The shift to a more sustainable economy is underway. From an investment perspective, understanding how companies are navigating the risks and opportunities associated with the transition can help us build confidence in the potential for long-term success.

With more regulation alongside changing consumer and investor preferences, company executives must successfully manage a business from a strategic and operational perspective, while also thinking long term about managing the necessary transition.

Forsyth Barr has been assessing the carbon, environmental, social and governance (C&ESG) performance of New Zealand companies over recent years. Our latest report finds they are making progress, despite geopolitical tensions and volatile market conditions.

Committed to change

Our report includes an assessment of more than 8300 data points across 58 of New Zealand’s largest listed companies. The data was converted into an overall score for each company, classifying them as a leader, fast follower, explorer or beginner. This enables advisers and clients to look at how companies are performing on important C&ESG metrics.

While there are a few reluctant participants driven by compliance alone, the overarching picture is that NZ companies are continuing to strengthen their sustainability commitments. However, while sustainability practices are now largely part of business-as-usual, we are yet to see evidence that commitments and measurement are turning into real outcomes for the majority of the market. 

For example, 44 companies have commitments to reduce their greenhouse gas emissions, but of the 33 companies that have been reporting this data for more than five years, only 12 are showing a decline in absolute emissions. Disclosure on how companies are planning to meet their targets is still very opaque.

Leading the charge

Within the group of leaders, we identified some clear standout behaviours. The top three performers are Meridian Energy (MEL), Tourism Holdings (THL) and Precinct Properties (PCT). MEL sits at the top of the table for the second year – a particularly commendable effort. 

These leading companies are evolving their practices to have a positive impact on the environment. They also offer thoughtful employee value propositions to help attract and retain talent, adhere to best-practice corporate governance standards, and link the remuneration of executives to improving ESG practices. Of all the companies assessed, Delegat Group (DGL) showed the biggest improvement over the year.

Despite the progress, there are important areas requiring more work. For example, data collection methods need to become more robust and consistent, gender diversity on boards needs improvement to bring different perspectives, experiences and expertise to decision making. Research shows that greater diversity leads to better corporate governance and company performance. It also helps to contribute to a more inclusive and equitable society. 

While gender diversity on boards has been improving over recent years, our research shows that 34% of boards still comprise more than two-thirds of one gender. Another area of key concern is that 47% of companies have had the same auditor for more than 10 years, which may risk compromising audit independence.

C&ESG scores help us look beyond traditional financial metrics. They can supplement a screen for quality and help to identify areas of risk beyond financial analysis that may warrant further investigation. In a nutshell, they help us to better appraise companies and build confidence in the potential for long-term success.

Find out more

Want more information about New Zealand’s best performers in ESG? Contact your local Forsyth Barr office or adviser to arrange a time to chat with our head of ESG or our research team. Visit forsythbarr.co.nz/home/ca-anz