Magazine article New Zealand Management

Just Good Business : Climate Costs Are Coming A[euro]" Is Your Business Prepared?

Magazine article New Zealand Management

Just Good Business : Climate Costs Are Coming A[euro]" Is Your Business Prepared?

Article excerpt

Byline: Peter Neilson

New Zealand firms seem to be distinctly unprepared for a future where governments, consumers and investors worldwide gang up against carbon emissions and practices which affect the environment.

Analysts say we are now close to a tipping point where climate changea[euro]s importance to business performance and investors will escalate.

A new study of 800 global corporates by Goldman Sachs in May this year says a[euro]the equity market is only just beginning to reflect the magnitude of change that lies aheada[euro].

It is increasingly certain that the world will reach a new agreement at Copenhagen in December to replace the Kyoto treaty, and possibly impose a lower world cap on emissions, and tougher reduction targets as a result.

Emissions trading schemes, to price carbon, are now operating or planned in 59 jurisdictions.

Ita[euro]s a brave investor or manager who has not started factoring in the price of carbon.

Goldman Sachs found 68 percent of the 800 global companies, with a market

cap over US$3 billion, report on their climate-related performance, and 60 percent have established board or senior management responsibility for climate change performance. However, the differences in responses are creating opportunities to lose or establish competitive advantage.

Recent indications make it almost certain New Zealand will keep its emissions trading scheme, even if modified.

Ita[euro]s even more certain our businesses will face a price on carbon, to provide an incentive to cut emissions, adjust to a lower-carbon economy a[euro]" and spur investment in new low-carbon opportunities which actually help solve the issue.

At a carbon cost of US$60/tCO2e, Goldman Sachs found that as much as 10 percent of the total cash flow of listed companies could be transferred from companies with below-average carbon efficiency to those with above-average efficiency.

Some 90 percent of this cashflow transfer a[euro]" from more to less carbon-efficient companies a[euro]" occurs in just a handful of sectors: oil and gas, airlines, other transport, chemicals, mining, steel and aluminium, power utilities and non-power utilities. Goldman Sachs says that given its analysis implies carbon costs may rise significantly higher than US$60/tCO2e, it is clear the impact on industry structures will be significant.

After Copenhagen, expect an accelerated pace of change to be forced on industries. Goldman Sachs says the relatively slow speed with which most organisations are able to redesign operations and reposition their business models will provide a window of competitive advantage to those that have taken early action. …

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