Turn the heat on directors

The world is drowning or on fire – depending on who you listen to or what you see and believe – but there is no doubt climate action is going backwards.

We have not heeded the warnings or the advice of scientists.

United Nations Secretary-General Antóenio Guterres says the “world is in a race against time and we cannot afford slow movers, fake movers or any form of greenwashing”.

He warns of a climate catastrophe and to avert it “we need bold pledges matched by concrete action”.

And that action needs to start happening in boardrooms, says He Pou a Rangi Climate Change Commission chair Dr Rod Carr CFInstD, who also sits on a United Nations’ high-level expert group on net-zero emissions commitments.

“There is a growing sense of urgency for real action. The United Nations estimates that global emissions in 2021 were the highest on record. We are at a level of emissions that threaten humanity and we still haven’t figured this out yet.

“We have squandered the time scientists gave us. The world needs to urgently and dramatically accelerate progress to reduce absolute levels of emissions of all damaging gases, including biogenic methane, methane from fossil sources, emissions from burning fossil fuels (coal, petrol, gas) in the open air, and releasing intensive warming gases such as chlorofluorocarbons,” says Carr.

New Zealand’s first Emissions Reduction Plan was released in May 2022 and sets out how we will put New Zealand on a pathway to meet the statutory targets by 2050. The government has published the first three emissions budgets up until 2035, falling in step with the worldwide effort to try to keep global warming below 2 degrees Celsius and close to 1.5 degrees in the second half of this century.

“No amount of reduction is too little and no amount of reduction is too soon,” Carr says. “If we read between the lines, the scientists are giving us hope on the one hand, and on the other saying the chances are we are already past 1.5 degrees this century. Some are even betting we are already heading well past 2.”

Carr says there are concerns about net-zero claims which can start with the greatest of integrity, but some of which are just outrageous, citing claims by Shell in 2019 that you can buy net-zero diesel because they planted or even just promised to protect trees in Africa.

“The dissonance of that is enough to alarm you because you cannot plant enough trees to offset the fossil fuels we extract and burn.”

Credibility of offsets

The inequity between people now and over generations to come of offsetting greenhouse gas emissions is becoming a real concern, as well as the robustness of the science, says Carr.

“There is this massive problem of transnational enforcement. If you have bought offsets from a Third World country because they promise they are going to establish a new forest, how do you enforce that?

“The whole credibility of offsets as a way of enhancing the pathway to reduce gross emissions is what is being challenged. The developed world wants to pay an indulgence – to continue to pollute in exchange for money. People don’t want to change their lifestyles or the way they earn their livelihoods.

“The consequence of that is we will not address the cause of climate change. We will not develop low-emissions lifestyles and low-emissions livelihoods. We will simply, for a time, live with the delusion, the veil of virtue, that we are doing something but it is not solving the fundamental problem.

“We need to reduce gross emissions of harmful gasses by adopting much lower emissions lifestyles, by adopting very low emissions energy production, transport, construction techniques and ways of producing food.”

New Zealand has made a commitment to a number of emissions targets, including to be at net-zero for all long-life gasses by 2050 – and beyond.

There are only three certain ways to achieve those targets:

• Reduce gross emissions.
• Sequester carbon from the air through forestry.
• Buying carbon credits or offsets – thereby essentially paying to pollute because the ‘seller’ is doing less polluting.

“The whole conversation for New Zealand is in the context of what is acceptable globally to meet our nationally determined contribution,” says Carr. “If we are to hit the pathways and budgets that have been adopted by the government, we will have to go offshore and buy about a hundred million tonnes of CO2 equivalent this decade.

Carr says New Zealand will need to know that it is a globally accepted standard of credibility and the offsets we buy are additional, permanent, verifiable and enforceable.

 “But it’s not clear where that exists unless we are trading with places like Australia, Europe and California where you have the rule of law, multiple treaties and obligations.”

'Blindingly obvious'

Carr says the reality is “we haven’t figured out a way of getting society on board”, even though it was “so blindingly obvious to the scientists”.

“Maybe we just didn’t explain it well enough, maybe we didn’t say it often enough or loud enough.

“Maybe we weren’t talking to the right people and inaction has led to the drumbeat of activism – ‘we are all drowning, the world is on fire, the end is nigh’ – but behaviourists will tell you there is a real risk in adopting that tone.

“We, as human beings, are really susceptible to discounting low probability, catastrophic events so we just simply look the other way. ‘It’s too big, completely overwhelming and I can’t do anything about it; hand me the chardonnay’.”

So how do we change the thinking and behaviour of leaders and decision-makers?

One way may be by using current constitutional arrangements, securities laws and consumer protection legislation to make directors liable for the consequences of their decisions in a way they are not currently, says Carr.

If countries really want to see action, at least in the private sector, make it a director liability like what happened with securities laws, Carr says.

“There is no director now who will willingly and knowingly, or even recklessly, sign a prospectus to take money from the public. We are all fixed with the knowledge that if you don’t go through a due process, and if you can’t prove that you had a reasonable belief in what you signed off on, you could end up in jail. That solved the problem of puffery and misleading statements.

“Then we figured out with health and safety that the quickest way to make a safer workplace was to threaten to send directors to jail, not just take money off the company, if they did not take all reasonable and practical steps in order to create a safe working environment.

“Now, that is still playing itself out and I don’t know whether we have many directors in jail, but it has certainly brought a chilling atmosphere to discussions about health and safety in the boardroom.”

Careful what you say

Carr says making a statement that your product, service or business is net zero could be as damaging and reckless as saying ‘Trust me, this company is solvent, or trust me this workplace is safe’.

Directors would then be pushed into a position where they would have to make disclosures, prove the disclosures with evidence, and meet standards that would hold up in court.

Carr says this is a reasonable expectation because we don’t yet have the levers to create the sense of pace and scale of change to counter the damage we are doing to the environment.

Consumers are also affecting change, preferring lower-emitting products and services. But it may not be happening fast enough or at scale.

Increasingly, companies are putting net-zero claims in financial documents in order to access green finance. They see the cheaper credit, an abundance of credit they want to claim, therefore they wear their net-zero credentials on their sleeves without necessarily thinking through the consequences of having to prove it in court to a third party.

“Equally, with consumer protection legislation you can’t knowingly and recklessly make misstatements that you could not prove in court about a product’s characteristic,” Carr says.

He stresses his opinions are his own and not reflective of the High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities.

The group is taking submissions from stakeholders and will report its recommendations to the UN Climate Change Conference in November. Two areas are: Governance of Targets: Verification and Transparency; and Pathway to Regulation: Standards and Criteria.

“The United Nations committee hasn’t formed any views yet,” says Carr. “When it reports, it is only an advisory to the secretary-general.

“The desire is to have a report for COP 27 at the end of the year in Egypt. There will then be the question of what all sovereign states take from any advice the UN might be willing to offer on handling net-zero claims in their own jurisdiction, or by those who sell into their jurisdiction.

“It’s not just about New Zealand companies, who make and sell products here, making net-zero claims. The question is what do we do about products and services from overseas sold into New Zealand with net-zero claims. Do we just let them make the claim or do we expect them to be certified and verified and enforceable in some jurisdictions?”

The climate urgency

The United Nations says global emissions must decrease by 45% by 2030, starting now. Or rather yesterday. Climate action is failing.

1

Emissions rebounded to their highest level in history in 2021 and are still rising.

2

Nearly half of humanity is already in the danger zone – and 15 times more likely to die from climate impacts.

3

Major emitting economies are doubling-down on fossil fuels. As UN Secretary-General Antóenio Guterres has said – this is madness. It leaves whole economies at the mercy of geopolitical shocks of the sort we are seeing now.