Environmental, social and governance (ESG) factors have a clear influence on the performance of NZX-listed companies, according to a new Harbour Asset Management analysis.
The Harbour study compared its in-house ESG overlay to the Armillary Private Capital return on capital employed (ROCE) data on NZX50 firms from 2011-2017.
Results from the “statistical analysis revealed a moderate, positive relationship between a high ROCE and a high ranking ESG score”, Harbour says in the latest Armillary report published this month.
“This reinforces the idea that company performance can be explained by multiple factors, both financial and non-financial,” Harbour says in the report.
Harbour says the ROCE finding also chimes with the manager’s previous analysis that found a long-term relationship between high ESG scores and NZX share prices.
The 2018 Armillary study – which ranks over 140 NZ listed, private and government entities against the ROCE metric – found the NZX Main Board stocks fell 1.2 per cent on the measure compared to the previous annual period.
“Despite this drop, the share market has continued to perform well as lower interest have reduced investors’ required returns,” the Armillary report says.
However, the NZX ROCE score of just under 7 per cent was below both the private sector companies in the study and Crown entities that both hovered around 9 per cent.
The NZX also lagged European, Australian and US stock markets on the ROCE measure, the Armillary report shows.
A2 Milk topped the ROCE charts for NZX firms in 2018 with a score of almost 167 per cent while Pacific Edge earned the wooden spoon with a disastrous -1,738.7 per cent reading.
Armillary says the ROCE score is a “measure of business effectiveness and capital efficiency”.
“ROCE is a function of profitability, how much profit a business generates before interest and tax (EBIT) and activity, how much a business has invested in operating assets to generate that level of profitability,” the report says.
In other Harbour news last week, the Wellington-based fund manager boosted its investment and distribution teams with two new hires.
Hamish Pepper joins Harbour next month as fixed income market specialist from his current role as head of FX and emerging markets macro strategy for Barclays in Singapore.
Pepper worked as a senior analyst at the Reserve Bank of NZ from 2007-2011, the same institution former Harbour head of fixed income, Christian Hawkesby, defected to earlier this year.
Hawkesby took up the newly-created plum role of RBNZ assistant governor in March.
In a statement, Mark Brown, Harbour head of fixed income said: “[Pepper’s] considerable analytical skills on central bank policy and economic data will be reflected in investment decisions across all asset classes, in particular fixed income and currency.”
Pepper would help manage Harbour’s $2 billion plus fixed income portfolio alongside Brown, George Henderson and Simon Pannett.
Meanwhile, Harbour lured Shannon Murphy from annuities firm, Lifetime Income Group, to take up a new investment specialist position based in the manager’s Auckland office.
She joined Lifetime last November.
Murphy, who has experience in financial advice and marketing in her native US, also starts with Harbour next month.
“Shannon’s focus will be on fostering relationships and engagement, and keeping strong lines of communication between Harbour’s investment team and financial advisors,” the statement says.