Silver Fern Farms, Dargaville. Photo / Michael Cunningham
New Zealand exporters have never had it easy. They have always had to maintain price and quality competitiveness while also overcoming the problems associated with the tyranny of distance.
But in this age of the “polycrisis”, the global landscape is evolving more rapidly than ever before. In addition to overcoming traditional challenges, our exporters are now having to adapt to a new international trading environment, in which sustainability performance — and reporting — is increasingly the cost of doing business in key markets.
According to the World Economic Forum, four of the five top risks facing the globe in the next decade are environmental. How consumers and our major trading partners are responding to those risks has potential to affect all businesses that are internationally engaged — including those that are exporting to, or drawing capital from, offshore markets.
Among the array of policy responses to these risks, two major trends have significant potential to impact New Zealand exporters:
To assist government and business to understand the broad direction of travel with respect to these trends, Chapman Tripp collaborated with The Aotearoa Circle to publish a detailed review of global sustainability requirements on New Zealand exporters — Protecting New Zealand’s Competitive Advantage — in April 2024 (co-authored by Alana Lampitt, Nicola Swan and Kate Wilson-Butler).
The report found that 80% of New Zealand’s exports by value are going to markets that have mandatory climate-related reporting in force or proposed. Increasingly, these new requirements are benchmarked to the new global CRD standard — IFRS S2, published by the International Sustainability Standards Board (ISSB) in June 2023.
The ISSB has also published a general sustainability-related disclosures standard (IFRS S2) which provides for broader disclosure of natural capital risk.
Several jurisdictions (including Canada, Japan and most recently Singapore) have announced their intention to make these disclosures mandatory. Some, such as the European Union (EU), already require this; the EU’s expansive Corporate Sustainability Reporting Directive (CSRD) has recently come in force and requires disclosures across 10 categories of ESG issues from thousands of EU companies.
This means that the receiving environment for New Zealand exports is changing at scale and at pace.
It is likely that only New Zealand companies with a sizeable presence in the relevant market will be directly caught by these regulatory changes. However, the less direct effect of these changes — which will play out through supply chain expectations and changing consumer preferences, will be wide-ranging and widespread.
For example, a New Zealand exporter supplying an overseas customer that is subject to mandatory CRD may be required as a condition of the ongoing business relationship to provide climate-related information and/or meet greenhouse gas (GHG) emissions reduction targets in order that the customer’s own regulatory obligations or voluntary targets can be met.
As CRD regimes continue to bed in and expand globally, we foresee that the ability to demonstrate an understanding of, and ability to support, climate-related reporting will become a key competitive advantage for New Zealand businesses.
It is not just changing regulation and mandatory disclosures affecting expectations of customers in our key markets, however. In addition to regulated disclosure requirements, the global ecosystem of private frameworks and standards is playing an increasingly significant role in setting market expectations.
Alongside the established methodologies — the Global Reporting Initiative (GRI), Greenhouse Gas Protocol and the Science-based Targets Initiative (SBTi) — there is now also widespread uptake of voluntary reporting under new initiatives such as the Task Force on Nature-related Financial Disclosures (TNFD). Offshore customers are increasingly looking to New Zealand suppliers to help them meet science-based emission reduction targets, many of which have been committed to on a voluntary basis and incorporate Scope 3 (indirect) GHG emissions, such as those of suppliers.
The incentives to integrate and report on sustainability practices come in the form of carrots as well as sticks: research shows consumers of New Zealand food exports will pay a price premium for sustainability and other attributes. This increasing consumer demand for low-emissions and environmentally sustainable products is now being reflected in business-to-business relationships.
Beyond price premiums, signs are emerging that proactive sustainability measures are becoming the price of admission to the supply chain of some major corporates (for example, international supermarkets).
To be well-positioned as preferred suppliers to corporates adopting these voluntary frameworks, New Zealand exporters will need to anticipate and respond to voluntary market actions as well as regulatory disclosure obligations.
ESG performance is also playing an increasing role in capital raising, with many proactively innovating to continue to receive favourable ESG ratings and attract favourable trading terms and/or capital from institutional investors or indexed funds that are seeking to align their portfolios with the Paris Agreement.
On the trade policy side too, the landscape is shifting.
The EU Carbon Border Adjustment Mechanisms (CBAM), in force since late 2023, impose a cost on embedded emissions in certain carbon-intensive products. Although the current scope of the EU tax doesn’t materially affect New Zealand exports, similar regimes are being considered in other jurisdictions including the UK, Australia and Taiwan.
New “behind the border” regulations affecting international supply chains, such as the EU’s Deforestation Regulation and the EU Packaging Directive 2024, also have the potential to catch New Zealand exporters.
The implications of such measures range from additional cost and complexity through to implementation barriers that could, if they are not navigated successfully, prevent access to markets.
Climate change and environmental protection are also now key topics in Free Trade Agreement (FTA) negotiations.
Both the UK-NZ and the EU-NZ FTAs create binding obligations on New Zealand to uphold our international climate change commitments. These provisions are subject to dispute settlement mechanisms, meaning non-compliance will lead to greater diplomatic and trade pressure, and ultimately the threat of increased tariffs.
While the likelihood of formal trade sanctions (and therefore risk of impact to exporters) may be remote in practice, we can expect a heightened awareness among our international partners and consumers, at home and abroad, of the sustainability credentials of our exports.
The good news is that many New Zealand exporters are already pivoting to adapt to changing offshore regulation and market expectations. The case studies that accompany this article indicate how primary sector companies are already innovating to keep up.
Proactive monitoring of and responding to these changes applies not just to exporters but to all New Zealand companies that are part of international supply chains, as the regulatory and market requirements will ultimately travel down the supply chain to affect Kiwi businesses.
Staying on top of such a broad and complicated array of reporting and trade policies is challenging, especially during recessionary times where businesses are trying to do more with less.
However, New Zealand companies that have invested in upskilling will be well-placed to seize opportunities and protect market access.
There is scope for collaboration across NZ Inc — public and private sectors — to ensure our export community is collectively equipped to compete in an ever-shifting global landscape.
Silver Fern Farms has introduced New Zealand’s first certified grass-fed Net Carbon Zero red meat, where the equivalent of 100% of end-to-end emissions have been absorbed by vegetation growing on the farms where the animals were raised.
The Net Carbon Zero by Nature range, available in the US and New Zealand, responds to consumer and customer demand for more sustainably produced red meat. Silver Fern Farms measures all stages of product emissions, from the birth of an animal right through to how a consumer cooks the product and disposes of packaging. To balance out product emissions, satellite technology and machine learning are used to help identify on-farm permanent vegetation that is absorbing the equivalent amount of carbon dioxide from the atmosphere. The company then contracts and purchases this carbon sequestration from farmers to account for all of the emissions associated with the meat produced and being sold as Net Carbon Zero by Nature. This rewards farmers who actively care for the land through environmental practices.
Certification is also reliant on Silver Fern Farms continued effort to reduce Scope 1 & 2 emissions within its operational boundary. In 2023 these emissions reduced by 6.7%.
With customers in more than 50 countries, Zespri is adapting to the changing requirements of consumers and global regulators.
Zespri has seen a marked shift in sustainability-related policies and regulations, such as carbon pricing, packaging specifications and mandatory disclosures.
These changes align with shifts in consumer purchasing, like the rise of “eco-active” consumers who consider environmental credentials before buying products.
Zespri partners with suppliers to innovate solutions that meet these new requirements. For example, newly developed packaging solutions enable Zespri to meet stringent European plastic regulations and stay ahead of other locations’ requirements, with 88% of its packaging now recyclable, reusable or compostable.
The inclusion of shipping in the European Emissions Trading System impacts New Zealand’s trade-reliant economy.
Zespri believes a strong voice is needed to establish appropriate regulatory settings and infrastructure required to bring decarbonisation solutions to New Zealand and is working with its partners to increase demand for a low-emissions shipping industry.
Fonterra announced its first on-farm emissions reduction target in 2023, complementing its existing 1.5C-aligned Scope 1 & 2 target.
The decision was driven by the belief that businesses must actively address climate change.
Four business drivers shaped this decision: access to markets and customers, future funding, legal and reporting obligations, and the co-op’s strategic choice to lead in sustainability.
These interconnected drivers are influenced by European sustainability reporting requirements and multinational customers’ agendas. The number of Fonterra customers with science-based climate targets is growing, and about 30% of its business-to-business gross margin is expected to come from sustainability-focused customers by 2030. As one of the world’s lowest carbon sources of dairy, Fonterra is well-positioned to help these customers achieve their targets. Additionally, shared sustainability commitments are opening collaboration opportunities, such as Fonterra’s partnership with Nestle to develop a commercially viable net zero carbon emissions dairy farm.
Nicola Swan is a Partner and Kate Wilson Butler is the Director - Climate, Sustainability and ESG at Chapman Tripp.
