Regulators bark . . . retailers bite over carbon goals

New Zealand businesses that are exporting, or have ambitions to, need to ensure sustainability is embedded in their governance and operations or face being shut out of international markets, now, or in the future. 
 
More than 85 per cent of New Zealand’s exports by value are going to countries with Environmental, Social, Governance (ESG) legislation in place or coming into force that require large businesses to report on sustainability practices. This is rapidly increasing and will impact New Zealand exporters directly, or indirectly, as part of supply chains of these bigger businesses. 

And these pressures are not static either. Pre-Covid, we were seeing the early emergence of consumer premiums for sustainable goods, especially in food, beverage and clothing, and in specific high-value markets (Europe, UK, West Coast US). 
 
However, in a post-Covid, high- inflation environment many of these premiums have dissipated and, instead, sustainability credentials are becoming simply a ticket to doing business. It is now becoming more about market entry, than market premiums. 
 
The speed at which sustainability regulation is coming into force internationally cannot be underestimated. Climate-related disclosures (CRD) are one example. In 2021, no countries regulated CRD. Today, 85 per cent by value of New Zealand’s exports are going to countries with CRD proposed or in force. 
 
That means large companies – usually listed – need to disclose their carbon footprint and to do so they most often need to understand the carbon footprint of their suppliers, which includes many New Zealand exporters. 
 
In the UK and Europe, sustainability regulations go much further, with regulations around modern slavery, deforestation and packaging for larger companies. 
 
In addition, as we heard from KPMG at the NZ Fieldays this year, “Regulators bark, retailers bite”. Big retailers in many cases are mandating a higher standard than most governments. Multinationals, such as Danone, Nestle, Mars, Tesco and McDonald’s, are requiring some suppliers to not only measure their carbon but disclose carbon reduction plans that align with global net-zero carbon goals. 

The so-called ‘Brussels effect’ is also in play. That is, some retailers are applying the European standard to their operations globally, to maintain consistency. McDonald’s, in China for example, is now putting in place requirements for carbon reduction plans from meat and dairy suppliers which includes New Zealand exporters. 
 
During the Prime Minister’s mission to Thailand and the Philippines, we were surprised at how even these countries were expressing sustainability concerns, which were in effect coming from their resident, multinationals applying their own internal standards globally. 
 
And it is not just regulators and retailers getting in on the act, either. Banks, investment houses and pension funds are all expressing higher expectations and standards. So, while the early pressures for sustainability were coming from progressive consumers in high-value markets, the pressure now is from large public and private institutions across many economies. This cannot be ignored. 
 
For directors, this means firstly ensuring your business understands these requirements, then from this understanding building it into the 
strategy for the enterprise. The first pillar of governance best-practice focuses on the board’s role in leading the development of an entity’s purpose and strategy – a director should be asking what role sustainability plays in this. 
 
For many businesses starting on their sustainability journey, it can mean measuring their carbon footprint and reducing emissions. However, the definition of sustainability has evolved and will continue to evolve at pace, too. 
 
It now includes looking at climate change, as well as broader sustainability issues across governance, people and community impact. It is important to embed sustainability across a company and to do that it is essential it is being driven from the board level as well. 
 
And remember the employees within the business. Often, we see a business’ sustainability journey can be a source of inspiration and innovation that supports strong employee engagement and culture. New generations of employees are demanding their employers have got the message. 
 
Against this backdrop, NZTE has leaned into the task. Part of our suite of support for exporters now includes a package of services for those who 
want to get market-ready to meet these sustainability requirements. 

Sustainability can be overwhelming because it is changing quickly and the risk of being called out for not being authentic and greenwashing is increasing. 
 
But with sustainability regulation coming into force at an unprecedented rate internationally, exporters who do not have sustainability foundations in place will find themselves losing business when international regulators, customers and investors ask for proof of action. 
 
The best place to start is where you can have the most impact, while also having the most benefit for your company. Map your business’ biggest social and environmental impacts against what matters most to your key stakeholders – to your customers, employees, suppliers and other investors. 

Key steps

1. Learn about the demands: Look to international markets and consider what regulations are being implemented that might impact partners across your value chain and bottom line. One example is the Carbon Border Adjustment Mechanism (CBAM) that is coming into force in Europe that requires producers of high-carbon imports to prepare quarterly reports detailing emissions. From 2026, businesses captured by CBAM are required 
to pay a carbon tax to cover the carbon cost of the imports. Similar regulations are coming into force in other markets too – currently 40 per cent by value of New Zealand exports are going to countries with CBAM regulations proposed or in force and that percentage is set to increase.

2. Collaboration works: There is a great opportunity for exporters to work together to maintain and grow our reputation as a leader in sustainable business internationally, which will add more value to our export economy than any single business can achieve alone. Learning from and collaborating with other businesses in your industry can be a lifeline. For exporters, NZTE’s 101 Workshops or Business for Good programme provides an opportunity for businesses to learn from others who have prioritised sustainability. For governance support, the Institute of Director’s Chapter Zero content and breakfast panel discussions are a great forum for connecting and learning from other companies.

3. Transparency over perfection: Increasing backlash around greenwashing is leading companies to dial back their voice on sustainability. But consumers 
are not looking for perfection, they are looking for authentic stories. Consumers are looking for acknowledgement from companies that they have a role to play in solving environmental and social issues and are taking transparent and genuine action.

You can look at these sustainability requirements as a risk or an opportunity, or both. On the opportunity side New Zealand as a whole is well-placed, with a good reputation globally. Therefore, it is a short step for companies to legitimately work towards establishing their sustainability credentials as a competitive advantage. But only if we act. 
 
To learn how to be a sustainable business and map your biggest social and environmental impacts, go to my.nzte. govt.nz. For international regulations, visit The Aotearoa Circle’s ‘Protecting New Zealand’s competitive advantage’.