Friday, November 17, 2006

Government snubs Carbon Disclosure Project

Back in September, I blogged about the release of the latest Carbon Disclosure Project - an attempt by major institutional investors to get major companies to disclose information about their greenhouse gas emissions, the risks they faced from climate change, and what steps they were taking to manage those risks and keep their shareholder's money safe. At the time, I noted that New Zealand companies didn't want to talk about climate change - very few had bothered to respond, and only one had made their response public. Also surprising was the fact that government-owned companies such as Air New Zealand had refused to participate, and that the New Zealand Superannuation Fund was not on the list of signatories, and was not using its weight in the New Zealand market to encourage greater disclosure (if only for its own purposes).

So, I wrote to Michael Cullen asking him to use his power as shareholding Minister in Air New Zealand to force that company to participate in future, and to direct the Cullen Fund to sign up for the CDP. Both of these would help send a message to the market that climate change mattered, and that it would affect investment decisions. Today, I received his response:

Thankyou for your letter of 20 September 2006 about the Carbon Disclosure Project (CDP). I appreciate you bringing this initiative to my attention. I agree that the responses of public companies, especially large emitters, to the challenges of addressing climate change will be of increasing importance to many investors. The CDP is anticipating this trend, and I welcome the initiative.

You suggest that I should issue a direction to Air New Zealand and the Guardians of the New Zealand Superannuation Fund to take part in the CDP. I am reluctant to give such directions. The government has important roles in promulgating an increased awareness of climate change in New Zealand, and in developing clear and sustainable climate change policies. Companies and investors that operate in New Zealand should be able to make investment and production decisions that take account of such policies. You will be aware that the government is in the process of consulting the public on refinements and enhancements to New Zealand's climate change policy.

Some companies and investors will be attracted to the information that can be generated through the CDP. However, I would prefer to leave decisions about whether and when companies should participate in such a scheme to the companies themselves. They are best placed to assess the net benefits of such participation. If more transparent disclosure of carbon information proves to be important in attracting capital, no doubt that will be a factor in those decisions.

So, in short, he recognises that the CDP is a valuable exercise in helping investors make long-term decisions, but he is unwilling to use the government's power as an investor either to encourage this trend, or to help ensure our money is kept safe. Instead, he seems to think the market will just magically sort the whole problem out, without any need for the government to show any leadership.

Sometimes, I really do despair...


One day we might elect a Labour government...

Posted by Rich : 11/17/2006 04:18:00 PM

I'm uncomfortable with the Government doing that; while in this case it might be fairly benign, the principle of non-interference is pretty strongly ingrained and it would take a lot more than this to upset it. A legislative solution would even be preferable.

Posted by Anonymous : 11/17/2006 05:17:00 PM

It is better to legislate everyone has to do it than just government companies.
it is a bad option to marginally disadvantage government assets in a competitive market.

Posted by Genius : 11/17/2006 06:02:00 PM

"Sometimes, I really do despair..."

That'd be how Air NZ workers feel too right about now. Well over the last year plus actually.

Do you think someone should tip off Gore? Maybe he could rescind his "tremendous"?

Posted by Span : 11/17/2006 06:45:00 PM

The really strange part of that response is the 'refinements and enhancements to NZ's climate change policy'. What policy?

Posted by Anonymous : 11/17/2006 07:50:00 PM

And what else did you expect! They are all wind and nothing else! All this posturing on Climate change is nothing more than that - Posturing! Perhaps Meridian might consider a wind farm on on Lambton Quay! I have been investigating Carbon credits for the wetlands and native reserve I have been developing I have to offer up 50 hectares before anything is considered! Its all a shame and only for those already with large amounts of money. There is no incentive for anyone to act on their own initiative.

Posted by Anonymous : 11/17/2006 08:30:00 PM

Sometimes I wonder why we bother owning Air New Zealand. They do what they please regardless of the country's interests. Perhaps the government should take a more active interest in our shareholding.

Posted by Paul : 11/18/2006 12:05:00 AM

OK this is an over simplification.. but..

Lets say you have an asset worth lets say 2 billion dollars which makes 200 million every year selling stuff at a 5% margin against tough competition.

Now you add lets say 5% of cost to the company by telling them to use vegetable oil instead of petrol.

all of a sudden your asset is worth $0 as an ongoing business (i.e. you’ve effectively pissed 2 billion in tax money down the toilet that you could have spent on social welfare or whatever) and it is handing over market share to competitors where it can.

A problem you could easily solve by instead just regulating that EVERYONE in the industry had to obey those criteria (if NZ has that power) which are hopefully set by experts and not politicians.

Posted by Genius : 11/18/2006 09:02:00 AM