Accelerating business investment for a competitive future

Climate change represents one of the most pressing challenges of our time, but it also offers significant opportunities for businesses willing to adapt and innovate.

One of the IoD’s Top 5 issues for 2025 is climate as a competitive edge. Accelerating investments in climate change mitigation and adaptation is not only a means of safeguarding operations, but also a chance to contribute to a sustainable future, drive long-term value creation, access markets and create (or maintain) a competitive advantage.

The New Zealand Institute of Economic Research’s (NZIER) latest Insight makes the case for accelerating business investment in climate change mitigation and adaptation and outlines the leadership and vision required to put businesses on a more climate-resilient path.

Businesses face a range of risks associated with climate change, broadly categorised into physical, business, and investment risks. On the physical side, the impacts of rising sea levels, shifts in climatic zones, and extreme weather events such as floods and wildfires threaten infrastructure, supply chains and operational continuity. These risks are compounded by economic and regulatory uncertainties. As governments and industries respond to the climate crisis, businesses must grapple with shifting consumer preferences, rising compliance costs and mounting pressure from stakeholders for more sustainable practices.

The investment risks can be equally daunting. The transition to a low-carbon economy requires substantial capital. As with all investments, one of the challenges is demonstrating the return from that investment.

In the 2024 Director Sentiment Survey, short-term financial pressures were dominating boardroom discussions, with fewer than half of directors engaged and proactive on climate change (41.6%). Short-termism continues to be a key challenge for investment lifecycles that require a return on investment, and organisations may need to consider new mechanisms to demonstrate the return from that investment, particularly where there is uncertainty about the scale and timing of the return. While any action taken to adapt, mitigate or transition to a low-carbon, climate-resilient economy comes at a cost, the costs of delayed action or inaction are escalating.

Complicating matters further is the free-rider dilemma, where the benefits of climate investments are widely shared while the costs are concentrated on a few, creating hesitation among potential investors. Nonetheless, these risks, if managed effectively, can open the door to transformative opportunities.

Despite the challenges, climate action offers a wealth of opportunities for businesses willing to lead. The transition to cleaner energy, for example, has created demand for investments in renewable energy infrastructure, resilient supply chains and innovative nature-based solutions such as carbon farming and biodiversity credits. These initiatives not only mitigate environmental risks but also create new revenue streams and enhance brand reputation.

In New Zealand, businesses are particularly well-positioned to capitalise on sustainable agriculture and renewable energy. As global markets increasingly favour low-carbon products, New Zealand’s expertise in these sectors can unlock export opportunities and reinforce our international reputation as a leader in sustainability. Additionally, the adoption of nature-based solutions – projects that restore ecosystems while delivering economic benefits – offer a practical way to align business goals with environmental stewardship.

The pivotal role of directors in navigating these risks and opportunities cannot be overstated. As stewards of an organisation’s long-term strategy, directors must ensure that climate considerations are integrated into governance structures and decision-making processes. This involves more than just recognising the risks; it requires actively leading the charge in embedding climate resilience into business operations.

A key responsibility of directors is to assess and communicate the implications of climate change to stakeholders including shareholders, employees and supply chain partners. By fostering transparency, directors can build trust and galvanise support for necessary investments. This communication also extends to demonstrating how climate-related initiatives align with the company’s broader strategic goals and values, enhancing both internal and external engagement.

Directors are also uniquely positioned to champion innovation within their organisations. Investments in emerging technologies and sustainable practices can yield significant competitive advantages. For instance, adopting energy-efficient processes or diversifying supply chains to include lower-carbon alternatives can position businesses as leaders in their industries while reducing exposure to regulatory and reputational risks.

Collaboration is another critical aspect of a director’s role. By working with industry associations and other stakeholders, directors can help overcome common barriers to climate investment, such as limited resources and decision paralysis, especially at small and medium enterprises. Industry-wide initiatives can provide the research, tools and frameworks necessary to enable businesses to make informed decisions about climate risks and opportunities.

Considerations for directors

As businesses confront the realities of climate change, directors must rise to the challenge and take decisive action. Key considerations for directors include:

• • Embed climate leadership: Ensure climate risks and opportunities are integral to governance and strategy, and advocate for sustainable practices across all levels of the organisation
  • Invest in climate action: Investigate mitigation investments that reduce risk and adaptation investments that strategically reposition the organisation and/or prepare the organisation for a climate-changed future
  • Develop robust risk assessments: Equip businesses with the tools and frameworks needed to evaluate climate risks and opportunities systematically, ensuring decisions are grounded in evidence
  • Enable innovation and collaboration: Invest in innovative solutions and foster collaboration within and beyond the organisation to overcome common barriers and amplify impact
  • Prioritise transparency: Communicate clearly and consistently with stakeholders about climate strategies, risks, and progress to build trust and engagement
  • Champion nature-based solutions: Support initiatives that align business goals with ecosystem restoration, delivering environmental, social, and economic benefits

By prioritising these actions, directors can position their organisations to not only navigate the complexities of climate change but also to seize the opportunities it presents. With visionary leadership and a commitment to sustainability, businesses can turn today’s challenges into long-term competitive advantages, contributing to a more resilient and prosperous future for all.