Z Energy is the largest retailer of petrol in New Zealand, yet is paying to promote Al Gore’s climate change movie An Inconvenient Sequel. Duncan Greive meets Z CEO Mike Bennetts and asks what’s up with that.
The CEO stood atop the small flight of stairs leading into the multiplex of Event Cinemas’ tiring Newmarket branch and addressed a large crowd. He’d booked out all eight screens, put on craft beer and good wine and delicious hors d’oeuvres before we all watched a movie together.
Big companies do this kind of thing all the time – to host clients, or customers, or to cross-promote products. In some ways this was exactly that: “really what we’re looking to do here is get a group of diverse New Zealanders, from all walks of life, to be engaged with some stuff that we think really matters.”
Only, the film was An Inconvenient Sequel, Al Gore’s furious follow up to An Inconvenient Truth, a real life horror movie about the spiralling climate chaos engulfing our planet caused largely by rampant fossil fuel use. And the CEO was Mike Bennetts, head of Z Energy, New Zealand’s largest retailer of fossil fuels.
It’s definitely a weird scene. It’s definitely not particularly difficult to argue that Bennetts and Z are this country’s largest contributors to the very earth shattering phenomenon the film seeks to get us thinking about.
And yet Bennetts and Z do appear to be very genuine in their embrace of climate change’s reality. What they seem to be saying is this is real and it’s catastrophic, but we can’t all stop using fossil fuels tomorrow – and until we do, why not buy from someone who gives a shit?
It’s a cute message, and would be too cute if there wasn’t some substance. They’re spending $26m on a biodiesel plant which will turn tallow into fuel and in so doing apparently keep 37,000 tonnes of carbon out of the atmosphere. Their entire fleet went hybrid years ago, and they recently donated 6c a litre from a day’s sales to re-foresting charity Trees that Count.
It seems a lot, but at the same time nothing at all. Not when our home appears caught in an aggressive vortex of ice melting, sea rising, desert forming and flash flooding which seems certain to displace millions if not billions of people and even render earth inhospitable if everything bad happens all at once.
All the same, something about Bennetts seems very genuine. In person he’s painfully open and sincere, and he didn’t just sponsor that screening, he also volunteered to be interviewed as part of this series on climate change we’re doing in collaboration with An Inconvenient Sequel. Again, weird.
But then, Bennetts is a weird CEO. A working class university dropout (he later returned to complete his studies) from South Auckland, he joined BP as a sales rep at 20, when global warming was barely imagined and left decades later when it was a near unequivocal scientific consensus.
The vast span Bennetts worked at the company means he was there when the first climate change stories began to make mainstream media. He was there when then-CEO John Brown made a famous address to Stanford acknowledging man-made climate change was real, and fossil fuels were a key contributor. He was there as chief of staff for the company’s fifth-highest ranking executive when she was in charge of renewables. And there when the company’s zeal for moving ‘Beyond Petroleum’ began to wane.
Then he was not there. “As more science and evidence become available it became clear to me that one, it was not environmentally sustainable and two, eventually it would not be economically and socially sustainable,” he says. The Bennetts family moved home to New Zealand after 17 years away in late 2008. Intending to take more than six months, but less than a year off, Bennetts found himself CEO of the New Zealand assets of Shell in April of 2009. Before the end of the year its board had approved a sustainability policy, and not long after it had ditched the Shell brand and become Z Energy, the only New Zealand-owned major petrol company.
While it’s easy to demonise big oil companies, it’s also not particularly clever. Unless you never enter an internal combustion engine-fueled car, boat or plane, or eat meals or use consumer goods transported by them, you’re probably part of the problem too. And, in all likelihood, you’re entirely discounting everything that has come from fossil fuels over the past century. Which is nearly everything good (and admittedly a decent portion of the bad too). But the planet is now full. All that remains now is the weaning off.
So what matters is whether you’re an enabler or an intervener. Supporting companies, even petrol companies, which are genuinely committed to changing, seems critical. Bennetts and Z say they really are changing, evolving the company to be both the last fossil fuel company standing, and a state of the art logistics and people moving business in the not that distant actually future. He says that because they don’t own any oil fields, they’re better situated than most of their retail competitors to truly embrace change.
I heard conflicting reports prior to meeting Bennetts, but because I desperately want to believe business can save the world I went to meet him at Z’s Mt Eden head offices to see what was up with this unconventional exec. What follows is a record of our conversation, condensed and edited for clarity (a little) and brevity (a bit more).
I’m fascinated by what it must be like as a climate change believer in a big oil company. Was there a sort of philosophical battle in you? Were doves and hawks on climate change within a huge organisation like that?
To some extent there is. I wasn’t pushed out of BP, I was very well thought of, had great career prospects. I’ve never worked in the upstream – I’ve never drilled for oil – but I’ve pretty well done all the other things you do with the downstream: sales, marketing,I.T., finance. I was on a global development program. There was only 150 of us out of 60,000 employees. It’s a very privileged development experience that I had. You got exposure to a whole bunch of stuff.
I just got to the point where, to put it simply, I sort of fell out of love with BP. It’s a good company, but there started to be a little bit of a values mismatch between my personal values and what the company was putting its emphasis on – I just felt like I was compromising what mattered to me.
So when you first came into BP, climate science is not particularly mainstream or well understood. Can you describe the dawning – either institutionally or personally or both.
I would go back to a speech by the group chief executive the time John Brown. He made a landmark address at Stanford University. I was relatively deep in the organisation, low level. And you’ve got the boss saying actually we believe in the science of climate change and we’re going to reduce our carbon footprint. So that started to get me interested in that sort of thing, personally exploring it as well as being exposed to it professionally.
How did you reconcile the moral or ethical element of your leaving that company with joining another petrol company, albeit in a more powerful role, back home?
I was interviewed by Marko Bogoievski who was the chief executive of Infratil, the intended half owners of the company. And through the interview process I put a couple of questions to him, where he made it very clear that he would support some of the thoughts I had around how a company in this space could be distinctive. Obviously you want to make sure it made money – it wasn’t a charity gig. But the way in which he answered some of the questions gave me quite a lot of confidence. I have a point of view on how companies should operate full stop, let alone their role in society. And Mark was very neutral to supportive and understanding around that.
I have a point of view on how companies work. I think in the past companies were very engineering driven, very alpha male. It’s like input, crank, and output. Whereas I saw companies as much more organic or biological – they change shape based on how they interact with the outside world. So the fact Marko was neutral to supportive as I deepened that conversation I thought OK, this is a good place to try and test my theory. And six months after we came in, we had our sustainability policy signed off by the board.
So what does sustainability mean to you?
We defined sustainability through three legs of a stool. There’s environmental, social and economic sustainability. So if we if we didn’t make money, we wouldn’t exist. If we didn’t do the right things around the environment, we don’t deserve to exist and the same thing for social. So much as we continue talking about our work around environmental sustainability, the work we do around social is just as important to us as well.
Obviously there’s a very large volume of cynicism about the idea of a petrol company really meaning it.
Yeah we flog the terrible stuff. Why would you believe us?
Exactly. So convince me that it’s that it’s not greenwashing.
What we stand for around sustainability is not sitting there on its own – it’s part of a system. And what I mean by that is we have a set of values inside the company. We have a purpose: we’re fundamentally here to solve what matters for a moving world. Not flog off more carbon. So the whole thing when you put it all together – when you see the whole picture of course that makes sense. On its own, I agree that there is something of a paradox there.
We didn’t go large on this in the early years. We thought it was most important that we tidy up our own backyard. So that any accusations around greenwashing, we could say ‘well I understand why you say that, but here’s what we’re already doing quietly behind the scenes’. For example, we made a decision to move all of our company cars to hybrids in November, 2010. We set targets around reducing waste water usage.
We worked on 16 goals over a five year period. We just we went and sorted that out. As we made progress around that we started to make ourselves available. People started to ring us up and say ‘that’s kind of weird and somewhat paradoxical’. So it all started to make more sense to people, and we had more offers of help, which we took. We drove this quite hard inside the firm. And with our retailers, who aren’t our employees.
How did they respond?
As you’d expect. Some would go ‘fantastic’. Others would go ‘rubbish’. And there was a group in the middle.
Did you lose any people?
Yeah, over the years we have. That’s not just because they don’t get on the sustainability bandwagon – it’s all the aspects of what Z was about. They were in a situation where under Shell it was a master-servant relationship. And here we were developing a partnership. We wanted input, and some folks would just prefer to be told what to do. So there was change both inside the company as well as with the service station operators. And it just evolved from there. We made a commitment to build a biodiesel plant. About four years ago now – a $26m dollar investment. So again you can say we might be greenwashing – but it’s actually quite a lot of money.
What is the net impact of that plant on New zealand’s emissions?
Small but profound, as weird as that sounds. Once it’s operating, which is very shortly, it will take 37,000 tonnes of carbon out of the system.
What’s New Zealand’s carbon emissions?
I can’t remember off the top of my head – but it’s a lot greater. [Ed’s note: net emissions were around 56m tonnes in 2014]. But it is about a third of what the government hopes to achieve through its EV program by 2021. Now I’m not saying one is better than the other – I think we need to do both. But it’s a great example of what we call small steps lead to giant strides.
We ran a promotional campaign yesterday where if you buy a litre of fuel, we’ll give six cents a litre to towards an organisation called Trees that Count. We can fund the planting of thousands of trees as a result. There’s no silver bullet on this stuff.
Right. Because the scale of the problem is so immense that there’s a tendency towards either a cynicism or a fatalism about it for people. In terms of the economic impact of the pure sort of environmental side of these sustainability policies, how was that for you?
The first steps you take around the environmental sustainability are usually good to do, because you’re basically tightening up your practices – wasting electricity, wasting water. So the first couple of years it was profitable to do it. And then you get into the more strategic issues – spending $26m on a biodiesel plant, taking six cents a litre rather than it banking it to the bottom line and using it to fund something of a carbon sink.
It sounds stupid for us to say we want to be carbon neutral…
But is it?
I don’t think it is. For those who believe in greenwashing it is. But we’ve now worked out how much it would cost: it’s a million dollars a year to be carbon neutral. That’s not the products we sell, but everything we do around getting those products to market.
What would it cost to to make the products you sell carbon neutral?
And what did you make in profit last year?
About $140m in post-tax profit.
There would be people who would say you could run a carbon neutral business and it’s just a lower margin. Is that something that you’ve toyed with idly, or could you make a case for that to you or to your board. It would be quite a radical.
So that’s where their third leg of the stool would fall over. Because we would not be economically sustainable.
But if you halve your profit you’re still profitable.
Yes. But we’ve still got billions of dollars invested – so our shareholders get a return on that. Their return will be way lower. But to your point – what we do say is ‘you don’t eat a Buffalo in one bite’. You take smaller bites. So we’ve tidied up our backyard. We’ve made some significant investments in helping our customers make better choices. We’ve now identified what it costs for us to become carbon neutral.
So that million dollar figure – is that something that you are going to do, have done – where are you in terms the emissions of the business, as opposed to its product?
What we have done is gone ‘let’s get it down from a million’, by lowering our emissions through our activities. And look for good things to do to offset farther rather than just finding some shonky foreign credits. Why don’t we go plants some trees?
So that ‘shonky foreign credits’ thing is quite interesting. Because on the one hand you’ve publicly stated that you think that our emissions trading scheme is inadequate. But also you’ve been identified by Gareth Morgan – who’s an annoying man, but probably also correct on this, as one of our ‘dirty dozen’. How do you respond to that duality?
So moments in time would be part of it. If these questionable credits were available today we would not be doing it. But if you go back three or four years ago, we were in a bit of a tough spot. What I mean by that is today our post-tax profits are about four and a half cents a litre. Three to four years ago they were about two and a half cents a litre. So we’re a very finely balanced organisation. Because we have a very, very small margin, multiplied by billions of litres. So it was an economically rational thing to do – it was not socially or environmentally sensible to do.
It was a moment in time, but there’s some regret for me there personally. Ultimately I made the call – but today I wouldn’t be doing that, because we’ve now got a different type of momentum inside our business, and we can we can sustain some of those choices couldn’t have three or four years ago.
Isn’t that sort of a microcosm of what the world is doing right now – making short term decisions, promising to change. And when it’s economically able to do that, we probably will. But by then the horse will have bolted that much further down the road.
I think there’s a certain amount of optimisation on the go, where people are balancing off pros and cons of going hard or not going at all. I think every family, every organisation, every country has to make their own choices around that. While still recognising that actually if we all sat round saying ‘I rely upon my neighbour’ that’s way insufficient. So it’s a little bit like death. We all know we’re going to die one day, but it’s not until we actually face our mortality that we go ‘wow – now I’m really thinking about it’. And I think that’s probably one of the biggest issues around the climate change debate. It’s like death in that it’s so far in the future, I don’t have to deal with it today.
Did you read that New York magazine story from earlier this week? It was obviously a collection of all of the worst case scenarios, but nonetheless was terrifying in a way that little else I’ve read on the subject has been.
Yes. Actually when I got the link, someone said to me ‘gee, be careful when you read this, you’ve got to be in the right frame of mind to read it’. I read it on the plane up from Wellington last night. Pretty sobering stuff. I think that’s the real challenge in this space, this whole death mortality thing – how do we have a constructive conversation around this stuff. How do we educate and expose people around it. And that’s partly why we support An Inconvenient Sequel, because we think it’s a really good thing that helps people move on.
I appreciate what you’ve said about the pragmatic realities of cleaning up your backyard – but what are some of the things that you’ve sort of toyed with? Because if the world is to survive, essentially it has to stop selling petrol. But it’s not going to stop moving around.
Strategy is the job of the CEO, in concert with with the board. And to put it bluntly we have two choices. We could put our head in the sand and pretend it’s not going to happen. That’s one way of doing it. Or we could say ‘actually let’s disrupt from within and transition the company to a transport energy provider of things that are preferably, if not zero carbon, certainly lower carbon.
Because we don’t drill for oil and gas. It’s not like we have to monetise billions of dollars of upstream investment. So that’s the paradigm that we’re in. Head in the sand or actually productively transition the company to a different future. That’s why we got electric vehicle charging stations, that’s why we’re investing in biodiesel. That’s why we tightened up our own backyard.
The biodiesel is 2c a litre more – so that will be a real test of New Zealanders – they’ll pay a premium for a better detergent. Will they do that on fuel? Some really big New Zealand companies have said they will: Fulton Hogan, Fonterra, New Zealand Post for example. And that gave us the confidence to invest.
Looking further out, how closely do you keep tabs on electric vehicles, autonomous vehicles – that sort of thing?
Really close. We track leading indicators on a quarterly basis around what’s happening on battery cost technology and all that stuff because EVs will turn up here one day. So if we can see how the price path on batteries is going that impacts the capital costs for any number of things.
We work with a guy called Roger Dennis, a futurist who met with our executive team a couple of weeks ago. We are going to be disrupted. We can see it coming.
How far off do you see it as being? How far off is an Uber-for-taxis type event for you?
It’s really very hard to predict. What we have is published something called house view number one. It’s very hard to predict scenarios, but the answer probably lies within a range of outcomes. The more adverse to fossil fuels says that by 2030 we’ll sell a third less petrol. And that’s quite a lot.
It’s a combination of electric vehicles, autonomous vehicles, public transport, better urban planning that ultimately affects demand – it’s not just because EVs turn up. We’re just preparing the company, looking at those leading indicators, looking at signposts which point towards one scenario over the other.
So I wondered if you could sketch a scenario where Zed is a, growing, healthy concern in say 20, 25 years time.
Z will be around, and fossil fuels will still be part of the mix. I think we may be one of the last ones standing in that space – but it makes sense for us to stay, because we’re a local company, we’re not foreign owned and we do have scale. So I think what is happening in that space we’d like is still to be a participant.
If we’re good enough we be extended into three areas. One would be biofuels or more broadly alternatives to the current fossil fuel mix. We can either be a barrier to change or a catalyst for change in that space. We are likely to have extended our brand and capabilities into mobility as a service.
I certainly am not an Uber fan, because of the prick who runs it. I know he’s lost his job, but from a values perspective there was a misogynist arsehole who’s running the company. So I’m glad he’s gone. But there might be people say ‘I’d rather buy some of those services from a company like Z than I would from anyone else’. So we think about extending our branding capabilities to mobility as a service which is quite an interesting area.
The third area that we think about is what we currently call the last mile. So 85 percent of New Zealand lives within five kilometres of one of our service stations. Now can I make money out of that? Particularly in a world of 3D printing and drone delivery. So we’ve got a pretty good footprint
So we could sell fossil fuels or deliver other things that people need – because usually the last mile between a big entity and the customer is usually the most expensive. And we’re really in that game. So those are the three things that we are currently working on.
So those aren’t just board papers – they’re actual targets for the business?
We’ve had the philosophical debate and we’ve said actually that’s a legitimate place for us to play. Which is why we’ve got people thinking here as well as travelling overseas. We’ve had conversations with Air New Zealand around by use of bio jet fuel, for example. Very very preliminary stuff.
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So you imagine revenue curves over a relatively long time horizon, with fossil trending down but new revenue streams of owned fleet or distribution centres rising. You’re not planning to be the last gas station standing.
Ideally I’d like it to be both. The reason I say that is we do need to diversify but at the same time have to be responsible for our shareholders. If we can’t do that adequately we should actually just give the money back and run the company until eventually it dies.
Climate Change Week at The Spinoff is brought to you by An Inconvenient Sequel – in cinemas August 24.
A decade after Al Gore’s film, An Inconvenient Truth, brought climate change into the heart of popular culture comes An Inconvenient Sequel – highlighting the perils of unmitigated climate change and the need for more action. See it in cinemas from Thursday August 24.
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