CLIMATE CHANGE - TOWARDS ADAPTATION What's next?

Science-based targets

It is becoming increasingly important for New Zealand businesses to set credible climate change targets.

Targets without a clear and consistent methodology are increasingly at risk of challenge from customers, competitors, regulators or discerning stakeholders. Various regulators have recommended that where ‘net zero’ or ‘carbon neutral’ targets are based on carbon offsetting, that should be transparent and clear. Pledges based on offsetting, in the absence of direct emissions reductions in the business’s own operations, have in some cases been criticised as greenwashing.

So as the market matures and regulators grow increasingly focused on greenwashing, varied approaches can give rise to concern.

The climate-related disclosure standards published by the External Reporting Board (XRB) in December 202228 include a requirement for climate-reporting entities to disclose certain information when describing targets used to manage climate-related risks and opportunities, and their performance against those targets. The required information includes the entity’s view as to how each GHG emissions target contributes to limiting global warming to 1.5 degrees celsius, the basis for that view (including reliance on opinion or methods provided by third parties). It also requires information on the extent to which the target relies on offsets, whether the offsets are verified or certified, and if so, under which schemes.

In such an environment, the rigorous methodology set by the Science Based Targets initiative (SBTi) is likely to hold growing appeal. The SBTi’s target dashboard shows 3166 companies had adopted validated science-based targets internationally as at late July. That includes 21 New Zealand companies that have set targets around emissions reduction consistent with restricting global warming to specific levels – 1.5 degrees by 2030 for example – and had those independently validated by the SBTi. A further 10 have committed to setting a science-based target consistent with the SBTi’s criteria within a two-year period.29

With the first year of mandatory climate risk reporting underway, those figures may soon increase.

Nature-related risks

As climate change begins to bite in the human sphere, it is also casting a long shadow over the world around us.

Looking to the success of the framework developed by the Task Force on Climaterelated Financial Disclosures (TCFD), a new framework is emerging, focused on the natural world.

The Taskforce for Nature-related Financial Disclosures (TNFD) plans to develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks and opportunities.

It points out that more than half of the world’s economic output – US$44 trillion of economic value generation –is moderately or highly dependent on nature.

Drawing heavily on the same playbook as the TCFD, the TNFD is developing a market-led, science-based framework to enable companies and financial institutions to integrate nature into decision making. Like its climate counterpart, the TNFD seeks to provide recommendations and guidance of relevance to investors, banks, insurance companies, corporates and regulators, among others.30 Its ultimate aim is to support a shift in global financial flows away from “nature-negative outcomes” and towards “nature-positive outcomes”.