ESG musings June 2024

Written by Corinne McLean and Prue Tyler

SHIFT is increasingly involved in content that falls within the “ESG” space, as our clients’ needs and the world around us evolves and demands better practices, and we have a growing number of potential consultants with experience in the area.

This article covers one fascinating topic from the E, the S and the G in the last quarter, starting with a broad international topic for the E, focusing on developments in New Zealand on key S areas and working our way to our recent SHIFT event for the G.

E: On 21 May 2024 a long-awaited advisory opinion was delivered by the International Tribunal for the Law of the Sea (ITLOS) relating to GHG emissions.

A core part of the Tribunal’s opinion was that the definition of “pollution of the marine environment” which United Nations Convention on the Law of the Sea (UNCLOS) applies to, includes anthropogenic GHG emissions into the atmosphere, meaning that State Parties have obligations in relation to GHG emissions alongside other marine pollutants. The oceans absorb significant amounts of heat and also carbon dioxide, which dissolves in the ocean’s surface water. This has provided a great service to the atmosphere in limiting the impacts of GHG emissions for some time, but the ocean does not have unlimited absorptive capacity and the role causes chemical damage – ocean acidification, sea level rise and harm to the marine environment.

UNCLOS came into force in 1994. 166 countries and the European Union had joined the Convention in 1995 and New Zealand ratified it in 1996. There are now 168 State Parties, and it is considered that UNCLOS has parallel obligations under international customary law.

The Tribunal’s opinion stated that: “States Parties to the Convention have the specific obligations to take all necessary measures to prevent, reduce and control marine pollution from anthropogenic GHG emissions and to endeavour to harmonize their policies in this connection” (para. 243) and that “all necessary measures” requires, amongst other factors, taking into account the best available science. A stringent due diligence system needs to be in place to regulate polluting activities “given the high risks of serious and irreversible harm to the marine environment” (para. 399)[1].

There are so many areas of interest within this opinion – from confirming that obligations under UNCLOS are in addition to those under the Paris Agreement, to the strong role of scientific sources, reports and principles in the opinion. The opinion was sought by the Commission of Small Island States on Climate Change and International Law (COSIS), whose membership is disproportionately affected by the impact of climate change and includes many of Aotearoa’s Pacific neighbours such as Tuvalu, the state of which is extremely perilous. Tuvalu’s low lying atolls are at risk of being entirely depopulated due to climate change so it is seeking arrangements to relocate its population to Australia and New Zealand and could gain the tragic accolade of being the world’s first country to upload itself to the metaverse.

Looking to the future, the opinion could support decisions relating to state responsibility. One of the next major cases is the UN General Assembly’s request to the International Court of Justice to render an opinion on questions including:

“What are the legal consequences under these obligations for States where they, by their acts and omissions, have caused significant harm to the climate system and other parts of the environment” [2]

For further discussion of the ITLOS’ advisory opinion – see Cli mate Law Blog – (columbia.edu).

S: Moving to the ‘S’ and a more domestic focus, the human rights record of Aotearoa New Zealand was under the spotlight at the fourth Universal Periodic Review Working Group at United Nations Human Rights Council’s meeting in Geneva on Monday, 29 April 2024.

A number of countries raised the issue of forced labour or modern slavery and the lack of modern slavery legislation in Aotearoa New Zealand. Over 100 local companies requested such legislation in 2022, including well-known names such as Barkers, Coca-Cola NZ, Countdown, Fix and Fogg, Icebreaker, PWC and The Warehouse and draft modern slavery legislation commenced in 2023 (see discussion: shiftadvisory.co.nz/combatting-modern-slavery). It was expected to receive cross-party support but has stalled. More recently in February 2024, investors with $295billion under management, spearheaded by Mint Asset Management, repeated this call for legislation in an open letter to the Government. However, progress on legislation commenced in 2023 has stalled, with Minister in charge, Brooke van Velden, stating that her priority is “to make sure New Zealand businesses have a lower level of complexity” (read more).  However, businesses with a presence in Australia are already having to report on modern slavery as New Zealand ‘branches’ are caught inadvertently by the Australian legislation, or are responding to stakeholder requests on this issue, so are experiencing complexity already.

Mandatory gender pay gap reporting was also announced in August 2023, and earlier this month, Acting Minister for Women Hon Louise Upton announced that the Ministry For Women will work with business leaders to develop and agree on an easy to use voluntary calculation tool, so businesses will have access to the same measurement components to calculate their pay gaps.

Consistent with our passion for DEI, SHIFT was delighted to work with Cogo to prepare a report for INFINZ based on interviews with stakeholders in the finance sector to consider the barriers to great female representation in senior roles in the finance industry, and barriers to Māori involvement in the industry. There is a webinar on 2 July at 11am giving an overview of the outputs and the report will be published thereafter. It was fantastic to work with Cogo and INFINZ on this report: it is an amazing first step and we are excited to see what actions lie ahead.

Empower Women hosted a Breakfast on the topic of shifting the dial for women, on 9 May. We were honoured to hear from Dellwyn Stuart of Mind the Gap, Stephanie Pow of Crayon and Emma McLean.

These three incredible women – are doing important work with corporates and the wider community:

Emma McLean, tackling the motherhood penalty, with amazing return to work programmes;
Stephanie Pow of Crayon driving the equally essential parental leave register, and now offering a parental leave toolkit; and
Dellwyn Stuart of Mind the Gap advocating for measuring pay gaps, as a means of shining a light on pay gaps and thus being motivated to reduce them.

G: Finally, climate risk governance remains firmly in the minds of clients. The first year of mandatory climate-related disclosures has focused the attention of many boards and executives and with the challenging second year of reporting looming, many are recognizing the need to further embed climate risk governance and work towards a steady cadence in the years to come.

We hosted a fantastic webinar on 17 June, on the topic of Climate Governance: embedding beyond the first year of disclosure. We heard from Dr Saskia Besier, Becky Lloyd and Charlotte McLoughlin covering a regulatory perspective, views from a board and corporate perspective as well as hands-on practical pointers on generating disclosures. Some wise words to conclude were acknowledging the immense progress many have made so far, keeping an eye on the objectives of the disclosures and upskilling while on the glide path of the FMA approach to supervision.