Kiwi companies get a lesson in future-proofing
Climate change, international politics and rapid technological advances are now par for the course in company reporting, with many corporates moving towards transparency and socially responsible investments, according to international experts visiting New Zealand.
Speaking at the sold-out, closed-to-the-media Directors Institute of New Zealand conference in Auckland, business experts told more than 500 Kiwi business leaders the new crucial factors for future-proofing their businesses.
Investor Group on Climate Change chief executive Emma Herd and technological forecaster Roger Dennis told Newsroom about the new challenges facing businesses, and how they need to act quickly to address them.
Dennis’s work includes planning after the Christchurch earthquakes, working with Europe’s largest financial companies and some of the biggest multinational think tanks in the Hague and elsewhere.
“I help organisations understand how the world is changing and what that means for an industry or sector, and helps them ask the right strategic questions.
“Businesses need to be aware how these macro trends affect them as they trickle down through the chain.”
He said global politics, technology and climate change were the biggest issues companies needed to consider when planning.
“Each of these separate areas are influencing the other one. In these conditions when they started to combine, what we see if we ask an organisation to think long term it becomes much more difficult than it has been for the last 10 or so years.”
These issues were more relevant to New Zealand than ever, he said.
“New Zealand companies need to look at how they can build resilience, they also need to look at what’s going on at a global level and not think just because we are far away from it some of the issues don’t affect us.
“Boards and executive teams will give these reports once a year for a year, but what research has shown is that companies which have a longer term plan outperform their peers.
“The number of risks at a global level can actually be seen as opportunities and how to take advantage of opportunities and target those risks long term.”
Herd said the threats of climate change have real fiscal realities on doing business in a rapidly changing world.
Some countries, like her native Australia, have had very volatile political conditions around climate change, but New Zealand has moved forward with policies like the emissions scheme, she said.
“Consumers are wanting you to fit in with their values. What’s the minimum level of environmental behaviour that consumers expect?"
However, New Zealand faces unique issues around the agriculture sector, forestry, migration and growth.
“These are very difficult sets of issues, but you can’t just switch off the industry. The question is how are you going to manage and where are the opportunities?”
“It’s increasingly clear that [businesses] have obligations to be understanding in imagining the risks of climate change on their business. [They] need to be working through and thinking what it means for their company and make a plan.”
Herd said it was increasingly popular for companies to include these strategies in their reporting - which were also at the forefront of consumer demands.
“Consumers are wanting you to fit in with their values. What’s the minimum level of environmental behaviour that consumers expect? What’s the bottom line?
“Companies are at all sorts of different points, some will just be trying to not get into any trouble and others will be trying to do something really different.”
Morningstar Australasia Director of Research Ratings, Chris Douglas, said the last six to eight months had shown a “ground swell” toward ESG investments.
That is, those which value the environment, society and have transparent and attractive governance structures.
“It’s definitely something that we have noticed, we have seen quite commonly a lot of investors really pushing for more transparency, more disclosure and more understanding about where their money is being managed, where the investments are and what type of exposures they have in their portfolios.”
Douglas said key areas included climate change, recycling and environmental sustainability; thinking about communities and giving back to charities; and how diverse management structures are - from the diversity of a board and who the key decision-makers are.
“There are a number of papers published within the last six to eight months that show it’s financially advantageous to be thinking about things in this way, it makes good business sense.”
Revelations last year that some KiwiSaver funds were invested in arms companies and the alcohol and tobacco industries had a large impact, said Douglas.
Consumers were driving the industry forward.
“Up until the last 18 month or so there hasn’t really been a great trend for investing this way. We have seen a bit of a groundswell change. Consumers are demanding their KiwiSaver provider or fund manager aligns with their own morals a lot more.”
Despite the positive nature of the changes, some tricky questions were also developing, he said.
“It still is quite a difficult area in regards to really understanding, for example, who is making that judgment call about what is ethical. At the moment they are cutting out tobacco companies, who chooses that it is tobacco? Why not choose alcohol? Why not choose gambling?”