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The high-level view of the 2019 Deloitte Top 200 Index shows total revenues for Top 200 companies increasing from $185,580m in 2018 to $192,951m in 2019 – an increase of 4.0 per cent. This compares to a 4.5 per cent increase seen in the 2018 Index.

The increase in total revenues has also driven an increase in underlying earnings (EBITDA), from $26,192m in 2018 to $27,673m in 2019. This is an increase of 5.7 per cent, compared to a 5.8 per cent increase in 2018.

The EBITDA margin, an assessment of operating profitability as a percentage of total revenue (total EBITDA/total revenue), remained relatively constant between 2018 (14.1 per cent) and 2019 (14.3 per cent).

Total profits after tax have increased from $9,593m in 2018 to $10,198m in 2019. This is a 6.3 per cent increase year-on-year compared to a 7.2 per cent increase in 2018.

Net profit margin (profit after tax/total revenue) stayed relatively constant between 2018 (5.2 per cent) and 2019 (5.3 per cent).

Total Assets have increased from $232,324m in 2018 to $243,476 in 2019, which is a 4.8 per cent increase and compares to a 6.2 per cent increase in 2018.

The number one spot in the Top 200 Index has been held by Fonterra since its formation in the early 1990s. Its revenue declined by 1.6 per cent during the year to $20,114m. This slight decrease is mainly due to changes in Fonterra’s product mix.

The 200th ranked entity on the Top 200 Index in 2019 is now Juken, with revenue of $206m. Last year’s 200th ranked company, NZ Investment Holdings, missed the cut for 2019 with a revenue of $191m. This is a 7.9 per cent increase in revenue between the 200th ranked companies year-on-year.

Fonterra (1st) and Fletcher Building (2nd) have held the top two spots in the Deloitte Top 200 for the past four years. These two companies are ranked 199th and 11th, respectively, in terms of profit after tax after Fonterra made a loss of $605m and Fletcher Building has made a profit of $259m.

Fonterra’s losses have largely been a result of asset write-downs of $826m, mainly on its offshore businesses. The write-downs include a $203m impairment of its China Farms investment and $237m on its New Zealand foods service business.

Fletcher Building returned to a profit due to the successful execution of the first year of its five-year strategy aimed to refocus and grow the business.

The revenue gap between these top two companies reduced slightly, as Fonterra’s revenue decreased by 1.6 per cent while Fletcher Building’s revenue increased by 1.2 per cent.

Woolworths moved to fourth place overall, trading places with Foodstuffs NI which is now in 12th place. In 2019, these companies reported revenue of $6,727m and $3,332m respectively. Foodstuffs NI dropped to 12th place as a result of the adoption of NZ IFRS 15 which changes the way revenue is recorded in the financial statements.

The top ten has remained quite consistent, with the only new entrant being Meridian Energy which has now claimed the tenth spot, replacing BP (which is now ranked eighth). Meridian Energy has reported revenue of $3,491m in the current year while BP has reported revenue of $3,699m. The rise in Meridian energy’s revenue is primarily from strong hydro conditions and higher wholesale market prices.

The overall increase in revenue this year has been reflected in the Government’s tax take from the companies that comprise the Top 200. Tax paid increased 6.0 per cent on last year’s figure, from $3,563m to $3,777m – contributing to the coalition government’s bumper surplus.

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The Air New Zealand executive team identified “sustainability in the bloodstream” this year as a long-term organisation-wide strategic pillar.

The airline says it believes its success is inextricably linked to the success of New Zealand, reflected in its company purpose statement: “Supercharge New Zealand’s success — socially, environmentally and economically.”

“This means tackling highly visible challenges such as reducing our plastic usage, but also facing into climate change (our most material sustainability challenge), supporting local communities, helping Kiwi businesses take their products to the world, and being a diverse and inclusive employer,” says Air New Zealand’s Head of Sustainability Lisa Daniell.

“Sustainability is an integral part of who we are and what we do, so much so that Sustainability in our Bloodstream has recently become one of seven long-term organisation-wide strategic pillars at Air New Zealand,” she says.

The Deloitte Top 200 judges commend the airline’s efforts in sustainability in an industry that contributes between two and four per cent of global emissions, and the transparency with which it reports on it through its sustainability report, released each year prominently alongside the more conventional financial reports.

The MinterEllisonRuddWatts Sustainable Business Leadership award is new to the Deloitte Top 200 Awards this year, recognising businesses that are working toward creation of long-term environmental, social and economic value.

The judging criteria considers governance, leadership and accountability, long-term perspective and purpose, explicit integration of environment, social and governance considerations, along with investments, programmes and projects to support sustainable development.

“Air New Zealand is showing strong leadership in diversity and inclusion as well as other social and governance aspects of this category,” says Deloitte Top 200 judge Cathy Quinn.

While the judges acknowledge the airline’s environmental impact, they applaud it for introducing measures in areas where it can and having a strong impact in social and governance aspects of this category.

“Governance and strategic management are advanced, with systems in place, targets set and being measured with both good and bad news reported, covering a comprehensive range of sustainability issues. There is a sense that there is a strong focus on solutions,” says Quinn.

The airline has improved its aviation fuel efficiency by more than 20 per cent over the past decade, through a combination of more fuel-efficient aircraft and more efficient flight operations.

Air New Zealand’s Airbus neo aircraft — with new generation engines, fuel efficient wingtip devices and more seats — are expected to deliver fuel savings of at least 15 per cent compared with the aircraft they are replacing. Other emission-reduction initiatives include implementing more efficient departure climb profiles and approach-path efficiencies.

Air New Zealand has moved to use electricity to power aircraft while at the gate whenever available, shifting away from consuming jet fuel and generating carbon dioxide emissions. It is also removing unnecessary weight from its domestic jet aircraft such as carrying less portable water on each flight and has removed or replaced nearly 55 million plastic items with lower-impact alternatives.

“The scale of our network and fleet means that any savings we make are substantial, and if we think about the influence we can have across our 4500 suppliers, or the likes of the Climate Leaders Coalition in New Zealand, that’s also really material,” says Daniell.

Air New Zealand’s sustainability report acknowledges that it emits around 3.5 million tonnes of carbon dioxide annually — making it one of New Zealand’s biggest carbon emitters.

The airline has been encouraging passengers to offset their emissions through its FlyNeutral programme. Over the past year, retail customers have partially or fully offset more than 183,600 journeys — up 40 per cent since the previous year. It has also seen a rise in the number of corporate and government customers joining the programme.

But Air New Zealand acknowledges further improvements will become tougher, and the industry now needs ‘to grow in a different way’.

It says: “While we are delivering such benefits and working to minimise our carbon emissions, until aviation biofuels are readily available in New Zealand or there are significant technology breakthroughs such as electric aircraft, we are unlikely to deliver further significant carbon emissions reductions through our own operations.”

Air New Zealand has joined with Z Energy, Refining NZ, Scion and Auckland International Airport to investigate how to transition to biofuel, and whether a biofuel plant in New Zealand could work, but the sustainability report notes that: “the capital investment would be significant and it has not been achieved anywhere in the world without substantial government support to establish production and thereafter ensure fuel pricing remains economically viable.”

It is also working with aircraft manufacturers to explore new propulsion technologies such as hybrid electric aircraft. It has partnered with Zephyr Airworks — the operator of Cora, the world’s first autonomous air taxi.

In his introductory video, incoming chief executive Greg Foran suggests the airline will continue to lead in sustainability.

“My vision for Air New Zealand would be to make it something that other airlines aspire to be,” he says.

“We need to be taking some positive steps around sustainability. There are a number of things that fit into sustainability — from carbon footprints driven by CO2 emissions, to social responsibility around sustainability.

“I think it is vitally important that we lead, not just in New Zealand, but actually around the world in terms of what we can accomplish.”

Finalist: Z Energy

Z Energy says it stands for “an environmentally sustainable New Zealand that is an example to the rest of the world and an inspiration to Kiwis.”

Chief executive Mike Bennetts says ultimately for Z, sustainability means balancing the needs of its people and customers now, with those of its people and customers of tomorrow.

“It means not taking more than we need now, so that those generations coming after us have enough. We do that across the three legs of our sustainability stool — economic, social and environmental,” he says.

Z says it will move from being a part of the climate change problem to the heart of the solution: “We will be bold and provide leadership and a range of solutions to enable our customers, stakeholders and communities to join on the journey to a lower carbon future.”

The Deloitte Top 200 judges recognise Z for leadership on climate when it could have been obstructive.

They also note Z Energy’s excellent annual report: “It is readable, with key metrics throughout, integrated with business strategy,” says Cathy Quinn. “It is an integrated report in its true sense, including both good and bad news and truly engaging its stakeholders.”

Bennetts says Z is focusing on two key things: “maximising our impact on intervening in climate change, and ensuring we do what we said we would in terms of cleaning up our own back yard.”

He explains that means delivering on its commitment to reduce its operational emissions by 30 per cent from a 2017 baseline, with the balance offset in permanent New Zealand forestry — a mix of natives and exotics.

“We have the opportunity to be right at the centre of the transport fuels solution but that will mean nothing if our responses lack integrity,” he says. “We are up for the difficult conversations on how we intervene in climate change that provides harmony across environmental, social and economic sustainability.”

Bennetts acknowledges the company’s big issue is the products it sells, not what it does. But he says that is exactly why Z can have the biggest impact.

“Our intent is to lead and facilitate the much-needed transition to lower carbon transport fuels than default to being a barrier to change,” he says. “The technology exists for lower carbon alternatives like biofuel and hydrogen, but our current challenge is finding a way to make that economically sustainable for our customers given the environmental and social Sustainability in the bloodstream sustainability is obvious enough.”

Bennetts says capital and innovation will come easily when the economics are better balanced, “especially when we price in the reality of social and environmental externalities.”

Z has been investing in alternative, cleaner fuels and alternative mobility technologies, including nearly $30 million in building New Zealand’s first commercial scale biodiesel plant, turning tallow — a by-product of the agricultural industry — into high quality biodiesel. It has also recognised electricity will be part of a clean energy future, investing a majority stake in Wellington-based retail electricity supplier Flick Electric.

At the time, Bennetts said “this is another step towards the long-term sustainability of Z, and the role we play in a lower carbon transport future.”

Z was a founding member of the Climate Leaders Coalition, launched last year to promote business leadership and collective action on the issue of climate change. Bennetts is the convenor of the Coalition, which aims to “help New Zealand transition to a low emissions economy and, in doing so, create a positive future for New Zealanders, business, and the economy.”

Finalist: Mercury

Mercury says sustainability is about delivering on its mission of energy freedom for New Zealand. “It’s about NZ being stronger economically and more sustainable through better use of homegrown, renewable talent.”

The electricity generator-retailer says being sustainable is an essential element of the way it operates: “We consider long-term sustainability across all the areas that matter most for us using our pillars — customer, partnerships, kaitiakitanga, people and commercial. This framework means we assess value and make decisions in an integrated way that includes consideration of commercial, social and environmental factors.”

The Deloitte Top 200 judges say that Mercury is in itself a sustainability solution — its contribution to New Zealand’s zero-carbon goals are significant.

“It has a clear strategy on environmental sustainability and has been proactive in social issues and places a key focus on its relationship with Māori,” says Cathy Quinn.

Mercury’s energy generation comes from 100 per cent renewable sources. The move away from thermal generation has helped the energy company decrease total emissions by 36 per cent since 2015.

This year, it committed to the construction of a new $256m wind farm at Turitea, east of Palmerston North — and recently announced it will pour another $208m to complete the farm at its full scale.

This makes Mercury the only New Zealand energy company with what it describes as “the awesome foursome” of renewable energy in its portfolio; along with the wind farm it has nine hydro stations on the Waikato River, five geothermal stations throughout the central North Island and a solar farm.

“Key initiatives aligned with our strategy have not only lowered Mercury’s carbon footprint, but they have been instrumental in materially reducing the nation’s carbon footprint,” says Mercury.

“We refer here to the transformation of the energy sector that was a consequence of the building, by Mercury and others, of significant geothermal generation capacity in the decade from 2003. Mercury’s geothermal stations include stations run as innovative joint venture partnerships with Māori enterprises.”

Mercury has been climate positive since 2017, with its carbon units exceeding the level of its emissions. It has achieved this through participation in the New Zealand emissions trading scheme, the careful measurement of its GHG emissions, and long-term partnerships with forest owners.

Natural resources and climate change are key focus areas for Mercury, it aspires to be recognised as a leader in the ultra-long-term management of both physical and natural assets by 2030.

For the last two years, Mercury has submitted information to the CDP (formerly the carbon disclosure project). The CDP runs the global disclosure system that enables organisations and government to measure and manage their environmental impacts. Mercury has been rated among New Zealand’s top ten companies — and the only energy company — that made a submission.

Chief executive Fraser Whineray has been a long-time advocate of electric vehicles (EVs). He says with New Zealand generating more than 80 per cent of electrity from renewable sources it is logical to take advantage of that. “It’s another step on what will be a long journey, but it’s one that New Zealand will be in the box seat for with its renewable electricity system,” says Whineray.

Mercury is encouraging New Zealanders to lower their own carbon footprint through the opportunity electric transport provides. It has done this through initiatives including promoting e-bikes and introducing Mercury Drive — an electric vehicle subscription service that launched a pilot this year and was heavily over-subscribed.

It has also reduced its emissions since 2016 by converting over 74 per cent of its fleet to electric vehicles or plug-in hybrid electric vehicles.

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The linear economy, a hallmark of modern economies, takes resources from the ground and turns them into products that ultimately become waste and are thrown away.

It designs and manufactures products for the consumer without accounting for the resources used to make them or what happens to the product at the end of its life.

Often it is considerably more expensive — or impossible — to repair something when it breaks compared to replacing it. This was demonstrated in last week’s Black Friday sales, which saw consumers rush out to the shops to snag a discount deal — often items that will have a short life and be soon destined for the landfill.

In contrast to the “take-make-waste” model of a linear economy, a circular economy is an economic system aimed at eliminating waste and the continual use of resources and is designed to benefit businesses, society, and the environment.

It aims to gradually decouple growth from the consumption of finite resources and is increasingly seen as the driver to help reach the UN’s Sustainable Development Goals.

The New Zealand Government has identified the circular economy approach as an important principle for addressing resource and waste issues for the country’s future.

The Ministry for the Environment defines it as “an alternative to the traditional linear economy in which we keep resources in use for as long as possible, extract the maximum value from them whilst in use, then recover and regenerate products and materials at the end of each service life.”

It says when a product is designed for the longest use possible — and can be easily repaired, remanufactured or recycled (or used, composted and nutrients returned) — it can be considered to have a circular life cycle. A circular economy is fuelled by renewable energy, such as solar, hydro, wind, tidal and biofuels.

The New Energy Futures Paper: Batteries and the Circular Economy paper, released last week, outlines the six enabling factors required for a circular economy:

1. Systems thinking: Organisations take a holistic approach to understand how individual decisions and activities interact within the wider systems they are a part of (e.g. material, operational, financial, social and ecosystems).

2. Innovation: Organisations continually innovate to create value by enabling the sustainable management of resources through the design of processes, products/services and business models.

3. Collaboration: Organisations collaborate internally and externally through formal and/or informal arrangements to create mutual value.

4. Value optimisation (retaining value): Keeping products, components and materials at their highest value and utility at all times.

5. Transparency (open communication): Organisations are transparent about decisions and activities that affect their ability to transition to a more circular and sustainable mode of operation and are willing to communicate these in a clear, accurate, timely, honest and complete manner.

6. Stewardship: Organisations manage the direct and indirect impacts of their decisions and activities within the wider systems they are part of. This can include product stewardship or Extended Producer Responsibility (EPR), where businesses take back their products to refurbish and resell.

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David Pilkington describes his style as chair as having a focus on ensuring the board and management have a well understood joint strategy for the business, working together to develop the capability to achieve targets.

“This requires full engagement from the board which I encourage, and an open and frank relationship with the CEO and senior management team, with the right balance between challenge and support,” he says.

Pilkington — this year’s Hobson Leavy Executive Search Chairperson of the Year — is chair of the Port of Tauranga, Douglas Pharmaceuticals and investment firm Rangatira.

Until the end of November, he was also chair of Northport but has stepped down in line with a two-yearly rotational policy in place with its 50 per cent partner Marsden Maritime Holdings.

“Every entity he chairs has performed financially and grown consistently during his tenure,” says Deloitte Top 200 judge Cathy Quinn. “He is an inclusive chair and facilitates an environment to get the best out of people, and has been selected as the winner due to his track record of success as a chair over a long period.”

The judges add that he has developed chief executive talent and built constructive relationships with them — allowing them to do their job but also be guided by him.

Pilkington says his highlight over the last year has been overseeing the Port of Tauranga’s group net profit after tax (NPAT) exceed the $100 million milestone for the first time, as well as making big strides in its focus on sustainability having gained certification of its carbon emissions.

“The Port has set a short-term target of five per cent reduction in its Scope 1 emissions per cargo tonne and is targeting net zero emission by 2050,” he says.

The Port of Tauranga this year has seen exports and imports increase, handling an impressive 37 per cent of all containers in New Zealand and 30 per cent of the country’s cargo.

Despite the Port having a 6 per cent slip in profit after tax for the first quarter of the 2020 financial year, due in part to lower long volumes which dipped 5.2 per cent, it advised shareholders its full year guidance should see earnings between $96m and $101m — the same as the guidance provided last year.

“The Port of Tauranga’s success comes as a result of a co-ordinated investment strategy to become ‘big ship capable’ and at the same time entering into long-term agreements with its major cargo owners to provide services and support to commit to Tauranga as the major export port,” says Pilkington.

He says given the constraints and difficulties faced by the Ports of Auckland, Tauranga — and to some extent Northport — are able to provide an efficient and alternative gateway for the upper North Island.

“Port of Tauranga is ideally placed in a geographic sense to continue to grow,” he says.

“A recent study by an international consultant specialising in port operations identified that with further investment it would be possible to increase container handling capability to well in excess of the Port of Tauranga and Ports of Auckland’s current combined container volumes.”

Pilkington was also commended by the judges for being influential in his work with Douglas Pharmaceuticals.

As chair of the privately-owned company, Pilkington has worked with management following the passing of founder Sir Graeme Douglas two years ago.

“Graeme’s son Jeff has successfully taken up the reins and has increased the focus on the company’s new development pipeline — this is an exciting time for the business,” he says.

He has also been chair of diversified investment firm Rangatira since 2013.

Rangatira — whose investments include Polynesian Spa, Rainbow’s End Theme Park, and Mrs Higgins — operates a flexible investment management strategy that allows it to work alongside owners to maintain what it is that has made the company successful.

Pilkington says the investment firm has just passed its 82nd year since its establishment in 1937.

“Its success has been based on equity partnerships with successful SME owner operators who have reached a point with their businesses where they are either facing inter-generational succession or require new capital for growth,” he says.

“Unlike the traditional private equity company model with short-to-medium investment horizons, Rangatira is prepared to take a long-term view and is flexible depending on the founders’ needs going forward.

“We see our equity investments as true partnerships.”

Finalist: Graeme Milne, Synlait

Graeme Milne says he is driven by the opportunity to grow New Zealand enterprise and develop and create value-added activities and jobs. “Satisfying, purposeful jobs. That’s the key thing for me,” he says.

The judges say Milne has been brave in taking on roles as chair of companies at an early stage and seeing them transform to become very successful.

“He is quick to give credit to others but his strategic thinking and calm manner under pressure have been key factors in the success of companies he has been involved with,” says judge Cathy Quinn.

Milne has an impressive resume. He is chair of Synlait Milk, nutrient and fertiliser company TerraCare, forestry services firm PF Olsen, Rimanui Farms and plastics company Pro Form. He describes his style as supportive of the executive and consultative with the directors, seeking consensus and ensuring the focus is on strategy. “Not wanting to necessarily be the spokesperson — that is more for the CEO,” Milne adds.

Milne has been chair of Synlait since 2004 — initially at Synlait Ltd, the predecessor of Synlait Milk.

He indicated at last year’s AGM he wouldn’t stand again, saying it had been great to be part of an exciting company for such a long stint.

As chair at Synlait he has presided over rapid progress. He says the fact he has always been keen on the land and has a background as a sheep and beef farmer and in the dairy industry has helped in terms of knowing what works and what doesn’t.

Since listing on the NZX in 2013, Synlait has grown at 15-20 per cent a year. Milne attributes this exceptional growth to it having been built into Synlait’s culture to always look strategically for the next step.

“If anything, we’re probably stepping a bit faster than we can digest at times. That’s what we have to be careful of — there are always more ideas than the ability to execute on them.”

He says Synlait is a talent magnet, and headed for 1000 staff: “You have to be careful you don’t disappoint really capable people when they get into the company, if systems have to catch up and all the rest of it. The key is not to trip over.”

This year Synlait acquired South Island-based cheese manufacturer Talbot Forest Cheese, and recently announced its intention to buy Christchurch-based dairy company Dairyworks for $112 million.

But Milne says his highlight over the past year has been getting Synlait’s Pokeno processing plant commissioned and running. The move into Waikato away from its Canterbury base has seen it sign up its first farmers in the region.

“To establish a completely greenfield operation, and have North Island farmers have faith in us and shift to us from their previous supplier — there is still a way to go, but it is running very smoothly,” he says.

“Synlait is a real growth story — startup from an idea,” he says. “And I don’t really want to leave, but you can’t stay forever.”

Finalist: Pip Dunphy, Transpower

Pip Dunphy is a highly regarded professional director, having worked across a broad range of companies as a non-executive director over the past 12 years.

Deloitte Top 200 judge Cathy Quinn says Dunphy is a strong, courageous chair “who has been willing to stand her ground in tough circumstances to hold to what she believes is right.”

Dunphy says it is important the boards she leads operate as one team with management: “That is a philosophical preference for me.”

Her current governance roles include chair of Transpower, Abano Healthcare, First Gas, and director of the Fonterra Shareholders’ Fund.

The judges say Dunphy brings strong finance skills to all her governance roles — derived from her experience working in capital markets, banking, finance and investment management. She has had executive positions in Goldman Sachs JBWere, BNZ and Bankers Trust.

Dunphy says she encourages any director starting off to gain experience across a diverse range of industries: “I’ve been fortunate to have the range of opportunities I have had.

“Beyond that, I think the selection is really about the people you are working with. Initially it was the opportunity to work with people I respected as chairs and learn from them.”

State-owned transmission company Transpower, a natural monopoly, is regulated by the Commerce Commission and Electricity Authority. Dunphy says this provides a very interesting perspective. “You always have to be mindful in that environment of your regulators and your obligations to your customers. In terms of the position in the industry that Transpower holds, that is always front of mind.”

She was previous chair of state-owned enterprise Solid Energy, resigning in 2015, disagreeing with then-Finance Minister Bill English over whether the company, debt-laden from unrealised expansion plans, was salvageable. Following her departure it went on to being placed into voluntary administration.

She says Solid Energy provides the best illustration of the challenges of being an SOE director. “The Solid Energy experience was, to me, a question around judgement and decision making around going concern, which I feel very strongly is a director’s prerogative,” she says.

“It is really important for the shareholder of an SOE to respect the role of directors, and similarly for directors to be understanding of the shareholders,” she says.

Dunphy says in chairing her diverse portfolio she has had a number of highlights over the past year:

“For Transpower it was the finalisation of our regulatory allowances and quality standards for our Individual Price Path (IPP) for the 2020-2025 period with relatively modest adjustments by the Commerce Commission in the process; for First Gas it was the highly commendable execution of the repairs to the Maui pipeline to repair damage; and for Abano it was finalising the expression of interest process which resulted in a take-over offer by way of a scheme of arrangement.”

Sustainable Finance: A hydrogen-powered future (NZ Herald)

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Technology is playing a key role in changing the whole energy sector and enabling sustainability, says Vector chief.

Meeting the needs of current generations without compromising the ability of future generations to meet their needs, is about striking the right balance between the environment, society and the economy.

New Zealand’s largest distributor of electricity and gas, Vector, says it is leading the transformation to create a new energy future.

“Meeting the needs of current generations without compromising the ability of future generations to meet their needs, is about striking the right balance between the environment, society and the economy,” it says.

Vector chief executive Simon Mackenzie says that technology is playing a key role in changing the whole energy sector and enabling sustainability.

“Primarily this is through the decarbonisation of the energy space, but also very much through changing the whole consumer interaction in an industry that has been very low on the consumer interface,” he says.

He explains that the old model was always about generation being built and transmitted into cities or regions, with consumers turning on the light with no choice.

“When you think about that from an economic perspective, that was all very much a market-orientated supply side, but with an elastic demand side,” he says.

“What we see now is a massive change to technology, primarily through digital platforms, and also new solutions — whether they are solar, battery, microgrids or digital environments where people can shift energy.”

He says these are all emerging and putting shape into the demand side of the energy sector.

New Zealand’s energy production is different to many other countries in that it uses mainly renewable energy sources including hydropower, geothermal and wind energy. But it is the large fossil fuel generators that are investing massive amounts into emissions-free production to decarbonise their energy production systems.

This is changing the cost curves of these technologies, and is encouraging a shift to a decentralised model. For example, as residents put solar panels on their private property, they are beginning to ask: “I’ve got solar, I’ve got a battery and I’ve got an electric vehicle — how should I use my energy to the best effect?”

And it is here, Mackenzie says, where digital platforms come in — such as Vector’s investment in Internet of Energy (IoE) company mPrest.

He says mPrest’s technology is the most comprehensive monitoring, analytical and control system available anywhere in the world.

“You can think of it as a system of systems. The software sits over customer, market, distributed energy resources and network systems managing performance in real-time.

“Through self-learning, it is able to assess and predict multiple factors including loads, market dynamics, storage, customer demand and capacity. This greatly enhances the resilience, security and efficiency of customer solutions and our network.”

Mackenzie says if you can understand customers’ behaviour and shift them to flatten consumption by 20-30 per cent, then “that’s a massive change in the energy system”.

“Some of these modern electric vehicles (EVs) are turning up in the driveway with in-car battery capacities that are equivalent to seven houses’ worth of demand,” he says.

“This means to charge them quickly, you can have five to seven times the consumption of a house being needed. How do you manage that from an overall efficiency? If you can digitally control when the EV is charged, it is much better than creating new peaks that have to be managed — the costs are significant”.

As an example, EV chargers can help to facilitate energy flow both to and from an EV, allowing it to act as a rechargeable energy source. When connected at home or work, charge from the EV can be used as a power boost for the building, as a cheaper power source when electricity prices are at their peak — and will eventually be able to power homes during power outages.

“Many homes could be powered by their EVs at peak time. Similarly, EVs will be releasing energy back to the grid to support grid demand while taking advantage of a higher peak energy buyback rate,” says Mackenzie. However, he warns that one of the big challenges from a New Zealand perspective in the movement toward sustainability is a risk of complacency.

“We are getting asked questions about our sustainability position and our carbon reporting and we won’t get capital to New Zealand if we are not completely over what the trends are globally and financially.”

He says that just because we are small, at the bottom of the world, and perceived as clean and green, we must not think we are immune from these trends.

“We still have to raise capital from offshore and we need to be able to address questions about our sustainability position and carbon reporting.”

When Vector issued capital bonds, Mackenzie was asked a lot about what Vector is doing in decarbonisation.

“On the capital bond roadshow in New Zealand, some of the brokers were asking the question.

Offshore agencies are also asking about it … it is becoming much more prevalent.”

He says if we are complacent, we will be economically cast adrift.

“We won’t get capital if we aren’t completely over what the trends are globally and financially. But if we act, we can lead the way and create growth opportunities.”

Mackenzie sees this as an opportunity for Vector, because the company can adapt quickly and deploy new technologies.

He has seen rapid advances and focus in this space from global technology players that are developing new digital solutions for the energy sector.

“Vector has great international partnerships, so we see this as a way in which we can demonstrate how a market or a business can respond to these challenges and continue to learn,” he says.

This is an opportunity because Vector’s partners are keen to work with New Zealand to test out new innovation — “almost like a Petri dish”, which Mackenzie says will also provide export and other growth opportunities.

He adds that those who don’t show absolute concrete initiatives and actions will be left in an ever-increasingly difficult situation as social, regulatory and political pressure is applied.

We already hear of flight-shaming, which is encouraging people to shun air travel for the sake of the planet. Mackenzie has no doubt there will be energy shaming at some stage as well.

“Directors and business leaders need to be thinking of their carbon risk and appreciate that carbon is the new tobacco. Pressure will mount on them — including potential legal claims — if they can’t show action.”

This view is shared by the governor of the Bank of England Mark Carney, who earlier this month said companies and industries that are not moving towards zero-carbon emissions will be punished by investors and go bankrupt.

He said it was possible the global transition needed to tackle the climate crisis could result in an abrupt financial collapse, and the longer action to reverse emissions was delayed, the more the risk of a collapse would grow.

But he noted that great fortunes could be made by those working to end greenhouse gas emissions.

Carney told the Guardian that disclosure by companies of the risks posed by climate change to their business was key to a smooth transition to a zero-carbon world as it enabled investors to back winners.

“There will be industries, sectors and firms that do very well during this process because they will be part of the solution,” he said. “But there will also be ones that lag behind and will be punished.”

Sustainable Finance: No such thing as waste (NZ Herald)

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Business leaders are less optimistic than they were a year ago. A total of 62 per cent of business leaders responding to the Mood of the Boardroom survey say they are less optimistic about the general business situation in their industry.

Just 15 per cent feel more optimistic, 23 per cent say they feel the same level of optimism as last year.

The figures were worse when respondents were asked their perspective on the New Zealand economy.

A full 83 per cent say they are less optimistic than they were one year ago. Only 4 per cent say they are more optimistic, 13 per cent say they feel the same as last year.

This poor outlook aligns with other surveys of business confidence, which have shown consistent pessimism about the economy since the change in government to the Labour-led Coalition in 2017. The most recent ANZ Business Outlook found 52 per cent of businesses surveyed expected economic conditions to deteriorate.

Respondents were also asked how concerned they are about the impact of various domestic factors for business confidence, rated on a scale where 1 = no concern and 10 = extremely concerned.

The top domestic factors influencing business confidence in the NZ economy are congestion in Auckland (7.60/10) and infrastructure constraints (7.39/10).

The announcement last week that the Auckland light rail project will be delayed until at least 2021 exemplifies the lack of action that CEOs expressed frustration on. The infrastructure issue is considered in more detail on D21.

Other major domestic factors impacting business confidence according to CEOs include the availability of skills and labour (6.99/10) and general uncertainty around the impact and direction of current or proposed Government policies (6.87/10).

Foodstuffs North Island chief Chris Quin says: “Talent and Skills shortage and lack of clarity and progress on vocational training, along with an unclear future of vocational training and immigration settings are really harming the possibility of a successful transition to the future of work for NZ. Aligned Government spending that is much more effective in growing productivity is critical.”

Despite the pessimism from business, the International Monetary Fund released its annual review of NZ’s economy in the last week.

It suggests New Zealand’s economic growth is “still solid”. It says despite the loss of momentum in economic activity and a cooling in housing markets, output has remained close to potential. It also praised the falling unemployment rate and the government’s Wellbeing Budget — saying it struck the right balance between fiscal prudence and tackling priorities like mental health, child poverty and Māori and Pasifika aspirations.

Some economists say that business confidence surveys tend to be biased against Labour-led Governments, and have little correlation to actual economic growth. In line with this, Skycity chair Rob Campbell suggested one factor impacting business confidence is “business organisations talking down confidence”.

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Climate Change Minister James Shaw was rated at 3.05/5 by chief executives in the Herald survey — the highest score among Green ministers outside of Cabinet and marginally ahead of Prime Minister Jacinda Ardern on her own ministerial performance.

Asked if Shaw had been an effective leader of carbon emissions reduction policies, 50 per cent of survey respondents said Yes; 30 per cent said No, and 20 per cent were unsure.

“James Shaw has certainly got the subject of carbon emission reduction firmly on the table and has gained business and community backing,” says Beca’s Greg Lowe.

“This will encourage faster action but we need to be mindful of tackling the immediate issues first. Rural emission reductions will need more science but the science to reduce transport and energy emissions is on our doorstep now and we should be acting faster to remove obvious pollution.”

“He has the intellectual ability to understand how to tackle some big problems and the pragmatism to get things done. Not everybody around him has that pragmatism which risks ideology only and no momentum or improvement.”

Many believe Shaw has been particularly effective in getting business on board with Green policies. “The Green Ministers — particularly James Shaw — have surprised many in the business community for their ability to listen,” says a leading banking boss.

Z Energy chief executive Mike Bennetts says “James has been very effective in managing conflicting views to an overall consensus that is acceptable to all stakeholders”. Adds an automotive firm chief executive, “Thank goodness James Shaw is there, otherwise nothing would be happening”.

But others say it isn’t clear what Shaw has achieved, suggesting more evidence of tangible action and change is needed. “The visibility of change is poor but he has the capability!” says one respondent.

The head of an investment firm reckons “Shaw has been a highly effective co-leader for a small party outside of government, and on key issues.”

Adrienne Young-Cooper, chair of Panuku Development Auckland, offers him some advice: “he needs to lose the suit and be really innovative in addressing a lighter more loving footprint on our beautiful so damaged planet”.

Shaw’s colleague Julie Anne Genter who holds the women’s portfolio and is Associate Health and Transport Minister was scored at 2.09/5.

“Having starting to deal with Julie Anne Genter on some issues she seems to have some similar attributes to James Shaw of being intelligent and open to sensible engagement,” says Deloitte’s Thomas Pippos.

Others are more critical — Simplicity’s Sam Stubbs says she seems “hard wired to hate cars and love trains”:

“Her passion, and the Governments need for the Greens, could commit the nation to extremely expensive spending on a transport technology better suited to more population dense countries, and last century, not this one.”

Adds another: “Genter represents the greatest risk to this Government. She has let power go to her head, and her anti-car campaigns and opposition to roads being built will upset most New Zealanders. Twyford lets her do what she likes but she drives officials crazy with her loony policies.”

Eugenie Sage received a fairly middling grade of 2.29/5 for her work as Conservation Minister and Land Information.

She received just a single comment — the partner of a major legal firm says her role in the OIO approval process has been underwhelming. “There is a lot of uncertainty in the business community as now ministerial decisions seem to be going against the Overseas Investment Office’s technical recommendations for political or party reasons rather than following a considerate investment assessment”.

Influencing power

When it comes to their ability to influence policy outcomes, Greens co-leaders James Shaw and Marama Davidson rate well behind that political pro, NZ First leader Winston Peters. Asked to rate the party’s co-leaders on this issue — on a scale where 1 = not impressive and 5 = very impressive, chief executives scored Shaw at 2.87/5, Davidson received just 1.63/5. It’s perhaps not surprising that Peters, whose party is in a formal coalition with Labour, received 3.59/5 from NZ’s business elite for the same question.

Cooper and Company chief executive Matthew Cockram reckons: “I don’t necessarily like it, but there is no doubt that Winston and James have had a significant impact in getting their positions implemented.”

A telecommunications CEO feels that “James Shaw has worked tirelessly and often thanklessly to try to achieve cross-party consensus on difficult and complex issues,” whereas a Māori business leader says: “James Shaw is doing as well as he can with a disparate party. Marama Davidson — no comment.”

There is a perception among some business leaders that the Greens have not been as effective as expected.

“The offshore gas exploration ban is the only policy I think James Shaw and his party has driven, yet that risks making it harder to remove coal and so will result in more emissions,” says an energy sector CEO. “The Zero Carbon bill hasn’t gone anywhere yet and policies to make it real seem a long way off.”

In contrast, a real estate boss says the Greens have made an impact: “if you look carefully, the Greens have had wins on almost every one of their major policy platforms”.

At the recent Green party AGM, Shaw highlighted a string of achievements — including the ban on new fossil fuel exploration, public transport initiatives and the $100m Green Investment Fund.

“This year’s budget alone contained $6 billion in new funding for Green Party initiatives,” he said

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Focus on substance — that is the clear message to National from respondents to this year’s Mood of the Boardroom survey.

National leader Simon Bridges announced a June shadow Cabinet reshuffle following the news that  MPs Amy Adams and Alastair Scott would retire from politics at the 2020 election.

The biggest winner in the reshuffle was Paul Goldsmith. He picked up the heavyweight finance spokesperson and infrastructure spokesperson roles and jumped from seventh to third in the party’s parliamentary rankings.

Chris Bishop was also a winner, picking up Goldsmith’s former roles in transport and regional development. He moved from being ranked 35th to 16th, overtaking several of his colleagues and clinching a spot in National’s shadow cabinet.

New Zealand’s top CEOs and directors seem to agree with the reshuffle, with a banking boss commenting: “Paul Goldsmith and Chris Bishop have great potential”.

But when asked what more Bridges needs to do to present a vigorous alternative to the Government at the 2020 election, it was substance — rather than individuals —  that received attention from respondents.

Many suggested National needs to identify and focus on key policy areas, rather than trying to do everything.

“Be smarter and more strategic in what it criticises the Government on,” says a public sector boss. “Focus on things that matter to Kiwis — not on personal politics that only capture the attention of the press gallery.”

Respondents also suggested that National spend more time focusing on how they would perform better than the Government, rather than negativity and time spent explaining what the Government is doing wrong.

“Cut out the negative comments, lead from the front,” said Ovato managing director Simon Ellis.

Mainfreight boss Don Braid was direct: “The negative nit-picking in opposition has been pathetic; shut up and develop credible policy.”

But other respondents say National should continue to highlight the strength and credibility of its team, compared to those on the Government benches.

“All that National has to do is point out Labour’s incompetence at running the Government and the country,” said a policy boss.

“It makes the contrast to National’s experienced and qualified front bench even stronger.”

Cooper and Company chief executive Matthew Cockram said: “National should reach out to those who have been so cruelly misled by Labour’s rhetoric and execution ineptitude. Show that just throwing money at issues does not solve them.”

But CEOs also want National to adopt new policies that can demonstrate how the party has moved on from the Key government.

“The world has moved on and going back to that is insufficient to become Government and the wrong thing for New Zealand.”

Adds an independent director: “It still feels like a return to more traditional National policies. I think they need to better read the mood of society and set out some new ideas that demonstrate a real change from the past on issues like climate, infrastructure and taxation policies.”

Mark Franklin, managing director of  Stevenson Group said:  “They must stop acting like they are entitled to be there and start rolling their sleeves up.”

The need for National to consider the long-term — including creating a prosperous New Zealand for all New Zealanders, being realistic about sustainability and equality challenges and addressing New Zealand’s under-performance in productivity — was also a message from respondents:

“National needs to provide a long-term vision for New Zealand as a country, in order to work its way up the OECD rankings rather than declining,” says MinterEllisonRuddWatts partner Lloyd Kavanagh.

Said the chief executive of an investment firm: “In order to win, National has to own middle New Zealand — and right now they don’t. They are not progressive enough to capture hearts and minds of the real big-picture long-run issues for the future.”

“Stay centrist and loud on how to address system changes for long term change,” advised a tourism boss.

National also needed to find a coalition partner.  “They will be hard-pressed to get an outright win,” advises an executive in the education sector.

Reiterated Barfoot & Thompson’s Peter Thompson:

“They aren’t going to win it alone so need to work closely with an alternative party to go into partnership with them before the election — so the public know before they vote.”

Though  most respondents say National’s strength is that it  has a credible cohort of talented performers, a few recommended National look to bring in new talent from the outside.

“…but definitely not Luxon!” pleaded an investment bank head.

A ‘credible alternative’

Two-thirds of business leaders — 66 per cent — say that National’s proposed policies are providing a credible alternative to the policies from the coalition government. Just 8 per cent say they do not; 26 per cent are unsure.

“National is insignificantly different to make a great difference to New Zealand,” says Mercury CEO Fraser Whineray. “Can we have a long-term vision and discussion about our place in the world?”

“Better than the Coalition? Certainly. But not good enough to lift our lousy productivity growth rate,” cautions ICBC chair Don Brash.

Last month, National launched its economic policy discussion document. Among commitments, Leader Simon Bridges said National would not introduce any new taxes in its first term, would reinstate the social investment approach, and would reintroduce targets in health, education and law and order.

The top three rated policies were:

  • Allowing Kiwisaver contributions to continue beyond the age of 65 for seniors who remain in the workforce (8.12/10)
  • Requiring all government agencies to pay their contractors on time and within 30 days (7.99/10)
  • Requiring Treasury to have greater focus on identifying wasteful spending (7.96/10)

The two lowest-rated proposed policies were:

  • Returning the brightline test to two years and remove ring fencing of losses (5.29/10)
  • Repealing the regional fuel tax in Auckland (5.12/10)

Deloitte CEO Thomas Pippos says Government policy is about deliberate choices that balance financial and non-financial outcomes.

Pippos says a challenge with the proposed economic policies that National released is that they look to appeal to the conservative wing of those that support National — which they “already have in the bag”.

“Key social issues around housing, poverty and inequality are not being overtly addressed,” he says.

“Similarly, there is no positive response to environmental issues. Putting to the side the challenges of MMP and the lack of coalition partners, National would be more successful if it transformed to being more progressive and appealing to the majority of voters who occupy the centre of NZ politics.”

Several of the respondents say the release of the economic policy discussion paper was a step in the right direction, but suggested National is not doing enough to move the needle.

“Some of their ideas are incredibly sensible but I don’t see a strategic plan in place yet,” adds a government relations firm head.

“There are some good ideas, but it’s all tinkering,” says Whineray. “The centralised dynamics are different to the rest of the world and effective oversight of expenditure absolutely beats the perception of scale economies.”

Don Brash added: “Some of what National proposes is a pale shadow of what it should be. For example, starting to raise the age of eligibility to 67 from 2037. Australia will get to 67 by 2023!”

Others suggest that National is struggling to resonate with the electorate, and put this down to a lack of ability to clearly communicate their policies. “They are still pretty unimpressive when it comes to developing and communicating their policies… maybe it’s still a secret?” questions Mark Franklin, managing director of Stevenson Group.

The proposed “regulations bonfire” – which has been compared to the Donald Trump playbook – promises to “repeal 100 regulations in our first six months in government and eliminate two old regulations for every new one we introduce.” It scored 6.25/10 and received the most commentary from respondents.

“A ‘regulations bonfire’ sounds good, but National’s own record in this area over nine years was very poor,” says a banker.

Michael Lorimer, Auckland managing director for Grant Samuel said: “This policy illustrates Bridges’ naivety.”