HUGO Assessing the economic and political environmentvision in New Zealand Confidential to November 1 2019 HUGO members Big end of town gives ‘greening finance’ a big push Page 2 The Sustainable Finance Forum interim report, issued yesterday by the recently formed Aotearoa Circle, is remarkable as a piece of collective corporate leadership for its consensus that the current financial system is “unfair” and needs to refocus on sustainable environmental and social outcomes. Its production of a legal opinion on fiduciary duties relating to climate change risk assessment is likely to be required reading for company directors. Freshwater proposals the next ag/govt battleground Page 3 With the ink barely dry on the highly significant compromise reached between the govt and farm leaders on agricultural greenhouse gas emissions, the outline of the coming tussle over freshwater reform has been drawn by analysis for DairyNZ suggesting nitrogen and phosphorous leaching standards could cut dairy production by as much as 24% by 2050. High wholesale electricity prices hit Flick and smelter Pages 4&6 The impact of sustained high wholesale electricity prices is starting to bite, with Z Energy writing down the value of its $46m investment last year in wholesale price-taker Flick Electric by $35m, while Rio Tinto’s frustration with high transmission and electricity prices has given it the platform to reopen its public positioning on the future of the Tiwai Pt aluminium smelter. Twyford in the gun - again Page 4 Embattled transport, urban development and economic development minister Phil Twyford’s capacity to be a lightning rod for political trouble is undimmed, with media and Opposition having a field day on Auckland light rail and Wellington transport package issues. However, his Cabinet position appears safe for now. Chile’s halo slips Page 2 Often cited as Latin America’s most stable and successful economy, Chile has suffered a massive global hit to its reputation with violent suppression of street protests throughout the country forcing the cancellation of the APEC and COP25 summits. The US and China will need to find another venue to sign their partial trade agreement. Crunch time for minnow parties Page 5 Four minnow parties that need to win an electorate seat to get into Parliament will be vying for media and voter attention between now and Christmas. TOP, Sustainable NZ, the Maori Party and the New Conservatives need to be within reach of 3-4% in early 2020 polling if they are to attract both volunteers and finance, let alone an electorate deal with one of the major parties. TV3 sale - no govt appetite to intervene Page 6 The govt is concerned by the further hollowing out of news services that a TV3 closure would cause, but is disinclined to intervene to assist the loss-making free-to-air broadcaster. It continues to mull low-cost interventions to shore up news coverage in areas of civic importance. Text finalised November 1 Contact: [email protected]. No responsibility is accepted for acts or omissions by clients as a result of items herein. © The Hugo Group 2019 HUGOvision November 1 2019 POLITICS AND POLICY Big end of town gives big green Members are invited to draw their boards’ attention to the Chapman Tripp legal opinion, published with finance push the report, that seeks to establish that managing An enormous PR effort went into this week’s climate change risk can be explicitly identified as a Aotearoa Circle Sustainable Finance Forum report. fiduciary duty. Led by NZ Super Fund ceo Matt Whineray and “Our assessment is that a director would not be Westpac SMT exec Karen Silk, the Circle boasts able to avoid liability for breach of s137 (of the executive resources and endorsement from a broad Companies Act, covering standards of care) by range of NZ’s large legal and accounting firms, arguing that climate change does not exist.” the NZX, Contact Energy, HRL Morrison & Co, the A similar legal opinion has been the catalyst for legal Insurance Council, and several universities, to name action in Australia, where codification of climate but a few. change risk in both directors’ duties and the central Whineray’s brother and ceo at Mercury NZ, Fraser, bank’s financial risk assessment system is more is on the board, along with chair and long-time advanced than in NZ. corporate sustainability activist Sir Rob Fenwick, MfE secretary Vicky Robinson and ‘international support’ ASEAN and APEC from Sir Jonathan Porritt, the chair of Air NZ’s The decision by Chilean President Sebastian Pinera to sustainability advisory panel. cancel APEC is the first time this has happened in the The RBNZ, MfE and FMA were all observers in the event’s 30 year history, as is the cancellation of the process and the central bank blanketed journalists UN climate change annual COP summit, in its 25th with repeat emails of its statement supporting the year. forum’s view that climate change risk assessment It also raises the stakes on this weekend’s East Asian should be regarded as an inescapable fiduciary duty Summit in Bangkok, which the PM will attend. for company directors and investment managers. Many APEC economy leaders will be there but The SFF interim report, on which feedback is sought, not President Xi Jinping (Premier Li Keqiang will was backed with a special lift-out section in the NZ represent him) or President Trump (who will be Herald, and was subject to a highly organised and represented by National Security Advisor, Robert assiduous PR process to put key commentators in O’Brien) or President Putin (who will be represented touch with key spokespeople. by PM Dmitry Medvedev). The interim report is also heavily influenced But there will be some big names, including Shinzo by Mindful Money, an ethical and sustainable Abe from Japan and Narendra Modi from India. investment business established by former Green MP APEC had been the intended venue for the signing Barry Coates. An MM board member, Justine Sefton, of the ‘phase 1’ trade deal between Trump and Xi. was one of three lead authors. Whether and how the emphasis in Bangkok swings from regional issues to the dominant global dispute, Big agenda between the US and China, remains to be seen. The report is remarkable for its advocacy, with such The Chilean cancellation robs Jacinda Ardern of high strong corporate backing, of the need to reform profile set-piece appearances at the Leaders Week the financial system to be fairer and to deliver summit, which both Ardern and John Key before environmental and social good outcomes as well as her were fortunate to score. Ardern was to have profitability. While there has been much corporate headlined a panel on diversity in the workplace on talk in this area for years, the Circle’s initial effort the plenary day of the CEO summit, when Putin, feels like a step up. Xi and Trump all make appearances. MFAT officials It makes recommendations in numerous areas, have been trying to line up extra bilateral meetings and there is occasional evidence of tension among for her in Bangkok. Arranging those won’t get any participants between the impulse to regulate and the easier now that APEC is cancelled. impulse to foster ethical, market-driven leadership NZ has been careful in its preparation for the EAS to rather than a compliance mentality. underline its neutrality on the key regional security Pricing of externalities and the expansion of fiduciary issue: the confrontation between a number of duties emerge as the two areas most susceptible to ASEAN states and China over the South China Sea. broad agreement for action and potential for impact. Wording directly critical of China, which appeared in the Strategic Defence Policy Statement of 2018, Fiduciary duties and climate change had disappeared for this week’s Advancing Pacific 2 HUGOvision November 1 2019 POLITICS AND POLICY Partnerships 2019 paper. Its publication came freshwater reforms. immediately after a Chinese naval vessel passed At the heart of the issue will be the Essential through Cook Strait and made a goodwill visit to Freshwater package’s requirements for reduced Wellington coinciding with Labour Weekend. phosphorous and nitrogen leaching to meet new MFAT officials insist there has been no change in limits in monitored catchments. NZ’s “not picking sides” policy, in place since the last Economic consultancy Sense Partners, under lead govt. That has been acknowledged, it would seem, author and former NZIER deputy ceo John Ballingall, in stepped-up rhetoric from Beijing in recent weeks concluded the gross costs to the NZ economy could attacking Australia over its overall policies towards be in the order of $6b annually, or a little over 1% of China but silent on NZ. Ardern will have to navigate GDP, by 2050. between Beijing and Canberra at the EAS summit carefully. Add the requirements of the Zero Carbon Act, and the all-up cost of lost production could be around $7b Meanwhile, it will be some months before Fletcher p.a. Construction can start repairs and completion of the international convention centre after last week’s fire, However, if the package only requires a wider but it may have just enough time to get it finished setback on fenced waterways, audited farm plans, before the APEC Leaders Week summit in Nov. and catchment-specific nitrogen caps where farms 2021. It was to have been completed by Q3 next year. above the 75th percentile of nitrogen loss would have MFAT is seeking alternatives anyway. to reduce losses to below the 75th percentile, the costs “are not expected to have significant macroeconomic What hope for RCEP? impacts”. - perhaps $500m to $1b.