Being a tidy Kiwi company: Should New Zealand require its companies to report on their environmental impacts?
New Zealand and New Zealanders have a complex and somewhat contradictory relationship with the natural environment. While New Zealanders enjoy their country's significant natural beauty and profit from its “clean, green” image,¹ New Zealand’s per capita greenhouse gas (“GHG”) emissions are near to twice those of the United Kingdom² and the environmental cost of dairying (New Zealand’s highest export earner)³ arguably exceeds the profit made from it.⁴ It is in this context that New Zealand's primary action on climate change is an emissions trading scheme ("ETS") for GHGs that does not include half of its emissions (those that come from agriculture) and would be counted as successful if it reduced emissions only minimally.⁵ New Zealand did not commit to the second commitment period under the Kyoto Protocol⁶ and yet the current National government continues to maintain the stance that New Zealand should be a “fast follower” when it comes to climate change action.⁷ The National government has set the goal of reducing carbon emissions by 50% by 2050⁸ and has said that it seeks to encourage a smooth transition to a low-carbon economy.⁹ While it could be argued that current policies are not encouraging this transition at all,¹⁰ it is an understandable goal given the significant changes that need to take place. Short of strengthening the ETS, an initiative that could assist in this transition would be requiring companies to take into account their environmental impact and (at least for listed companies) to report on their environmental impacts. Disclosure of environmental impact information by companies would be an important step in transitioning to a low-carbon and otherwise environmentally-sustainable economy and society. To do anything about the problems that humanity faces, the environmental impacts of business must be understood. This accounting asymmetry is one of four political asymmetries that Boston and Lempp identify as being influential in the inability of democracies to take action on climate change.¹¹ As they quote:¹² "What we measure affects what we do; and if our measurements are flawed, decisions may be distorted. Choices between promoting GDP and protecting the environment may be false choices, once environmental degradation is appropriately included in our measurement of economic performance." One reason why climate change action is not taken is because current systems are set up to measure financial cost, without taking into account the environmental costs of particular courses of action. As these costs are better understood, the case for climate change (or other environmental) action becomes much stronger. Corporate environmental disclosure and corporate consideration of the environment when making decisions are areas where New Zealand has not been a “fast follower”. New Zealand is not the only country which lacks mandatory corporate environmental reporting; however, other common law countries including the United Kingdom,¹³ Australia,¹⁴ and the United States of America¹⁵ all have some form of mandatory corporate environmental reporting, at least in respect of listed companies.¹⁶ This paper addresses whether New Zealand should introduce a requirement for company directors to consider the environment when making decisions, and, at least for listed companies, require companies to report on their environmental impact. The first section of the paper (Parts II – V) will examine the current relationship between New Zealand companies and the environment, by addressing: (a) law relating to company decision-making, reporting and disclosure, with a particular focus on companies listed with the NZX (Part II); (b) global environmental problems arising from a “business-as-usual” approach (Part III); (c) responses to these environmental challenges in New Zealand’s environmental law and the opportunities for corporate discretion (Part IV); and (d) voluntary responses of New Zealand companies to these issues (Part V). The paper will then consider whether New Zealand should incorporate environmental considerations and environmental reporting into company law. Part VI will discuss the rationale and justification for requiring corporate consideration of the environment and for corporate environmental reporting. Parts VII - IX will critically analyse three options for influencing corporate decision making in relation to the environment and encouraging corporate environmental reporting. Part VII will consider the United Nations Global Compact ("UNGC") and compare it to existing voluntary environmental initiatives in New Zealand. Part VII will also discuss the efficacy of mandatory environmental reporting. Part VIII will analyse the "enlightened shareholder value" provisions in the UK Companies Act 2006 and associated regulation. Part IX will assess a suggested directors’ duty requiring companies to interact with the environment in a sustainable way. Part X will discuss all three options and conclude the paper. ¹ Ministry for the Environment Valuing Our Clean Green Image (Ministry for the Environment, August 2001). ² Tim Herzog, Jonathan Pershing, and Kevin A. Baumert Navigating the Numbers: Greenhouse Gas Data and International Climate Policy (World Resources Institute, 2005) at 22. ³ Statistics New Zealand New Zealand in profile: An overview of New Zealand's people, economy and environment (Statistics New Zealand, February 2014) at 3. ⁴ Kyleisha Foote & Mike Joy "The true cost of milk: Environmental deterioration vs. profit in the New Zealand dairy industry" (paper presented at the 2014 New Zealand Agricultural & Resource Economics Society (Inc.), Nelson, August 2014). ⁵ Alastair Cameron "New Zealand Emissions Trading Scheme" in Alastair Cameron (ed) Climate Change Law and Policy in New Zealand (LexisNexis NZ Ltd, Wellington, 2011) 239 at 244 – 245. ⁶ Ministry for the Environment "United Nations Framework Convention on Climate Change" www.mfe.govt.nz. ⁷ ONE News "John Key defends Kyoto decision" (12 November 2012 ) http://tvnz.co.nz. ⁸ "The Climate Change Response (2050 Emissions Target) Notice 2011" (31 March 2011) 41 New Zealand Gazette 987. ⁹ Office of the Minister for Climate Change Issues "Emissions Trading Scheme Review 2012 – final decisions on amendments to the Climate Change Response Act 2002". ¹⁰ Jessika Luth Richter and Lizzie Chambers "Reflections and Outlook for the New Zealand ETS: must uncertain times mean uncertain measures?" (2014) 10 Policy Quarterly 57 at 63. ¹¹ Jonathan Boston and Frieder Lempp "Climate change: Explaining and solving the mismatch between scientific inertia and political inertia" (2011) 24 AAAJ 1001 at 1002. ¹² At 1006. ¹³ Companies Act 2006 (UK), s 414C. ¹⁴ ASX Corporate Governance Council Corporate Governance Principles and Recommendations (3rd ed, 2014), cl 7.4; Corporations Act 2001 (Cth), s299(1)(f). ¹⁵ Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745. ¹⁶ Companies listed on a relevant stock exchange.