Ep19: Mike Bennetts 'Leadership from the Heart of the Problem'

Transcript

Michael Liebreich

Cleaning Up is brought to you by the Liebreich Foundation, and the Gilardini Foundation.

Hello, my name is Michael Liebreich, and this is Cleaning Up. My guest today is Mike Bennetts, the CEO of Z Energy, the fuel distribution company in New Zealand, over 40% market share.

But although Mike leads a company which distributes fossil fuels, he's also a climate leader. In 2018, he set up something called the Climate Leadership Coalition, which now numbers over 100 CEOs of New Zealand businesses, bringing them together to take a stand, to make pledges, to sign statements, signifying their determination to deal with CO2 emissions, so that New Zealand can be on track to meet its 2050 net zero commitments. It's a story of leadership. He didn't need to do that. But he decided to do that nevertheless. And we're going to hear about his reasonings and how he went about it. Please welcome, Mike Bennets.

Mike, good evening. Hello.

Mike Bennets

Hey, Michael, how are you?

I'm really good. Really good all the better for seeing you.

Gee, you are a flatterer.

Well, I know it's some ungodly hour of the morning in, in New Zealand, or at least it should be presumably it's early morning.

It's actually 8:30. So it's, it's fine. I've been up for hours.

So not so bad. Not so bad. And you'll have to forgive me because, I'm actually, I'm celebrating because we finished a pretty substantial piece of work on electric ferries in Latin America for the Inter-American Development Bank. That's been a lot of work. And so I'm having a quiet beer here in the evening. And what a pleasure to talk to you at the same time.

Okay, well, the best I can offer up is a smoothie.

Well, I'm sure if it was evening there, you'd be having a glass of wine and I'd be doing a smoothie. So you've just had an election, and Jacinda has been reelected. So are there going to be any major changes in energy policy, anything that you that's going to happen as a result of that? Or is it kind of more like continuity?

I think it's, it's probably a little bit of both. So something in between the previous government was a coalition government, and there was a little bit of a handbrake from one of the coalition partners. And so that handbrake is no longer there, the government have an outright majority, they formed a cooperation agreement with the Green Party. So that indicates that climate change, for example, would be a very important consideration. So I think, if anything, no new ideas, but perhaps the momentum to get after those ideas a lot quicker, or sooner, including some reasonably controversial one, not so much controversial, but challenging things like pumped hydro, for example.

All right, yes, that's hydro has an interesting history in terms of controversy. But some, you know, maybe we'll come back to because the urgent thing and the thing that everybody's looking at New Zealand for right now is, of course, the COVID response, which appears to have been much better than certainly most western countries. And there's a number of countries in I don't know whether you count New Zealand as an Asian country, Asia seems to be doing better than Europe and the Americas. How is that going at the moment?

Yeah, going really well, really well. Our economy in general is doing much better than most people forecasted six or nine months ago. Obviously, there's some parts of the economy that are struggling, you know, as you'd expect, sort of international tourism, to be a good example of that. And, you know, we are fortunate that we're an island nation, we could pretty well shut the doors. I knew returning New Zealanders could fly into the country. And we have a good, reasonably good quarantine control process underway for people who do come in so a little bit of luck a little bit of good management, I think has enabled us to not have to fight surges. And generally compliant culture. So it's interesting how you described this as a little bit Western and perhaps Asian I think many Asian countries put community above family or individual whereas perhaps the there are certain, the more American model is individual first family second, country third, I think New Zealand's a little bit different today. But we've been certainly in the

initial rounds willing to sacrifice personal things for the good of the of the community. I think if we were in a situation like the UK, when you're being asked to do that two or three times in a row, then I think, frankly, New Zealanders patience would run out.

Now, the person who introduced you and me, Roger Dennis, I had him on Cleaning Up one of the early shows, I'm not sure which number it was, I think it might have been number eight, it was around then. And, and he had worked on pandemic preparation plans for New Zealand. But what he basically said was, "we were lucky". He said that all his attempts to prepare from 2015 onwards, that was not and you know, to raise the, the awareness amongst governments and others, he said, that was not why it went well. There was a lot of luck involved, would you would you concur?

Absolutely. And some of that luck is simply: when we went into lockdown. If we waited for two more weeks, yeah, we were only three weeks behind the Italy curve, at the time we went into lockdown. So what that implies is, if we had not have gone into lockdown, we would have looked like Italy three weeks later. So I think that there's that, I don't necessarily call that luck. But that's a tough decision for government to make, to basically lock up the community in a way that we have never had before. So I think if there's pandemic, it was a matter of days, actually, between a good call and a bad call.

And I remember when the Chinese government locked down Wuhan, and we all said, oh you could never do that here. You could never do that here, let's get away with it. And of course, we sort of waited, waited. And then sure enough, we had to. So what, you know, what our society puts up with seems to change fairly, you know, fluidly fairly rapidly in this sort of situation.

Yeah, that's a really good point. There's some research that I get to see every month, and that was talking about how many New Zealanders were still fearful of catching the virus. And at the time, we came out of our higher levels, so we almost were back to the next normal, there was still 37% of people concerned about catching the virus and I get like, wow, if that's happening in New Zealand, what is it like in Europe and America and India? For example, if virus was basically gone, yeah, nearly 100 days of no community transmissions or and you get, well, over a third of the population are still worried about catching the virus.

Yes. And we're sort of in a way and we have in the other direction, people stopped worrying about it when perhaps they should have been more worried. And now here we are in a second lockdown. And I suspect the next bit of social research, maybe you'll see as well, is whether people will actually want to take the vaccine, which apparently works, but will people actually want to take it? Will they want the other people to take it and then benefit from the herd immunity? I don't think this is over yet in terms of odd and irrational reactions from the public.

I totally agree with you. Yeah, there's, I guess you could use all the models you want to in the world about how people would respond to this sort of stuff. Because there are so many other dynamics at play at the same time. And I think the US is a good example of that. Yeah. COVID has clearly affected the election, and then the post election activities are not necessarily predictable, either. And they either exaggerate or diminish what is happening with COVID.

Yes, indeed. And well, we're all still nearly sure, but not quite sure. As we film this, whether we'll have President Biden taking up the reins and you know, having his COVID plan, which seems a little more coherent than what they have today. Okay, so, Mike, you yourself as the CEO of Z Energy had to go through a process of responding very rapidly, turning on a dime for when COVID hit. For the audience, could you just give a very quick thumbnail of what Z Energy does most of them probably not that familiar with it, but the very quick version. And then how did you ramp through the gears of responding to COVID?

Yes, sure. So we are a classical downstream oil company. We sell fossil fuels, we have a interest in a refining company here in New Zealand. And then we buy crude and processed that we bring in imported products to sell to our customers. And we're classical in that sense that we have a traditional service station channel, and we supply to all the various people who would use our products say, what I loosely describe as boats, planes, trucks, trains, and tractors. So we're across all sectors of the economy in terms of how people use petroleum products, we're a large company in a New Zealand context, we got about a 40% market share. So we're substantial. And we are effectively the large New Zealand company. We're a public company, majority New Zealand owned and we compete against the likes of BP and Exxon Mobil, for example. In terms of the crisis itself, we're lucky as a company that in the industry that we are, we practice crisis management a lot, either because it happens for real like a supply outage, or we drill on it on an annual basis. And because of that, we actually stood up our crisis management team in the last week of January, where there was some indications that maybe suggested something was going to happen. We dusted off our 2013 pandemic plan. And so by the time New Zealand actually went into its first formal lockdown in the last week of March,

we'd already been on the go with our crisis management team for six to eight weeks. And we'd already developed what we call treatment plans, how will we run our company in the event of these different scenarios playing out? So for us, a little bit of good luck, and a little bit of good management enabled us to be very, very well prepared when New Zealand went into that lockdown, in terms of our operational activities, as well as considering what that meant for the financial resilience of the company as well. Yeah, when revenues drop by 80 to 85%, that's pretty severe.

And just for clarity, when you say, the annual drill, I mean, just for the audience is a 100% sure. You meant by drill as in, going through drills going through preparations. Rather than drilling because you're a downstream only company you only distribute and sell, or you do you have some ownership of a refinery, but other than that you're not upstream at all? Just to clarify for the audience?

Oh, yeah. Yeah, absolutely. I mean, drilling, in the sense of practice. And we have two types of practice exercises we run one would be what we would call a desktop, where we would actually talk through what we would do as a scenario unfolded. And the other one is a real scenario where we would get people playing certain roles from the outside, we would have real media, interviewing us, and everything would be happening in real time. And we may run that scenario for a whole day. Whereas we could run a six weeks scenario through a desktop exercise and sort of half a day just by talking about what we would do rather than actually doing it.

And in retrospect, how good was your 2013 pandemic plan?

It was good to start with. What we what we learned was, I think in any actual thing, any actual event is often different to the scenarios you plan. And it's often good to use scenarios, because that gives you quite a wide range of potential outcomes for which you can plan. So what we found was things were a little bit different, who would have thought we would lock down the country, for example, who would have thought that we were in a situation where our revenues were down by 85%, we thought of all the obvious things: that might be difficult for people to come to work, so we need to be able to work effectively from home and have technology to support that, we knew we would have some form of customer disruption. We equally didn't necessarily think that the world would be operating in a similar mode at the same time at the same scale where many countries were going into lockdown, you might be able to get physically crude and refined product supply. But actually, how do you deal with a boat that comes in from

overseas into your New Zealand port where you're effectively locked down? Your staff are going to have a face to face interaction with someone on a ship, who may have come from another country that had lots of cases, whereas New Zealand at that stage had very, very few.

Yes, and what I talked about with Roger Dennis was whether you can plan or whether you can whether, which is better planning or agility? And it sounds like you started with a plan but pretty quickly flipped into agility mode?

Yeah, that's absolutely correct. And one of the bits of planning that we did, we actually got Roger to come in and help us and we planned. Because I think planning and agility go together, we planned around four different and distinct scenarios. So once it looked like it was game on, so to speak, and our 2013 plans are insufficient. We said, well, actually, how could it play out some sort of mild, easy, easy response or something particularly severe for an extended period of time. So sort of a classic two by two matrix that we work with. And that was, again, very, very helpful to us. Because depending on your outlook on life, and I'm a glass half full person, it's very easy for your planning to reflect your personal values, rather than actually what might happen, and how could you prepare for that. And Z is a generally optimistic companies, so if anything, when things get tough, we tend to think it'll be okay. We'll find a way to work through that. Whereas Rogers discipline helped us go, actually, this could be particularly severe. And what would that look like? How would that particularly challenge us as a company?

Right now at this point, the audience is probably thinking this is absolutely fascinating how a senior leader deals with something like a pandemic, but why is Michael talking to somebody who fundamentally distributes fossil fuel products. And of course, the backdrop to all of this is that you are also dealing with the transition of the New Zealand economy which now your PM has been very clear is going to transition 100% and completely. And also the more global issue around net zero and the climate response. And so I think, you know, let's move on and talk about some of those issues. Because I was very struck, you know, I met you, I came down to New Zealand, in June of 2019. It was my first trip, I wasn't quite sure what to expect from New Zealand was enormously overwhelmed by the, you know, with a wonderful country. But I was also enormously impressed by you and your team and how you were thinking about those issues. Because you could have quite easily simply said, well, you know, there aren't any electric cars in New Zealand, you know, rounding to the nearest, you know, 0.1%. Zero. They're not going to get here quickly. And we don't need to worry about decarbonisation. Everybody is simply, frankly, you know, that there's nothing, they can't do without us. And so they're going to have to live with us. But you didn't do that. Talk us through, where are you as a company?

And then we'll get onto some of your engagement with broader business, environment and society on the climate issue. But where are you with it as Z Energy as a fossil fuel distribution company by DNA, how you dealing with the transition?

Yeah, actually, I won't answer the question directly, I think it's important to go back a little bit in time, if I could, Michael, we came, we bought the assets of Shell back in April 2010. So quite a long time ago now. And in November 2010, we published what we called our sustainability stand, not a policy, but a stand, something we stood for. And again, language is quite important, and a company like Z. And within that stand we've painted a context for ourselves. And at one level, there's a given context for a company like us, which is we sell fossil fuels, and the world needs lots of it. It's again 10 years ago, it was very difficult to think about a future without fossil fuels. We're very, very large company. The average car in New Zealand is 14 years old, blah, blah, blah. So there's a whole lot of stuff that was in the given context, that I think is implied in your question that we could simply have said: well, actually, it's all too hard. Let's just go with the flow. However, we recognised that the role of senior leaders is to design context rather than invent content. So we said actually, what would our generated context be? Well generated context would be that Z could support change in New Zealand on a scale that few companies in New Zealand have the opportunity to do. That we could be move, and then the quote we use move from being in the middle of the problem to being at the heart of the solution. That we could through the eyes of our customers be incredibly customer responsive and responsive to the broader stakeholder set by acknowledging the problem of climate change. Because the science is pretty clear, you know, 10 years ago, that actually, this does need to be resolved. And it's an intergenerational issue. And again, I could go on. So there's something around us not simply accepting the given context, which is, you know, we're a large company, we should give our cash back to our shareholders as quickly as we can. Versus actually, we could do a lot more here. And frankly, if we don't engage in this, the transition that New Zealand needs will be slowed down, because you we're such a large player within the market.

And so you were having that conversation in 2010, when you first were brought in to run Z Energy.

Yeah, that's correct. My last job was in Asia I was working in Singapore, but I had responsibility for Sub-Saharan Africa, the Middle East and all of Asia Pacific, with BP. I had to go to America regularly and Europe. And what I observed just prior to the global financial crisis, is real examples of leadership, particularly from Europe around dealing with climate change. And what I noticed is that when the global financial crisis came along, all of that stopped, and again, for

very, very obvious reasons. I can recall coming back to New Zealand, but then in my mind, I also looked at New Zealand, having not lived here for 17 years and thought: gosh, was it always like this? Or am I noticing it's not quite as clean and green as I remember. So I had those two things in my mind. And then when I when I came into the company, I remember sitting with one of our senior guys and saying, yeah, it's not on the agenda right now, but sustainability in its broader sense, is going to be the next big thing. And I said, I reckon by 2015 or 2016, it will be the next big thing, the same way it was in that 2007 period in Europe that got fundamentally disturbed by the global financial crisis. And that really got us into action in 2010 saying, if we do not deal with this, it's a significant risk to our company within the foreseeable future.

And one question: this was a buyout of the Shell assets by presumably, there was some there was a leading investor group that did that. And they brought you in as the executive to run it. Did you have that conversation with them? At that time? Did you say, by the way, if you buy these things, and if you have, if you have me run it, you better you know, you better be ready for me to take this stuff very seriously. Not to play a rearguard action, but to be at the heart of a solution.

Yeah, broadly I did. New Zealand quite a small place. It's almost a village. And I sort of had a bit of a heads up from two or three people saying you're going to get a phone call, these people are interested in seeing whether you'd have any capability to add to what they're looking to do. So I really had a chance to formulate my thoughts. And I recall flying down for what was effectively the job interview. And I had a chat with one of the principals and just asked those sorts of questions. Yeah, so effectively, what are you up for then in the language of the day. And they told me what they're up for, which was largely a financial metric. And I said, I think we could do better than that. And they said, oh, what do you mean by that? And I, I mentioned a larger financial metric that got him particularly interested. But then I talked about some of the other things because I had left BP globally and came back to New Zealand because I wanted to get out of the sector. Yeah, I'd been in it for 25 years, I'd seen a lot of things good and not so good. And I just had grown tired in terms of there was a mismatch between my personal values, and what I was being asked to do. Nothing immoral or unethical. So the last thing I wanted to do was go and run, if you'd like another oil company, or be part of an oil company. So I feel like my game worth playing was very different when I joined here, in 2010. for that very reason, if it had been, yeah, the rearguard action you spoke about, I wouldn't have joined.

Right, so talk about some of the things that you've been able to do within the company. And then we'll get on to the role that you've played within the broader business community in New Zealand.

So what we said is that, we acknowledge things like 90% of carbon emissions for households come from the products that we sell, that we have a significant impact on the carbon emissions of our commercial customers, whether it's airlines, shipping companies, etc. So with that in mind, we said, actually, we had three, three very simple goals around our sustainability work in the original years. One was to reduce New Zealand's reliance on fossil fuels, which is kind of weird when that's your core business. And one of the other goals was to reduce the carbon intensity of the products that we sell. Again, that that seems paradoxical: how the heck can you have a core business and hold those things together? And what that required us to do was start to say to ourselves, actually, how would we reduce the carbon intensity of our products, which leads you down an alternative fuels path? Or how would we really reduce New Zealand's reliance on fossil fuels, which also takes you down another path as well. So we're quite a high volume, low margin business. So if I came to you with a solution, even in the realms of fossil fuels, and said Michael, I found a way for us to use 20% less of our products. But I actually want to charge you a couple of cents a litre more for that, it's economically in your interest to use that technology to reduce your consumption of our products. And my profits, although I'm selling 20%, less would actually double. So we could afford to sell 20% less, and put the price up by a smidgen and our profits would double. So that whole trip, I think companies get into around, I have to sell more of something to sustain or grow my profits. Again, we generated a context around that that just opened up different possibilities, particularly in how we could use technology, to get customers to use less of our products, or to allow them to use less of our products.

And this is fascinating, because of course we're talking here in the jargon about scope, three emissions, the carbon embodied in your product, whereas at the same time now, some of the, all of the European oil and gas companies are, you know, grappling with scope three, but at the time, they were saying, well, we're going to reduce or eliminate scope one and scope two, the emissions from our operations. But we sort of, in a sense, don't care what we sell. Now they've all moved on from that. But you were doing that around 2015 you say?

Yeah, very much so because the numbers for us were our operational emissions at the time were about 50,000 tonnes, but we were selling nearly 10 million tonnes. So yeah, multiple factor and we're actually carbon neutral. We, we have reduced our emissions over time through

all the things you'd think a good company would do. And we offset what we can't reduce through permanent native forests here in New Zealand. Getting that, that costs us money. But if we didn't feel that we had the right to go to our customers, and if you'd like, preach on this stuff, without being able to say, actually, we've tidied up our own backyard, and we want to work with you to tidy up your back garden, and yet the quantum was 40,000, or 50,000 tonnes plays 10 million tonnes. It's very clear where the problem is.

But where we're going now, with the commitments, the net zero commitments of the of the big oil and gas companies and just for disclosure, I'm an advisor to Equinor. But also, you know, Shell, Total, Repsol, BP, they've all made the similar while they've all made commitments that are starting to really constrain them in terms of those scope three emissions. Those are going to be some very big numbers of offsets. I mean, you've got you know, you've covered your own scope one and two, presumably with those native forests in New Zealand, but not your scope three. Could you even consider doing scope three emissions as well?

We could do and effectively New Zealand does that or we do that on behalf of our customers anyway, because New Zealand has an emissions trading scheme, it is price carbon. And we are required to buy those units every year. So that we were able to settle with the government say yeah, emissions were, say 10 million tonnes. And here are 10 million tonnes with the credits for that

Covering transit, as well as because in Europe because it doesn't yet cover transport.

Yeah, there are a few companies in New Zealand that are excused from the scheme, but otherwise, that applies to every sector of the economy.

I knew we were going to talk about the dairy industry in one shape or form.

Hmm, yeah, so 50% of New Zealand's emissions. And you include, it's not just carbon here, but all of the emissions that we deem to be unhelpful for the planet's welfare, sitting in our agricultural sector. We have about 85% of our power production is already renewable. So New Zealand's challenge and opportunity looks very, very different to say countries in Europe.

Yes. I don't know if you recall, I got into trouble when I did come down to visit with you. Because I was asked quite late in the visit, you know, was there anything that I was surprised about my first visit to New Zealand? I was asked by it with I think it was stuff, the media outlet in New Zealand stuff.nz. And it is very nice interview. But what was interesting was I said, I said well, frankly, and to be honest, I have had similar sort of insight to you is that I was quite surprised. I thought New Zealand was all glaciers, and it was all incredibly clean. And so what I said was, I would tell you, I was surprised that 10% of your country's carbon footprint comes from drying milk powder with coal. I said, I mean it's insane. I mean, it's got to stop. Right. And so the headline the next day was, you know, UK energy guru says drying milk powder with coal is insane and must stop or some words to that effect. And you know Fonterra to their credit, shortly later, but shortly afterwards, I don't know whether I can take credit, actually announced they weren't going to do that they weren't going to build any more coal fired dryers, but they really need to shut the ones they've got. I mean, that's the only that's going to be very challenging.

I think that's one of the that's, that's almost like this paradox, or the conundrum that we have is New Zealand, I think quite rightly up, quite rightly argue, or assert and the data supports that that we are the most fuel efficient farmers in the world. So although yeah, the emissions in New Zealand are 50% from the agriculture sector, we're way more efficient than anybody else and how we farm. So should we really be doing anything in New Zealand or should we send reason for people to rationalise doing nothing? And the result is nothing improves.

What's interesting about net zero is of course, that there's nowhere to hide, you can be the most efficient but it doesn't help because you still got to get to net zero. And I think New Zealand's in very interesting position, because your two biggest industries are tourism and dairy, both of which have got a very troubled, it's very difficult to know how you get to net zero in those two sectors.

Yeah, that's right. And so if anything, there's a lesson here from COVID. So well, international tourism sector is pretty well zero right now. So how does the economy adjust to that, because I don't think that's going to come back that quickly. And it does start to put more at the forefront. Some of the challenges around if say people in Europe chose not to visit New Zealand because they were concerned about their carbon emissions. We've now got a bit of a sense of what our future could look like in a post COVID world where people started to make those sorts of choices. And then when you come back to agriculture, if anything that has been

flattered as a sector during COVID, because of course, we are able to feed ourselves and keep exporting. At a time when many other countries, industries and parts of the economy are not able to be productive.

Well, that's right. And you can always say, for the tourism sector, you can say, well, there'll be, you know, there may be less international tourists arriving. But then, of course, there's also fewer New Zealanders leaving. And so you could say, well, maybe you can sort of eat your own dog food and go visit... Well, that's a terrible analogy, I'm sorry, I apologise. You could go and visit, you know, marvellous parts of your country that you might not otherwise visit. But you do need the export earnings, because that doesn't replace the foreign currency coming in. So you do need the trade. So let's move on to your role then more broadly. You were doing this, this sort of, I wouldn't say it's a transformation, but you were, you were addressing issues of climate risk and your emissions within Z Energy. So there you were at Z energy around 2015, you were moving the company away from being sort of part of the problem to part of the solution. What about electric vehicles or some of the new technologies? There's a lot of discussion I know in New Zealand about fuel cells as well. Did you build that into your strategic planning? And where are you with that now?

Yeah we certainly did. And things change really quickly. So back in 2015, sort of EVs were almost like a twinkle in someone's eye. There were obviously examples of those out there. But it was very easy to rationalise that this will never turn up. And I think like any exponential technology, I spent a bit of time in Silicon Valley trying to better understand exponential technologies. They always overwhelm until the point that they don't. And then you suddenly go, wow, that's where did that come from. And of course, it was 10 years in the making. And I think EVs are a great example of that, where even today, New Zealand has about 20,000 EVs. Yeah, 0.1% of the fleet, the average car in New Zealand is 14 years old. So there's lots of reasons to rationalise that EVs will never be a significant feature of the economy here, which of course, is not true. So for us, EVs was a matter of simple, actually, how do we participate in it rather than the context being, this is a threat that we must avoid at all costs. And so we did some early experimentation, we put in some charging units, just want to understand how the customers engaged, what are the issues operationally around us. We spent time both as management and our board travelling around the world, trying to better understand other markets. And we felt that Norway was probably the best comparative market to New Zealand. And one of the benefits of being in New Zealand, you were always a couple of years behind most things that happen in the world. So for us as a company, that gives us a wonderful opportunity to see how markets like China, California, Norway, evolve, and then try to

understand what would that mean for New Zealand? And how would we participate in that transition? Rather than how would we resist that transition?

Yes, although New Zealand does have some specifics. So unlike Norway, you're not an oil producing nation with a huge sort of National Trust Fund to spend on things and also your cars tend to be brought in secondhand from Japan. So you would really have been quite justified in saying, well, we're going to be the last country to be affected, would you not?

Yeah, there's lots of structural reasons why we could argue that New Zealand won't be that affected. However, we've got to come back to a couple of things like you've got this tension around. Yeah, we've signed the Paris Agreement. And there are targets, very real ones for 2030 and 2050. So every day, we don't begin the transition, we almost have to spend twice as many days making up for that.

Okay, so. So you've sort of put your toe in the water around electrification, it's still not a huge trend in New Zealand, although, as you say, I mean, these, these curves take off very dramatically when they do. But you also decided to play a leadership role in New Zealand business in the response to climate. Talk us through Why did you do that? Did you feel that the government was not leading sufficiently aggressively? What was your thinking at that time?

This happened about just over three years ago, actually, so it was just before the past election, and I can recall, actually we went and did some stuff down at Parliament, and I recall coming out of that meeting, incredibly frustrated, which was about me, it wasn't about the people I was meeting, and it was, and I just didn't feel like we had the right level of commitment around this. And I remember sharing that with.

So you were meeting in Parliament to talk about what?

I had gone down to Parliament to meet with a bipartisan group of MPs, and it was one of those classic dinner sittings. Couple of chief executives, cross section of Parliament by way of MPs, just sort of talking about the sort of things you and I are talking about. Yeah. What are the issues here? How does New Zealand transition? How do we deal with the challenges and the threats in that transition? And it was, it was a useful conversation. But I recall coming out of this

saying, gosh, I don't feel like I've really moved the ball down the field. Yeah, it was one of those nice conversations rather than a conversation that makes a difference. And I recall, expressing that or sharing that concern with another chief executive. And it just dawned upon us that, actually, we're not alone in this. And so rather than each of us go into forums like that, and have discussions and come out, you know, happy, sad or indifferent, what if we got a little bit more of a collective game? So what I did is I reached out again, in the village of New Zealand, this is quite easy to do. I reached out to about a dozen chief executives who I knew felt strongly in this area, and said, look, guys, why don't we and back then we're all guys. Why don't we all get to have Why don't we have dinner one night, and just talk about how we're feeling about this.

And so we had a dinner, we talked about how we were feeling, we recognise that rather than us dealing with this individually through our own companies, or our own personal networks, we could form more of a collective around it. And we then said, Well, actually, what would we call this around? What's the thing that we could stand for? So that we very quickly came up with what Bobby called our pledge. And that's how it started off a dozen companies saying,: there's three parts of the pledge, this is what we stand for. And we invite others to join us. And we thought it was really important to get that pledge, documented and publicly shared, to give parliamentarians or potential MPs of whatever political persuasion confidence, that certainly there was an element of business that were very, very keen to make progress on climate change. Because so often, business gets put in the box called, you folks just care about profits, and you don't care about social or environmental issues. And if we weren't public about it, we felt that we weren't giving the right level of confidence to parties, in particular, say, New Zealand's Conservative Party, the more business orientated one, that actually business do care about this. And businesses do care about it, we now have 103 organisations in that coalition that represents 60% of New Zealand's emissions, and about a third of the private sector GDP. So that's a really big chunk of the New Zealand economy who've publicly made commitments around what they will do and be measured on as it relates to climate change.

Now, you've described that process of calling around the other CEOs and sort of getting the group coalesced. You've talked about it like the lone nut, I think it's a video from TED where there's one guy starts dancing, talk us through what what's your lone nut theory of corporate leadership?

Yeah, that's great. And so if you want to watch the video, and it's well worth it, it's five minutes long, I just googled the dancing guy. And it's effectively a

The dancing guy?

So that's a five minute YouTube clip,

We'll put a link into the show notes.

Great. And what effectively has somebody filming a person at a music festival, and they narrate, or they talk over what's actually happening. And so as you imagine, at a music festival is a bunch of people lying on the ground or pretty chilled out. And all of a sudden, one guy stands up and starts dancing. And I wouldn't describe him as the world's best dancer, but he's up there kind of doing his thing. And he's very much in the moment. And then he looks like a lone nut, because of course, he's on his own. And within a short period of time, and perhaps if you're watching this, it feels like an eternity. But then 30 or 40 seconds, somebody else joins him. And then somebody else joins that person. And within a very, very short period of time, there's a whole movement, everybody is up dancing. And so what the narrative talks about is that the lone nut is just a lone nut, until they have their first follower. And when they have their first and second follower, they go from being a lone nut, to being a leader. And I think that's a really eloquent way to describe how things happened. Yeah, I felt like a bit of a lone nut, as indeed some of the other who were early to the party. But now we're lauded as providing leadership. If we hadn't have had those first or fast followers, we would simply be lone nuts. And I'd think it takes, it's often people give credit to the lone nut as being the person who started something. I actually think it takes more courage to be a first follower than a lone nut.

That's a very interesting thought. I mean, this is all resonating with me because, you know, 2004, I started a company called New Energy Finance to cover trends in clean energy, wind, solar, biofuels, and so on. You know and my friends thought that I was throwing my career away. I mean, they didn't know it was already ruined because of dotcom, boom, bust and so on. So I had nothing to lose, but I was definitely the lone nut. And then you're right, it did feel like it felt good when people started, other people started to kind of say, you know, I really like what you're doing. And this is really important than. Gosh, tell me that again, because it feels central and so on. But I haven't thought about it in terms of the courage of others, to start sort of, you know, demanding that their boss paid for a subscription to New Energy Finance, but I guess yes, that would also have taken a lot of courage.

Yes, because I think it's very easy for people to sit on the sidelines. So if, to stick with the metaphor of the dancing guy, if this is this lone nut, looking kind of weird, in the middle of a music festival. For many, many people, it's so much easier just to either ignore him or to criticise him. And that's why I think, as I said that lone nuts, they obviously have courage, but they almost, all due respect to you, that you don't always know what you're really getting yourself into. Whereas the first followers, they're able to observe how you're out there on your own.

And I think for them to enter into the fray is a much more conscious decision than perhaps one that was driven in the way that yours was.

So something else happened that was interesting when I was in my lone nut years, that I thought that people who are already on the climate clean energy agenda would hate me. Because here I was coming in as a McKinsey, Harvard Business School guy and making a big noise in their sector. And I thought they would all be resentful because I was trying to get myself central. And they were enormously welcoming. Because for them, it was validation. Look, here's a guy who could do so many other things with his life and his time and yet he's on our agenda. And there was so warm and welcoming. And I, you know, I'll never forget, never stop being grant grateful to them. Did you have a similar experience of the people who were on the climate agenda? Did they come in and say: well, you know, he's just greenwashing. He's jumping on the bandwagon, or did they say, this is just extraordinary? We've got somebody who really doesn't need to do this, but he is doing it.

Yes, and yes. So there were people who said this is just an excellent example of collective greenwashing. And others who said, well, that's a sort of leadership that we need.

So you have both extremes.

It's one of the reasons for the coalition was simply by having more people be public together. Yes. So for the coalition, simply having everybody together, I think, reduces the risk of greenwashing. Because if I was to, say it again, if you've got 60% of New Zealand's emissions signed up to a pledge. That's like greenwashing on a galactic scale it's much more than one companies sort of saying, we're going to do some good things and window dressing. So there's something around the scale of this really, I think, reduced the challenge, that's totally understandable, around greenwashing. And for that reason, again, a bit like the dancing guy, more people were willing to join the coalition and sign the pledge, because what really gets in the way for a lot of people is the personal risks that comes from standing up for something, you

know, when change is required, you can hide behind your brand, or your company title. But ultimately, it's your name out there. It's your photo in the newspaper, it's you being potentially pilloried in the press, or by consumers in general. That's a hard thing, I think, for any leader to do in the early days, and sometimes simply holding hands with others is one way to make that feel better for you.

Right, and then what you've done, you started with the initial pledge, but you then had on the first anniversary, you had a strengthened statement, and you're now really coalescing around not just two degrees, but one and a half degrees, I mean, it's pretty out there, isn't it?

Very, very much is and again, we got to be careful of this, you don't want people to join a club. And you say, and now the membership fees keep going up. So we see it actually, we have two generations of club members, we have those that signed the original two degree pledge, and then those that are either new and come in at 1.5, or those that were old at two and have moved across to the 1.5. So we now have about if I recall correctly, 16-18 signed up to the 1.5 degree pledge, backed by Science Based Targets. So it's real. And it's really important. I think that as you go through this change that we are inclusive, and how we do it, because there is something that comes from the scale of what we're doing. If one level, if we made it too hard. It could be too exclusive. And equally, if we make it too easy, it doesn't have the teeth or the momentum that it really needs to have given the scale of the problem that we have to resolve here. This is not a time I think to be on one level cautious or not bold, because the problem is immense.

Let's go back to your investors. So you have the initial discussion around 2010. When you came into, you had your job interview and you for this role. But they've been with you all along, even though you are now a public company again. But you've now got, maybe they're different investors from the ones in 2010. But how do you keep them on board? And this is a huge question, not just for Z Energy, but it's a question for, you know, not just for oil and gas companies, every company that is embarking on some kind of response to climate change has to keep its investors on board. So what conversations have you had?

Yeah, they've evolved over time, what I'd say is, when we first talked about this 10 years ago, it was like a neat thing to have or good for you, that looks good, I can see the brand benefits, your shareholders in those days had, I think, a very myopic focus around what success looked like.

And, you know, a decade later, whether it be I think New Zealand, again, has a bit of a leg out

on this. But you see what some of the members, I think it's the Business Roundtable in the US have done in terms of their public commitments, significant fund managers, like the Blackstone guys writing letters to people saying, actually, this is what I expect a good business to be doing. There's a lot more momentum around this nowadays. And it's not just momentum in the sense of let's all do good things. It's got real teeth in terms of the ESG, the environmental, social, and governance scores that companies get, with fund managers now have exclusions around their responsible investing profiles. So I actually think there's a lot more teeth to this, it's still not enough in my personal view, but there's a lot more teeth to this, that feeds the decision making of a hard nosed investment manager or Portfolio Manager, as opposed to this 'it's kind of like a neat thing to do. And we think it's good for the company's brand. So you'll do better with customers. And that'll give me better profits'. I think it's evolved and the things like the TCFD. I think this is going to further evolve in a dare I say exponential way.

And the TCFD. For those in the audience. that's the Task Force on Climate Related Financial Disclosures. That's right, pioneered by Mike Bloomberg and Mark Carney. But let me just push you on that because Bob Dudley, who has handed over now to Bernard Looney at BP, at your old house, he said that the problem was the investors would say, well, can't we do more? I'm going to paraphrase: You know, could you do more of this clean energy and green energy? To which his question was sure, I can do a lot more Would you like me to? Are you okay, if I cut the dividend to which their response was absolutely no, you need to keep the dividend. So, you know, when the when it really when push comes to shove, do you think the investors are really, really on board with this? Or do you think that at some point, they'll sort of say, Well, you know, that's all fine, as long as the dividends are still there?

Yeah, I can't really, I can only speak for our company. I think if anything, we're a relatively small company in a global context, we only exist in New Zealand. So things are perhaps easier for us than a global multinational. I do think they again, I come back to what I said earlier, there's a difference between the given context and the context that you generate. So the given context is you have yield focused investors who want the cash out and would rather have it in their hands to make sensible investments rather than leave it up to management. The generated context can be well, actually, this is a game worth playing. And actually, let's, over time, tune or evolve our register, so that the investors in the company are aligned with the way in which you describe how this could happen. And that, that's not just an easy thing to do with some your fancy Investor Relations slides, you got to have a sound strategy, you've got to have a very good execution plan, you've got to understand what the risks are. I mean, I think it is just good management disciplines. And you have to communicate that to your investors. So I think Z is in that interesting spot right now where we have got to do a better job, frankly, of the

management discipline, and then communicate that to our investors so that over time, perhaps we evolve our share register to be a match for the company's strategy, because there's always a tension there. However, I think the greatest companies in the world are those that are very clear on that management discipline, and the strategy and the risk management, and then they get a register as a match to that. And that might mean that for a period of time, perhaps your share price falls or languishes. And if it does, well then your prove out your thesis and then it’ll come back if you are incapable of proving it out then frankly, you deserve to have a lower share price. If I was to put my mercenary commercial hat on.

Yeah. And it's, uh, you know, this is a microcosm of the issue facing the entire oil and gas industry that because there are sort of two bookends to the strategy, one could say, well, you know, my strategy is essentially consistent with the science, consistent with 1.5 degrees, I'm simply going to run down the assets, and we'll be out of business by 2050. The other strategy is no, we're going to jump and we're going to become something new. But then of course, you've got to articulate what that something new is. Because otherwise, the shareholders could just turn around and say, well, frankly, if we want something new, give us the money back. And we can go invest in, you know, a clean energy company in Iberdrola or Ørsted in Europe or NextEra in the US or whatever.

Yeah, it's a really good point. And I think one of the challenges for the large incumbents within the energy industry is what's the right way for you to participate in that change? And this is the tension I personally feel it's a tension we have inside our company. Should we be early in that change cycle? Should we be investing in a few like, at one extreme, startups taking an equity position in a startup? Or should we wait for the second or third phase of the cycle, and then come in at scale and invest at that stage. And I've got a bunch of folks who care in our company very deeply about the need to transition to a low carbon future. And of course, they would love us to be doing something today, and really demonstrating dare I say leadership over there, that may not be the most sensible thing to do, economically, we may be better off say with electric vehicles coming in at the second or third phase of that market evolution, rather than running the risk of spending a whole lot of money and in some sense, to be too early to the market. And I can recall my experience when I worked with BP, I think it took BP 25 years for the solar business to be cash positive. There's very few companies in the world that can actually make solar their core business and wait 25 years to get the cash back. Whereas I think that's the sort of thing I point about the companies have to be strategic about this, you've got to blend that if you like those values and the drivers around the need to address climate change, and you've got to do it in a strategic way that plays to your company's strengths.

And of course, the BP Solar story is extraordinary because they did BP Solar ended up selling it when it was a failure for them. But now, they're now BP Light Source it's a fantastic business. But it is on the sort of building an operating solar not on the technology. So they had I mean, the sense that the issue there was maybe it was one of timing, but also of strategic entry point. So you've got to get it right. No pressure. So Mike, you've got a lot of things on the go at once. You are making these strategic decisions for Z Energy. But of course, you're still dealing with COVID. That pandemic is tragically not over yet. Although we've got high hopes that it will be around the world, not just in New Zealand. And you've got this strategic engagement with New Zealand's business, the Climate Leaders Coalition. What is your next year or two look like?

Yeah it's one of balance actually, Michael. So you talked about some elements of that. I've got to do all of those things well. Yeah, we've had some challenges in our core business in terms of its performance over the last two years. So there's certain element of confidence from our shareholders that has been eroded because of that. And so I think it's on one level, it's hard to talk about transitioning to a low carbon future, when you know, the core bread and butter of your business isn't going so well. We need to be mindful that we now have a new government in New Zealand that looks like it will be more assertive or ambitious around the move to a low carbon, or preferably zero carbon future. And I could go on so I think the thing for me is to continually balance off the long term and the short term to balance off the old with the new, because Z is trying to pull off in one level a miracle I guess, where we are wanting to be, it's legitimate for us to be what we call the last company standing. We will sell the last litre of fossil fuels in New Zealand at some point in time. And equally, we can be the one that leads the transition, through the use of biofuels, hydrogen and electrons to this low zero carbon future. That's what we call options. So we work very hard. And, you know, my background teaches me to try to keep options as live for as long as you can and preferably three options. So we want to have that last company standing option strategically, and generate cash, run an extremely disciplined core business that allows us to have the choices around taking some cash in and investing it in that transition, or going back to very confident shareholders or shareholders who are confident in our business and say, actually, we will trust you guys with a big lump of money to invest in hydrogen infrastructure or to, you know, to be a lead player in the electrification of the New Zealand fleet. Provided we get the right choice around participation model and the timing of our entry.

Very good. Well, there's just one other topic that I want to raise with you if I might. And that is around the world, the issue of how countries deal with their indigenous people seems to my mind to be rising up the agenda. And it rises up the agenda very often very specifically, in the

energy sector, whether it's the Dakota Access Pipeline, whether it's the coastal pipeline in Canada with the Wetʼsuwetʼen people who are protesting. I mean, this is not a new issue, right? We had, you know, Ken Saro-Wiwa, the Niger Delta back in the 19... What that'd be the 1990s. I will say one of the things I was struck by when I came down to visit you in New Zealand, was not that everything is perfect and rosy. But it did seem to be a more mature discussion with your own indigenous people with the Maori. And of course, we've now got a Maori woman, as foreign minister. So am I right in, ascribing leadership to New Zealand? I mean, do I think is it correct your impression as well, that New Zealand leads on these issues? And how much of your time do you spend thinking about them?

Yeah, I think on a relative basis, New Zealand would be a leader in this area, as you observe, there are things that are not going well in our country with our indigenous people. You know

<unclear> or the downside parts of the economy, poverty, crime, etc. So we've got our challenges, but relatively, we're better off. I think, in New Zealand, what we've benefited from actually is what we call the Treaty of Waitangi, which is the agreement between at the time the British Crown and all of the tribes of New Zealand. So it actually is a contract that exists, where as many other if you'd like colonizations that have taken place, there was never a contract. And that Treaty of Waitangi is often referred to as the framework for the way in which we deal with many issues, whether they be settling issues from the past, or determining the way in which we address things in the future. I think the other thing is that New Zealand is a super diverse country. And by that I mean we've got something like 150 nationalities in New Zealand. And of course, the Maori population is about 15% of our population. So you got to be careful, our super diversity doesn't swamp as you say, the indigenous people. So with that in mind, I think there is something, I was about to use the word renaissance, I don't think we're <unclear>, but there is a particular affection or in touch with our Maori heritage. So you know, for example, I grew up and I was never taught Maori at school. I was now I mean, I think expected and quite rightly, to be able to speak, te reo as we call it, the Maori language in formal settings when I would welcome a group. So I think things it's becoming much more normalised, and I think that in itself makes it more inclusive. And there are about, I think there's 14, Maori values, or Tikanga Maori as it is described, and many of those are really, really appropriate for the challenges that the world faces today. So one of those values is what we call Kaitiakitanga which we would translate as being stewardship. Now, climate change is all about stewardship. So I think the value of Kaitiakitanga, and what that really means in New Zealand, I think, is an extremely useful set of guide rails of ways of thinking and how we deal with some of the big issues in New Zealand, whether it be structural issues, like the economy, or more strategic issues, like how do we transition to this zero carbon future we all want to get to?

Yes, and so I definitely, you know, from my visit, my conversations, I was just very struck by the different level of respect that there is for the indigenous people, even though as I said, it's not perfect, and some of those values that I was able to just see, you know, in operation even in a short visit. And certainly, you know, as I travel around, you know, you say that, you know, New Zealand has this, the treaty and the rule of law between the indigenous people and what was then the British, but, you know, of course, there are those treaties in the US… and Oklahoma, it's just been discovered has been infringing that treaty with its oil and gas development, but really, almost nobody really expects that to be taken seriously. So that's definitely something that seems to be more positive in New Zealand and something that New Zealand can definitely perhaps, impart to the world.

Yeah, we actually, I probably <inauadible>. But I think back in the 1970s, the government of the time established what's called the Waitangi Tribunal, which is essentially the, for want of a better expression, the, the body that oversees… overviews adherence to the treaty. So as you say, it could be in some jurisdictions, you can get away with it because no one's watching you.

Whereas here, there's a statutory appointed party that monitors compliance with the treaty. And of course, there's quite a lot of activity that they get involved in. I think that there's probably something that helps us there is a real compliance function for want of a better phrase, at work around that agreement.

Yes, although I suspect that that only works and has life if it is built on a foundation of respect. And that's what I think I observed. And I hope I observed and hopefully would spread from there. Mike, it's a great pleasure talking to you. I could go on, I'd love to. But unfortunately, we're reaching the end of our of our allotted time. So I really appreciate the time you spent at the beginning of your day. I think hopefully, the audience will have seen some of the leadership that you've shown and they'll have appreciation for that. And I wish you luck. In you know, that balancing act that you talked about, the balancing the COVID response, the company's strategic response, and also continuing to show that much needed leadership within the business community in New Zealand and hopefully that can spread a little bit around the world. So thank you very, very much for your time.

Thank you, kia ora.

So that was Mike Bennetts CEO of Z energy in New Zealand, also founder of the Climate Leaders Coalition, one of the great climate leaders in business of the Southern Hemisphere. My guest next week on cleaning up is a very dear friend, Richenda Van Leeuwen. I first met her when she was working for the UN Foundation. She is one of the world's great experts on climate actions in the developing world. At a very distributed and local basis. We're talking about things like clean cookstoves and solar roofs. She's been at the Rocky Mountain Institute recently in charge of Africa and islands. And now she is executive director of the Aspen Network of Development Entrepreneurs. Richenda is also my partner on something called Project Bo. A few years ago, we got together to provide a resilient, solar and battery based power supply for a neonatal intensive care unit in the city of Bo, in Sierra Leone. Please join me this time next week, same time, same place for a conversation with Richenda Van Leeuwen.

And if you've enjoyed this conversation, please leave a review on your podcast platform. Give us a five star review. If it's Apple Podcasts, or give us a thumbs up on YouTube, it helps to get the word out. So you don't miss any future episodes you can sign up to get alerts in a number of different ways. Go to cleaningup.live, you can sign up for an email. Or of course, you can follow Cleaning Up on Twitter. The handle is @MLCleaningUp. Cleaning up is brought to you by the Liebreich Foundation and the Gilardini Foundation for whose support we are very, very grateful.

Ep19: Mike Bennetts 'Leadership from the Heart of the Problem'

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