Energy and Environmental Sustainability

As the spotlight begins to focus on the desire for companies to integrate sustainable practices into their everyday operations, sustainable transformation is becoming an important concept. This includes initiatives being developed by companies to create shareholder value while ensuring their operations remain environmentally sustainable.

Companies should champion sustainability in their practices in the following areas which are coming under increased scrutiny by stakeholders:

 Outside influences – limited resources and society’s expectations for a greater choice of sustainable products and services.

 Industry competition – public perception to do more, industry pressure, and increased board governance accountability.

 Adding value – working smarter, reducing costs, and developing new sources of innovation.

 Community involvement – corporate social responsibility proclamations in mission statements.

McKinsey and Company (http://www.mckinsey.com) has studied how companies are integrating sustainability into their operations and Figure 13 shows the degree of business processes into which sustainability has been completely or mostly integrated.

Figure 13: Integration of Sustainability in Business Processes

Source: McKinsey Quarterly Survey (July 2011)

The results of McKinsey’s survey indicate that many companies have integrated sustainability practices and have acknowledged this issue at the high level, for example, in external communications (60%) and corporate culture (59%). However, there is more work to be completed on integrating sustainability into budgeting processes (39%) and supply chain management (41%). It is encouraging that 50% of the companies surveyed have included sustainability into their employee engagement and this area should see an incremental increase as company management increasingly conveys this message among employees. Sustainability in terms of behaving in an environmentally sustainable way that protects the environment and includes ethical behaviour are critical to New Zealand’s management and use of its natural resources. While New Zealand has about 0.1% of the world’s population, its economy produces about 0.3% of the world’s material output. It is one of the wealthier economies and its people enjoy a good standard of living. The drive for economic growth and an increasing population is resulting in the depletion of natural resources around the world and is not sustainable – New Zealand is no exception. The compass in Figure 14 illustrates the value chain levers that could be considered essential enablers for the guidance of energy companies to use in highlighting the benefits of fuel cells and their introduction of this clean energy technology to the New Zealand dairy industry.

Figure 14: Value Creation Levers of a Sustainable Transformation

Source: McKinsey Sustainable Enterprise Service Line, McKinsey & Company

Despite an abundance of natural resources, New Zealand is a net importer of energy, primarily because of its reliance on oil products. According to the World Bank, World Development Indicators (updated 26 April 2011) New Zealand energy consumption is 4,190kg of oil equivalent per capital (http://data.worldbank.org/indicator). “In 2011, a net total of 43,138GWh of electricity was generated, 77% of which was from renewable sources. Hydro was the major source of electricity generation at 58%, followed by gas at 18%, geothermal at 13%, with coal, wind, wood, biogas, oil and waste heat making up the balance. Electricity generation from wind was up 19% from 2010 levels. In 2011, almost as much electricity was generated by wind (1,931GWh) as was generated by coal (2,026GWh)” (Energy Data File, 2012). “The government’s energy policy aims for 90%

of electricity generation to come from renewable sources by 2025” (PowerSwitch, 2012). The primary Renewable Energy Sources (RES) are hydro, geothermal, and wind, with the predominant source being hydro-electricity.

An analysis of the energy sources would not be complete without mentioning at least one of the non-renewables, namely coal, in order to provide a greater sense of New Zealand’s energy sector. The reason being that New Zealand’s largest natural resource producer, Solid Energy, has a juxtaposition involvement in both coal and renewable energy (biodiesel, and clean-burning wood pellet fuel) and one argument is this bodes well for the future if a coal mining company is investing in RES (http://www.coalnz.com). In 2001 the government adopted a framework to incorporate environmental considerations into New Zealand’s free trade agreements. The

“Framework for Integrating Environmental Issues into Free Trade Agreements” guides trade negotiations with other countries and covers (1) environment and trade policies;

(2) linkages between trade and environment policy principles; and (3) environment and trade policy principles. The objective is to promote sustainable development while maintaining well-balanced trade and environmental goals.

Fiscal sustainability is also an important bell-weather of New Zealand’s sovereign debt vulnerability. Historically commodity markets are influenced not only by regional dynamics but also by economic global shifts. Moreover, the European sovereign-debt crisis has the potential to impact negatively on New Zealand’s market prices for exported agricultural products. To date, New Zealand has been fortunate that international markets (particularly countries in the Asia region that account for the majority of dairy product exports) have remained stable and that they have generally remained unaffected by the realities of the European sovereign-debt crisis and consequences of austerity measures. But this may change over coming months as European countries struggle to agree on a way forward in solving their fiscal

difficulties. One reason for the stability of New Zealand’s key export markets has more to do with demand and supply fundamentals which have been responsible for continued exports of consumption-based commodities rather than the state of financial markets.

Figure 15 shows the vulnerability levels of several countries. In particular, the levels have remained fairly stable for China, Japan, and Korea (part of New Zealand’s top five export markets) and also for Taiwan, New Zealand’s 12^th largest export market (Ministry of Foreign Affairs and Trade, 2012). These are all key export economies for New Zealand dairy products.

Figure 15: Sovereign Debt Vulnerability Scores

Compared internationally, New Zealand has an abundance of fresh water. New Zealand is ranked fourth out of 30 OECD countries for the size of its renewable freshwater resource on a per capita basis. “Within New Zealand, allocated water comprises less than five percent of its renewable fresh water resource. In 2010, there were more than

20,500 resource consents for taking water. The total amount of consumptive water allocated in New Zealand in 2010 was 27 billion cubic metres. This is equivalent to almost half of Lake Taupo in the middle of the North Island. Four times the amount of water is taken from rivers and streams when compared with the quantity of water taken from groundwater. With 4.5 million dairy cows in New Zealand, if each is consuming approximately 50 litres of water per day, a total of 225 million litres or 225,000 cubic metres of water per day is consumed by cows. Figure 16 shows that the majority of consumptive weekly resource consent allocations were for irrigation and hydro-generation. The Manapouri hydro take is eventually discharged to sea” (Ministry for the Environment).

Figure 16: Use of Weekly Allocated Water, 2010

Source: Ministry for the Environment