emissions budgets are already set at lower levels than the NDC, so not meeting the national budgets means the country will miss its international targets by a larger margin. Each country has the ability to purchase offsets internationally to meet its NDC. Even now New Zealand is already expected to need offsets equivalent to 100 million Mt CO2e, valued on Treasury’s calculations at between NZD$?3-23?billion.
The Climate Minister stated earlier this month that it would be unrealistic for the Government to pay such large sums for projects located overseas. It is unclear if this is an early indication that the Government is considering another course of action (investing in more emission reduction within the country remains a possibility) or is proposing to not meet its Paris obligations. The latter could hinder the country’s economic prosperity. For instance, exports to the EU could be impacted as not meeting the Paris Agreement obligations would be deemed a breach of the EU Free Trade Agreement.
There is an expectation internationally that New Zealand’s next NDC will be more ambitious, as neighbouring Pacific nations remark that New Zealand is not pulling its weight in the region. In the meantime, there are questions raised internationally about New Zealand’s clean and green credentials.
Offshore renewable energy
Cabinet has recently announced key decisions on a proposed regulatory regime for offshore renewable energy development.
The regime, largely consistent with previous consultations, introduces a two-tiered permitting approach: feasibility permits and commercial permits. Feasibility permits, valid for up to seven years, allow developers to conduct necessary studies and secure approvals. Feasibility permit holders will have the exclusive right to apply for a commercial permit, which can last up to 40 years, and grant rights to construct, operate, and maintain projects. There will be no maximum area prescribed in the legislation, rather, the permit area will cover what is "reasonable for the proposed development”. In parallel to these permits (and after a feasibility permit is secured) developers will also be required to secure various environmental and other approvals as mandated by existing legislation.
The plan is for new legislation to be introduced later this year and passed in mid-2025, with a first ‘application round’ for feasibility permits to begin in late 2025, with permits issued in 2026.
This new framework presents significant opportunities for offshore wind developers and investors, and the country as a whole, although it does not address competition with other mutually exclusive activities (such as seabed mining). At the moment, there is a first in, first served regime, with those activities that already have a legislative framework in place (seabed mining) at an advantage compared to offshore renewables whose legislative regime is expected to take 1-2 years to come into force and be operationalised.
You can read more about the prospective offshore renewable energy regulatory framework in our Insight.
Tides turn on local authorities as Wairoa flood review finds council plan and management lacking
The Government has released the findings of an independent review into the Wairoa flooding event which occurred on 26 June 2024. The review identified several factors that contributed to the flooding, including the river backing up and overflowing, which led to a mix of fresh and saltwater inundating low-lying areas of the town.
The Environment Minister stated that “the review highlighted shortcomings around planning and management of the river mouth and bar and recognised the need for greater engagement from the Hawke’s Bay Regional Council with the Wairoa District Council and community on emergency preparedness.”
One of the review’s key recommendations was for the?Hawke’s Bay Regional Council to partner with the Wairoa District Council and the community to develop a Wairoa River Bar Operational Plan to improve monitoring and management of the river mouth and bar.
The review’s findings come just days after a NIWA-led study found that climate change increased the amount of total rainfall during Cyclone Gabrielle by 10%. The additional rain fell during the most intense parts of the storm, which suggests climate change had an amplified effect on the flooding that occurred. NIWA climate scientist Dr Dáithí Stone?stated that “Cyclone Gabrielle resembled some of the worst-case scenarios that we could have predicted for the region. We therefore wanted to see how much climate change influenced its power, so we compared the actual MetService forecast of the storm against forecasts under conditions representative of a climate without human interference. Our study found a significant increase in rainfall under human-influenced conditions”.
This is a reality faced by many councils in New Zealand. Lower Hutt Mayor Campbell Barry has recently been considering what the impacts of a storm like Cyclone Gabrielle would be if it were to hit the region. Lower Hutt is one of the most densely populated floodplains in New Zealand. With a risk that the whole city is flooded if the Hutt River breaks its banks during a storm like Cyclone Gabrielle or the weather event that caused the Wairoa floods, the Hutt City Council and Greater Wellington Regional Council?are jointly leading a plan to purchase and demolish 125 properties along the Hutt River to “retreat” the stop-banks further from the river, towards the central city.
In the absence of a national legal regime that sets out how to divide the costs of strategic retreat from unsafe coastlines, vulnerable floodplains and unstable hillsides, local authorities have to address such matters on a case by case basis using financial resources raised from ratepayers.
The Government has announced that it will progress the natural hazards national direction through a single regulatory instrument to be in place by the middle of 2025. The new national direction is expected to provide direction to councils on how to identify natural hazards, assess the risk they pose now and, in the future, respond through their planning and consenting processes.?Local authorities will be able to have a say during the consultation phase.
Court of Appeal finds four Uber drivers are employees, not contractors
Employees enjoy a suite of statutory minimum employment entitlements that contractors do not have access to, such as the minimum wage, protected hours of work, a right to paid holidays, and rights not to be dismissed. In a landmark decision, the Court of Appeal recently found that four Uber drivers were employees, not contractors.?
?Whilst this decision only applies to the four Uber drivers in question it has significant implications for gig workers, setting a precedent on the broad scope for employment relationships – they could exist whenever individuals choose to undertake short-term app-based work. It also confirms that other more traditional forms of contracting are potentially open to challenge.
?However, the impacts of this decision may be short-lived, as the Government has recently announced its intention to amend the Employment Relations Act 2000 to provide a new legal test to determine whether a worker is a contractor.?
?If the below four criteria are present for a worker, they would be considered a contractor:
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Minister for Workplace Relations and Safety, Brooke van Velden, hopes that these changes will be introduced in 2025.?
Redefining Treaty Principles and Local Government Dynamics?
The Government has continued to push back against perceived judicial overstep with respect to the jurisprudential development of Treaty principles established over the past decades and develop separate legislation covering the Treaty principles. This legislation would address Minister Seymour’s concern that the courts, the Waitangi Tribunal, and the public service had ventured “into an area of political and constitutional importance” when developing Treaty principles, which in his view was Parliament’s job.
The Treaty Principles Bill (to be introduced 18 November 2024) is not expected to place any weight on the years of jurisprudence and debate that have gone into developing the Treaty principles, which have led to “a degree of certainty about what the principles are and how they operate”.
While the Prime Minister has said he will support the Bill through its first reading in Parliament and no further, Cabinet has agreed on three “revised” principles to be included in the Bill:
Given that these “revised” principles are different to what the ACT Party had campaigned for, it appears to suggest that all Coalition partners have had some input into the new text.
In its report on the proposed Treaty Principles Bill and Treaty provisions review, the Waitangi Tribunal found that both the proposed Bill and the proposed review will breach the principles of the Treaty of Waitangi/ te Tiriti of Waitangi and cause prejudice to Māori. Although released prior to Cabinet’s announcements, the Waitangi Tribunal report, Ngā Mātāpono confirmed that the principles proposed by the ACT party are not an interpretation of the existing words and principles of the Treaty / te Tiriti – but rather “new” principles which will “completely change the meaning and effect” of the Treaty / te Tiriti and have “enormous constitutional implications”.
Minister Seymour has stated the Bill will not alter or amend the Treaty itself but will be "used to assist with the interpretation of legislation where Treaty principles would normally be considered relevant, in addition to legislation that refers to Treaty principles directly.” Importantly, it is not just Treaty principles themselves which are under threat, but what is also proposed is for references to Treaty principles to no longer be included in legislation. For example, the Fast-track Approvals Bill makes no reference to the principles of the Treaty / te Tiriti when assessing the proposed application.
Officials and academics have clearly spoken out against the Bill, warning it “calls into question the very purpose of the Treaty and its status in our constitutional arrangements”. The Prime Minister has spoken out about the divisiveness of the Bill, with officials warning the Government about the threat to social cohesion, wherein Māori would suffer the brunt of the impacts of division.
Also making headlines are the recent amendments to the Local Government Act, where councils that established a Māori ward without holding a poll following the 2021 legislative changes will be required to either disestablish their Māori wards or agree to a binding poll (requiring 5% support from voters) at the 2025 local elections. So far, just two of the 45 councils that had installed Māori wards since 2020 have voted to remove them. The 43 councils which voted to support their Māori wards must hold public referendums, with some local councils already seeking information about the implications of refusing to hold a referendum. While many councils believe this referendum to be a waste of money and evidence of central government ignoring local democratic mandates, Minister Brown says this is “the cost of democracy”.
Companies Act Reforms
The Government has signalled its intention to progress a raft of reforms to the Companies Act 1993 (Act), with a view to beginning the project in the first half of 2025. The first phase of reforms aims to reduce compliance costs and complexity, to allow companies and individuals to focus on practices and policies that are important to them.
?Directors and shareholders will no longer be on the Companies Office website, but they will instead be given a unique identifier and the ability to nominate an address for service. This reform should increase the safety of individuals whilst improving transparency and combating crime. The Government has also signalled that New Zealand Business Numbers will be promoted, allowing for all businesses to use a consistent identifying system.
?Other areas that may be undergoing change as part of the wider reforms include:
It is timely that the Companies Act is brought up to speed with the modern environment in which companies are operating in New Zealand so that it effectively utilises available technology.
?In parallel to this phase one work, starting next year, the Law Commission will carry out a review of directors’ duties, liability and enforcement.
The Corporate Governance Amendment Bill is due to be introduced to Parliament in early 2025. You can read more about these upcoming changes in our Insight.
If you would like support in writing a submission or discussing how this Bill may impact you directly, please reach out to your Dentons contact or a Corporate team member.
Transforming Challenges into Opportunities: A new era for infrastructure delivery
Dentons has released a new infrastructure publication titled "Transforming Challenges into Opportunities: A new era of infrastructure delivery". The publication explores the future of New Zealand’s infrastructure sector from a uniquely global view, and a deeply local perspective.
What can you expect to see?
Our hope is that – as a country - we grasp this challenge and take the opportunity to shape a resilient and sustainable future for New Zealand’s infrastructure.
To read the publication click here: Transforming Challenges into Opportunities: A new era of infrastructure delivery
This newsletter contains contributions from: Chlo? Almey, Ana Coculescu, Samantha Fowler, Hermione Kemp, and Harriet Phillips.
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.
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