The climate pendulum will swing back – harder
Directors should act now to mitigate harsher regulation and reputational risk later.
Political tides shift. Regulations stall. Climate policy is caught in a pendulum swing – and it’s currently in retreat in some countries. But Daniel Street, Sustainability and ESG Lead Partner at DLA Piper in New Zealand, warns boards not to misread the moment.
“If the pendulum swings back, and it will, it’s just going to swing back harder,” says Street. “To prepare for that, boards need to make progress now.”
Despite the ESG regulatory pullback, Street argues that credible, long-term climate governance is still essential. “You’ll see more disasters, more public backlash, more political pressure and then more knee-jerk, more onerous regulation. Boards that haven’t laid the groundwork will be caught out.
“We’re seeing jurisdictions either pause, postpone or pare back sustainability regulation – whether for ideological, economic or geopolitical reasons,” says Street. “But that creates uncertainty. As a director, you want comfort that if you’re going to invest in transition and regulatory compliance, the goalposts won’t change in two years – and that your competitors will also be held to the same standard.”
He cautions that boards must not confuse policy shifts with a lowering of risk. Exporters, for instance, face diverging regulatory and customer expectations across international markets. “Clients are asking: how do we have an ESG policy that meets requirements in one market, while not landing us in trouble in another?”
Street also sees a disconnect between regulatory change and market behaviour. “Whatever the regulation says, customers still want sustainable products, investors still want better data and global sentiment still leans towards action.”
In the meantime, climate litigation continues to rise globally and is increasingly targeting directors.
“Around 20% of climate cases filed globally last year targeted companies and/or their directors and officers,” says Street. “And it’s not just fossil fuels. There’s a growth in agriculture, financial services and other sectors.”
This includes claims of failure to act, inadequate transition plans and poor risk preparation. Street says some boards still view climate obligations as reputational issues rather than governance requirements.
“The focus so far has been on avoiding greenwashing. But that’s only half the picture. Increasingly, the risk is about a failure to act – even if you haven’t said anything publicly. These are positive obligations.”
Recently, there has been public debate in Aotearoa about the usefulness of mandatory climate reporting. But Street says the early evidence is in.
“We now have multiple academic studies showing that firms with mandatory climate reporting obligations reduce emissions faster than those with voluntary ones.”
He believes directors should reframe how they see reporting – less as a compliance task and more as a strategic exercise, saying it also goes beyond emissions reduction, to cover a business' resilience to the broader risks from a changing world.
“Reporting is the output. The real value is the process. The thinking, the strategy, the risk analysis – that’s 90 to 95% of the benefit. If you do that work, and act, the legal and reputational risks take care of themselves.”
Boards that act now are more likely to be resilient later. “This is core governance. It’s Director 101,” he says. “Directors need to think about the external shocks their organisations will face over the next five to 10 years – and how they’re going to respond.”
Daniel Street is a speaker at the Climate Governance Forum in Auckland on 28 July. His session will cover regulatory developments, legal exposure and what directors can do to show meaningful oversight and engagement in this critical area.
