Top ESG risks for boards and management in 2023

20 February 2023

Environmental, social and governance (ESG) risks will continue to rise in importance for boards and management in 2023. The landscape for business is changing rapidly, with a sharp focus on exposure to climate change and extreme weather, biodiversity, and stakeholder and iwi engagement.

We distil the key ESG questions that will be on NZ board agendas in 2023:

1. Climate change: are we ready for climate-related disclosures and closer scrutiny of potential greenwashing?

Top developments to have on your radar:

  • Extreme weather events to start the year have elevated the adaptation conversation, with sharpened focus on physical risk, managed retreat and who will bear the cost of adapting to climate change.
  • The first mandatory climate reporting entities are already "on the clock" for climate disclosures in New Zealand and our reporting standards are now set. Meanwhile, it's been confirmed the International Sustainability Standards Board's global climate disclosures framework will be finalised this year and effective from 2024.
  • The last six months has seen a sharp rise in activist and regulator action on greenwashing, which is set to continue.

2. Regulatory and political landscape: are upcoming ESG changes on our radar?

Top developments to have on your radar:

  • Despite the newly re-focussed regulatory agenda, we still expect progress on agricultural emissions pricing, Emissions Trading Scheme reform, the Energy Strategy, decarbonisation project support, the Climate Change Commission advising (and consulting) on a second Emissions Reduction Plan as well as increased focus on climate through RMA reform.
  • Climate – particularly adaptation and resilience - will be a key focus in the wake of the Auckland floods and impact of Cyclone Gabrielle in the Hawkes Bay, Tairāwhiti and elsewhere.
  • Climate and ESG-related regulation (including disclosures) continues at pace offshore, particularly in the EU, with implications for international-facing New Zealand companies.

3. Nature and biodiversity: are we preparing to assess and manage nature-related risks and opportunities?

Boards will be expected to be across natural and biodiversity risk as an emerging risk topic. The top developments to have on your radar:

  • The World Economic Forum’s 2023 Global Risk Report rates biodiversity loss and ecosystem collapse as one of the fastest deteriorating global risks.
  • The Taskforce on Nature-related Financial Disclosures (TNFD) will finalise its framework late 2023, while a new Global Biodiversity Framework was agreed in late 2022.
  • The long awaited National Policy Statement for Indigenous Biodiversity and wider RMA reforms will increase plan recognition of biodiversity value, with increased expectations that development will avoid or redress impacts.

4. The “S” in ESG: how are we engaging with stakeholders, staff and the rise of shared value?

Top developments to have on your radar:

  • Traditional social sustainability has become more nuanced in a post-COVID era with heightened focus on stakeholders and due diligence.
  • The rise of stakeholder governance translates to expectations of shared value creation for all stakeholders, from employees to community, as well considered, partnership-focussed engagement with mana whenua.
  • An evolving reporting and due diligence landscape requiring greater transparency on human rights, supply chain and modern slavery.

5. Sustainable finance: what will banks and investors expect from businesses in 2023?

Top developments to have on your radar:

  • Banks and investors are facing pressure to meet their own commitments to ESG. Understanding those drivers will help businesses to frame their own funding structures, reporting and other investor relations.
  • The sustainable finance market continues to evolve. While this increases accessibility, it is vital to consider reputation – ambitious targets, robust frameworks, public transparency and independent verification are key considerations.

6. ESG governance: are our board and exec team skillsets and governance arrangements ready for the new ESG environment?

Top developments to have on your radar:

  • Climate reporting requires disclosure of directors’ skills and competency on climate risk management.
  • As a result, we expect upskilling to effectively manage climate and ESG risk to be a key focus for boards in 2023.
  • Organisations are focussed on checking their corporate governance is fit for purpose to respond to these new challenges.

If you would like assistance in preparing your organisation to navigate these changes, please reach out to one of our ESG team. 

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