22 Oct 2019
By Richard Gordon
A global push for greater transparency on environmental, social and governance (ESG) performance is pressurising New Zealand businesses and brands to improve their environmental and social impact reporting.
The finding was revealed in a new report produced 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.
Sustainability reporting is slowly becoming the norm in New Zealand although, in terms of quality and depth, the market is lagging other financial jurisdictions. For example, several large New Zealand-focused companies – particularly in the property and aged-care sectors – are falling behind in the disclosure of their impact on and risk from environmental and social changes.
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.
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 only five followed the shareholder-friendly Integrated Reporting framework.
The Report also illustrates the expectations from an investor perspective both on shore and offshore, showing not only is ESG reporting a valuable risk management tool and supports meeting fiduciary obligations, it’s also a mechanism for shifting behaviour.
Company executives interviewed for the ESG report said offshore equity investors and customers were increasingly asking for sustainability information – along with verification – about their companies’ operations and products. In fact, the further away from New Zealand, the higher the degree of interest in sustainability and ESG reporting.
The pressure comes from investors around the world who expect more detailed and useful reporting of non-financial performance information. Investors want proof points of delivery against strategy and more data on waste management, energy consumption, corporate governance standards and gender equality.
Few companies have yet to explore and explain the longer-term risks to their business from climate change and potential climate change regulations. Recently two energy companies – Meridian and Z Energy – have stood out for making 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.
A few companies are doing a great job in disclosing their impact on climate change and the environment, for example, but most are either sticking to the basic reporting metrics of carbon emissions or ignoring carbon and waste altogether.
Ultimately regulators and investors will come to expect all listed companies to assess and report on their climate-related risk. Already, 6,000 European companies are required by law to disclose environmental and social policies.
There is no doubt ESG reporting ensures more purposeful communication about an organisation’s economic, environmental and social impacts – as well as its performance.
In releasing this Report, Wright Communications and NZX hope to promote greater awareness of the value of ESG reporting and showcase examples of how businesses are responding to this opportunity.
Wright Communications produces 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 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.
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