Top 5 issues: 3. Climate as a competitive edge

As international regulations increasingly link market access to sustainable practices, boards that proactively embrace climate- focused strategies can turn compliance into a powerful competitive edge. Tentacles from these international developments and New Zealand’s climate reporting requirements will increasingly reach local companies and organisations. This will mean having to think about and supply emissions and other climate-related information and data. More than just compliance, this will be an opportunity to consider and meet customer and community needs and expectations, and work through ways to improve productivity.

New Zealand led the way with mandatory climate-related disclosures. Other countries have caught up and are responding to the climate change challenge, both with adaptation measures and carbon emissions reductions.

In its May 2024 economic survey, the Organisation for Economic Cooperation and Development (OECD) said New Zealand needs to take a more systematic approach to reducing emissions and adapting to climate change-related extreme weather. This includes further refinement of the Emissions Trading Scheme (ETS), funding and building more resilient infrastructure and a long-term energy strategy. 
 
This is about more than just action by governments. One of New Zealand’s leading chairs observed that it is important to respond to market signals, and, ultimately, the consumer is the regulator. The chair also noted that despite (or perhaps because of) financial pressures on businesses, this is the very time that businesses need to be looking at nature (including in relation to climate change) and moving to protect their businesses from potential loss of entry to markets. 
 
Climate-relate information and data can help identify opportunities for delivering more value to customers/ people being served and demonstrate meeting community expectations. This relies, however, on moving beyond the ‘eyeometer’ – calculating using your eyes – to better quantification and verification of data to support board decision-making. This is consistent with the evolution of global regulations and the expansion of mandatory climate disclosures under frameworks/standards such as the External Reporting Board (XRB) standards.

These requirements support businesses to assess their governance, climate risks and climate opportunities, and build them into their overall strategy. While compliance does bring additional costs, aligning climate initiatives with operational efficiency and meeting stakeholder expectations creates opportunities to stand out and secure market access, locally and internationally.

This is especially significant for New Zealand, where more than 80 per cent of export value is tied to countries with mandatory climate-related disclosures. There are also implications from New Zealand climate-related disclosures, where customers and suppliers will increasingly be asked for emissions and other climate-related data by major businesses (including banks, financial institutions and fund managers) as part of their reporting on Scope 3 emissions (those outside their company) and climate-related risks. 

Why it matters

In this context, the regulatory environment for climate governance, in New Zealand and internationally, is becoming more demanding, making climate strategy a central priority for directors. Domestically, the XRB standards now apply to around 200 large companies and financial institutions to disclose climate risks, scenarios and transition plans, pushing businesses to be more transparent about how they manage their environmental impact.

In parallel, Australia’s regulations are aligning with the International Sustainability Standards Board (ISSB) and extend reporting requirements to large publicly listed and private companies, and large asset holders, such as superannuation entities and funds. For companies with operations in both markets, this alignment creates an opportunity to develop a consistent approach to reporting – one that meets compliance requirements while also crafting a compelling sustainability story. This also opens opportunities to better serve customers and shows how community expectations are being met. 
 
The emerging requirements are not just in Australia. Various types of mandatory climate reporting now extend from Europe and the United Kingdom to Japan, through much of Southeast Asia to China, and into Canada, the US states and the US federal government. Increasingly, these requirements, following the Taskforce for Climate-Related Financial Disclosures   (TCFD framework) and ISSB requirements, will seek emissions and other climate-related information from New Zealand suppliers to companies in these countries. 
 
Given the importance of these countries to New Zealand’s trade, these regulations are more than a compliance burden; they offer a pathway to turning climate action into a strategic advantage. The ETS has recently seen a gradual rise in carbon prices, which could present challenges but also incentivise investment in emissions-reducing technologies that lower costs over the long run. The Climate Change Commission’s advice suggests further price increases are likely, offering a strong reason to invest early in renewable energy and efficiency measures. 
 
The European Union’s Carbon Border Adjustment Mechanism (CBAM) now places tariffs on imports with high embedded emissions, such as concrete and aluminium. However, this challenge also brings a strategic opportunity. Businesses that shift to lower-carbon production can maintain market access and strengthen their competitive position. 
 
Investing in nature-based solutions (NbS) and biodiversity can provide advantages that go beyond compliance. The Government has pointed in this direction in the discussion document for the second emissions reduction plan and its climate strategy. Initiatives such as regenerative agriculture and sustainable land use will not only generate carbon credits but also boost brand reputation.

This is particularly valuable for sectors such as agriculture, forestry and tourism, where healthier local ecosystems can translate into stronger competitive positions and deeper community connections. Directors also play a crucial strategic role in managing how resources are used, such as through efficient water and land management. 

FOCUS	ACTIONS	DISCUSSION
Turning compliance into opportunity	Assess brand reputation with customers and supply chain partners Support management to orient disclosure requirements and questions about climate information from customers and suppliers towards opportunities	How can the board help the company align with climate-related disclosure requirements, such as the XRB standards, in a way that creates a strategic advantage? What steps can the board take to ensure the company’s climate strategy not only meets compliance but also enhances brand reputation and operational efficiency?
Adapting to shifting global markets	Ask for a scan of climate-related reporting and other requirements domestically and from other countries relevant to your business, and an analysis of their impact Add these considerations to board strategy and direction setting	With new trade regulations, such as the EU’s CBAM, how might changes in international markets affect our company’s business? How should the board consider these shifts when looking at the company’s supply chain and production processes, even if the company/organisation is not directly exporting?
Accessing green finance for sustainability goals	In conjunction with achieving a resilient return on capital, consider new ways of lowering the cost of capital linked to climate and other sustainability financial products offered by banks and other funders.	What role could green bonds or sustainability-linked loans play in funding climate-related initiatives?  How could this help us meet financial objectives and environmental commitments?
Embracing nature-based solutions	Explore options for nature-related emissions reductions from the second emissions reduction plan that might support the company/ organisation to respond to climate change	What opportunities exist for integrating nature-based solutions, such as regenerative practices or ecosystem restoration, into the broader climate strategy? How could this approach enhance market position and stakeholder relationships?