Forsyth Barr Releases Carbon And ESG Ratings For Listed Companies

New Zealand listed companies are well positioned for upcoming carbon disclosure legislation although carbon reductions are tracking behind targets, according to the first comprehensive review of carbon, environmental, social and governance (CESG) commitments, policies and practices by wealth management firm, Forsyth Barr.

In a major work that reviewed 6,500 pieces of data from 57 of New Zealand’s best-known businesses listed on the NZX, the Forsyth Barr CESG Ratings Report is a new piece of research that brings a unique New Zealand perspective and deep analysis of sustainability performance to investors.

The 57 companies, including household names such as Air New Zealand, Meridian Energy and Spark, are rated overall as either a Leader, Fast Follower, Explorer or Beginner. The report includes a table with all 57 companies and their CESG rating. Most are either Fast Followers (26 companies) or Explorers (16). There is a significant gap between the 12 Leaders and three Beginners.

Forsyth Barr Managing Director Neil Paviour-Smith says the report is a snapshot in time of where companies (that are regularly analysed by Forsyth Barr) are in their transition to a more sustainably focused economy.

“The objective was to get insights into how New Zealand companies are positioning themselves for a low carbon, sustainability-oriented future and how they are adhering to best practice standards,” he says.

Mr Paviour-Smith says the intention of the report was to create a new New Zealand-specific CESG rating system that was more granular, more transparent and covered more local companies than existing international ratings.

“Our Research team looked at published information, used our own deep knowledge of New Zealand companies and asked companies to provide additional data. Just about all have responded positively so the team was able to conduct a rigorous and comprehensive review. We believe this report adds to those provided by international ratings agencies, by bringing a unique New Zealand perspective and a deeper analysis than an international team, that looks at many markets, can reasonably complete.”

Forsyth Barr chose to separate carbon out from the ESG framework as action on carbon emissions and carbon disclosures have become a high priority.

The research found that while carbon emissions were still increasing for most companies in the report, 15 companies had recently reported a decline in emissions.

Katie Beith, Forsyth Barr Head of ESG and lead author of the report, says most companies in the report are well-positioned to meet the upcoming legislated carbon disclosures.

“Half of the group have been disclosing carbon metrics and strategies for years if not decades. Of them, around a half are reducing their emissions. All but 14 companies have set a carbon reduction target,” she says.

Importantly, for the majority of companies with leading CESG ratings, actual carbon emissions are trending down when looked at over a five year period - no doubt helped by COVID-19 impact but it is a strong differentiator from the Beginners.

When looking at policies and practices regarding water and waste – typical environmental performance indicators – Katie Beith says the level of disclosure was disappointing.

“Some listed companies appear to be unaware of why reporting their use of water or risks regarding water should be standard practice. Access to water, water discharges and quality is becoming a significant issue in New Zealand. We would expect more companies to be more transparent on their water issues,” she says.

On the other hand, most companies showed progress on circular economy and biodiversity policies and practices.

Regarding social impact, most companies have policies in place for managing health, safety, supply chain issues and community involvement.

Katie Beith says that most companies have built on strong health and safety policies and practices to address contemporary social issues such as employee wellbeing, talent retention and attraction and modern slavery.

She says it was more difficult to take a view on diversity performance given the lack of ethnic diversity metrics available, but she expects diversity metrics will improve given the number of external campaigns.

Governance, which was given the highest weighting of importance (40%) of the four areas in the scorecard, also had the highest scores for performance.

“Broadly, New Zealand corporate governance is strong but there are a few idiosyncrasies. Notably, 28 companies in New Zealand have had the same auditor for more than 10 years, which is not ideal.”

Forsyth Barr also looked at industry sector commonalities and for correlations between size, earnings and CESG ratings. While the 'Beginners' are of smaller market capitalisation, there was a broad spread across the CESG scores for the smaller companies (under NZ$2,000m).

“Two of the three largest companies fell into the 'Leader' category, but we do not find that size has much of a correlation with those companies in the 'Fast Follower' and 'Explorer' categories. We found a slight positive correlation between PE and CESG rating. The correlation is stronger when we look at the PE of the Top 20 (by market cap) companies and the CESG rating,” Katie Beith says.

The Utilities, Consumer, Infrastructure, Aged Care, Health Care and Industrials sectors scored above the New Zealand average CESG score. While Agriculture, Property, Financials and Technology were below the average.

The Forsyth Barr CESG Ratings of New Zealand Companies and a separate Forsyth Barr CESG Rating Methodology document are both freely available and published on the Forsyth Barr website: www.forsythbarr.co.nz

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