The global push for greater transparency on environmental, social and governance (ESG) performance is a “showcase opportunity” for New Zealand businesses and brands – revealed in a report released today by NZX and Wright Communications.
ESG Reporting Uptake in S&P/NZX 50 Index & Investor Perspective 2019 examines the most recent annual reports and sustainability reports of New Zealand’s 50 largest listed companies.
The Report shows that, increasingly, New Zealand companies with a high exposure to offshore investors and customers are moving to disclose and discuss their approach to sustainability and how they are managing ESG risks – and opportunities.
NZX Chief Executive, Mark Peterson, says a vital role for the exchange is to ensure capital can be invested with confidence into companies that provide opportunities for sustainable growth.
“We know investors today want to feel comfortable about where they put their money and that there’s a good fit with their personal values. That’s a huge opportunity for New Zealand businesses – who already have very strong stories – to promote their stewardship of natural resources, how they are looking after the wellbeing of their people and how they respond and innovate around customers’ needs.
“The ability of businesses to prosper over the long-term is materially reliant on a broader confidence, and deeper understanding, that comes from quality ESG reporting on business operations and the behaviours of companies.”
Nikki Wright, Managing Director of Wright Communications, who initiated the ESG Report with NZX, says sustainability reporting is becoming the norm in New Zealand although, in terms of quality and depth, the market was lagging other financial jurisdictions.
“While most large listed companies disclose internal measures such as gender balance and internal initiatives to reduce carbon emissions, few disclose in detail their impact on the environment or address the long-term risk of climate change to their business,” she said.
Of the 50 companies in the S&P/NZX50 at the end of May 2019, 42 reported on social metrics such as employee gender diversity but only 28 acknowledged climate change. Most companies did not use a recognised framework or structure for their ESG reporting – 17 used the Global Reporting Initiative and five followed the Integrated Reporting framework.
Mr Peterson says, in the global context, New Zealand companies are underselling what really matters – “they are doing great things, but they forget to show measures and effectively talk about it”.
“In releasing this Report, we hope to promote greater awareness of the value of ESG reporting and showcase examples of how businesses are responding to this opportunity.” he said.
The Report also illustrates the expectations from an investor perspective both on shore and offshore, showing not only is it a valuable risk management tool and supports meeting fiduciary obligations, it’s also a mechanism for shifting behaviour.
NZX’s Head of Analytics, Julia Jones, one of the co-authors says, “Behaviour follows capital, shift the criteria for capital and you shift behaviour.”
The energy sector tended to produce higher levels of disclosure across all ESG metrics. Banks and other companies operating on both sides of the Tasman also had more comprehensive ESG content in their reports.
At the other end of the scale, software companies and multi-functional property companies, including retirement village/aged care operators, have the greatest opportunity for improved engagement of ESG reporting.
Company executives interviewed for the ESG report say offshore equity investors and customers were increasingly asking for sustainability information – along with verification – about their companies’ operations and products. For example, Synlait told the report’s authors that world-leading food brands were prepared to pay a premium for sustainably-produced New Zealand dairy ingredients.
Z Energy CEO, Mike Bennetts, says the further away from New Zealand, the higher the degree of interest in sustainability and ESG reporting. In recent months Z Energy and Meridian Energy have released in their annual reports, or separately, statements regarding the risk to their respective business from both the transition to a low-carbon economy and the physical impacts of climate change on their operations.
“Both companies appear to be well ahead of the market, in quantifying what climate risk means for them and providing a view of what is ‘material’ for investors to know”, say the Report authors.
Ultimately regulators and investors will come to expect all listed companies to assess and report on their climate-related risk.
Ms Wright said there is no doubt ESG reporting ensures more purposeful communication about an organisation’s economic, environmental and social impacts – as well as its performance.
“We produce Sustainability Reports for a range of organisations and it’s great to see more companies using gold standard reporting frameworks such as the Global Reporting Initiative (GRI) and/or Integrated Reporting to improve the quality and completeness of report content.
“However, we strongly believe that New Zealand companies are lagging well behind their peers in Europe, North America and Australia when it comes to acknowledging and reporting on their exposure to environmental and social risks.
“A few are doing a great job in disclosing their approach to climate change, for example, but most are either sticking to the basic reporting metrics of carbon emissions or ignoring carbon and waste altogether,” she says.
Download the ESG Reporting Uptake in S&P/NZX 50 Index & Investor Perspective 2019 from www.wrightcommunications.co.nz