A New Challenge for Governance: Climate Change Presents Some Serious Governance Challenges for Organisations. in Particular the New Emissions Trading Scheme Will Demand a Governance Response

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NOT only is our Government on the move in reacting to climate change issues, but capital markets around the world are on the move and in fact are moving faster than governments. Climate change is a challenge for governance. How corporates apply an appropriate governance response to the challenge of climate change policy and environmental regulatory intervention will have a major impact on shareholder value.

The New Zealand Emissions Trading Scheme will be established once the Climate Change (Emissions Trading and Renewable Preference) Bill is enacted. It will be the prize environmental regulatory intervention by the Government in its climate change policy. It will be important to have a strategy at the governance level, not only in relation to climate change but also for managing regulatory intervention of every kind.

Emissions trading is an example of the importance of corporate strategic thinking in relation to regulatory intervention. It is not that emission trading is a prime example of regulatory intervention--the Government's price control regime for electricity lines businesses is a better example--but it is key to the Government's climate change policy.

Clearly, Government is intent on lowering New Zealand's carbon footprint and regulatory intervention is on its way. It is fair to say that both the Labour and National Parties policies in this regard are broadly the same. For example, National supports the Government's regulatory emissions trading scheme.

In September 2007 the Government released the framework of New Zealand's Emissions Trading Scheme. In December 2007 the Government introduced The Climate Change (Emissions Trading and Renewable Preference) Bill, a vehicle for the implementation of the Scheme. We will have an emissions trading scheme to reduce all greenhouse gas emissions across all sectors of the economy by 2013. While the Government is by no means a leader internationally in emission trading schemes, it is promoting a world first in that the scheme encompasses all greenhouse gases and all major sectors of the economy.

The Government also released New Zealand's Energy Strategy which champions renewable energy. This contained the following spectacular announcement:

"The Government expects all generators including State Owned Enterprises to take its views into account [that is the Government's clear preference is that all new electricity generation be renewable]. When considering new generation investments, the Government will advise State Owned Enterprises that it expects them to follow this guidance. Currently, there are no powers to regulate or restrict new fossil fuelled generation. The Government will consider regulatory options to reinforce the Government's objectives for limiting new fossil fuelled generation."

The Government is now considering regulatory options to limit new base load fossil fuelled generation over the next few years. The Climate Change Bill will implement a 10-year moratorium on new thermal generation plant unless the Minister of Energy grants an exemption, eg where generation is required for security of supply.

There is no doubt some corporates regard climate change as an opportunity for commercial advantage, as they invest in new business models, capital equipment and brands that are less emission intensive than their competitors. Equally, there is the risk of damage to corporate brands and of change to consumer preferences, making geographical isolation more challenging and posing risks to our primary sector and tourism sectors.

According to a recent McKinsey report, a significant proportion of worldwide executives believe the risks and opportunities provided by climate change are equally balanced.

Retailers have already responded. Tesco plans to spend US$1 billion to reduce the company's carbon footprint and Marks & Spencer is to spend 200 million [pounds sterling] to become carbon neutral. …