Wealth management firm Forsyth Barr may include new environmental, social and governance (ESG) data in NZX company valuations.
Forsyth Barr published an inaugural detailed ESG analysis – adding C for carbon as a separate factor in the ratings – on 57 NZ listed companies last week, with plans to use the data in broader corporate metrics.
“The New Zealand Equities Research Team at Forsyth Barr are considering incorporating the CESG ratings into the cost of equity for the companies,” the report says.
“In addition, from now onwards, we will include on all Forsyth Barr New Zealand company specific research reports the overall CESG score along with the breakdown for each category, the sector average and NZ average and classification as Leader, Fast Follower, Explorer or Beginner.”
The 35-page Forsyth Barr CESG report, and companion 114-page company-by-company granular scoring data, found most of the NZX firms covered are on track to meet looming carbon-reporting obligations.
Katie Beith, Forsyth Barr head of ESG, said in a release that about 50 per cent of the NZ listed companies in the study 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,” Beith said.
However, she said most companies scored poorly for other important environmental disclosures such as water and waste.
“Some listed companies appear to be unaware of why reporting their use of water or risks regarding water should be standard practice,” Beith said. “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.”
But NZX firms fared better across other metrics such as health and safety, biodiversity and ‘circular economy’ goals.
And most scored well on governance, which represents 40 per cent of the Forsyth Barr CESG ratings.
“Broadly, New Zealand corporate governance is strong but there are a few idiosyncrasies,” Beith said. “Notably, 28 companies in New Zealand have had the same auditor for more than 10 years, which is not ideal.”
Just 12 of the 57 companies fell into the top ‘leaders’ category and three ranked at the bottom of the pile as ‘beginners’ in the Forsyth Barr terminology: the rest are either ‘fast followers’ (26) or ‘explorers’ (16).
While several global ratings agencies and some local fund managers have developed their own ESG ratings of NZ firms, Forsyth Barr says it hopes to establish a widely accepted baseline for future analysis.
The report says most global rating agency ratings of NZX companies lack detail and scope while missing the “geographical nuance” of the market.
Furthermore, Forsyth Barr says many ESG rating methodologies remain opaque with different agencies often producing conflicting results.
“We have tried to tackle these issues by providing a fully transparent methodology. We accept it is not yet perfect and is only iteration number one. However, we firmly believe that the scorecards start the ESG conversation with companies off on the right foot,” the report says.
“We expect over time disclosure will continue to improve and eventually, the market will be satisfied by not just the provision of data but also an awareness of whether real change is underway. Our CESG Framework offers a way to measure progress in a consistent, comparable, robust and informative way. We plan to evolve it each year, raising the bar on our expectations and increasing capability to assess the quality of responses.”