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Gov and business need heart-to-heart talk on sustainability

In the 2014 Deloitte-BusinessNZ Election Survey, 35% of businesses identified “investment, innovation and sustainability” as the most important of six broad areas for achieving economic growth. This is up from 26% in the 2011 survey and 20% in 2008.

What is driving this elevation of investment, innovation and sustainability in the minds of business?  And to what extent does this relate to business sustainability as distinct from investment and innovation?  

Regardless of what’s behind the results, it is encouraging to see businesses starting to recognise the importance of sustainability issues. And it is heartening to see a desire among businesses to engage with government on the hard conversations that need to be had. But, this increasing focus on business sustainability from previous election years shouldn’t be surprising given the importance of the primary sector, particularly food products, to the New Zealand economy.  

Why is sustainability important for business?

When asked why sustainability issues are important for their business, the most popular responses were customer expectations (64%) and reputation (62%) followed by competitiveness (43%). There have been several high profile cases in recent years that have shown how much damage isolated environmental or supply chain issues can have on a company’s reputation in the market, likely contributing to this increased awareness. 

Also, it is increasingly important to investors to have transparent, focussed and quality information about how companies manage the risks and opportunities associated with broader environmental and social impacts.

The level of funds invested in ethical and environmentally responsible companies is growing rapidly as institutional investors recognise the benefits of this wider approach to risk and longer term approach to maintaining and creating value.

Sustainability efforts need to be led by business if they are going to be effective but it is also important that government plays it part. 

What government should do to support sustainable business practice

When business was asked what government should do to support sustainable business practice the top responses were to provide incentives for cleaner production and resource efficiency (54%) and to build stronger links between regional economies, services and products (51%).  But business also thought government could help through supporting business initiatives to increase diversity in the workplace (39%) and engage more with business on how to transition to a low carbon economy (34%).

For their part, all of the political parties except the Act Party seem to indicate a desire to work with business, albeit some to a greater degree than others, on issues of sustainability.  The Green Party and Labour Party indicate a greater hands-on approach through the Climate Tax Cut policy (Green) and the establishment of benchmarks and standards within government (Labour).  While National and United Future talk more about flexibility to balance New Zealand’s fair contribution to global efforts (National) and taking care not to overly burden business (United Future).

Only a small proportion of businesses (13%) thought government should require higher standards of reporting.  However, New Zealand lags far behind the rest of the world when it comes to corporate reporting on sustainability issues, in particular for listed companies. Although elsewhere it tends to be the stock exchanges that are setting the requirements for increased disclosures, rather than in law.

Unsurprisingly only 11% thought that government should regulate more to support sustainable business practice. In our view, however, there is a place for setting minimum standards, both to provide more clarity for business and also to reduce free-riding. 

More consistent regulatory environment

A more consistent regulatory environment would provide much needed certainty, something that, according to the results of the survey, the Resource Management Act (RMA) is not delivering for business.  36% of businesses think that the RMA is fundamentally broken and only 6% think it is working. The remainder think it can be salvaged if certain changes are made.

In New Zealand, where companies trade not only on their own good name but also on our national clean green image, everyone needs to do their fair share to protect this legacy for future generations. Certainly, there is a preference among businesses for government to incentivise more than regulate sustainable business practice.  But there is also recognition that business and government need to work better together and over the longer term to achieve meaningful change. 

Jackie Robertson is an assurance partner at Deloitte New Zealand who specialises in sustainability and corporate responsibility reporting, governance and strategy.

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