Local companies and investors may be on the way to managing environmental and governance risks but have yet to grapple effectively with social issues – the other letter in the ESG triplet – Ian Jameson, KPMG NZ associate director audit impact assurance told a local industry forum in September.
Jameson told a joint BNP Paribas/KPMG webinar for NZ institutional investors that there has been a “strong bias” to the E and G factors here but “less in social areas”.
He said while climate change has invigorated the ESG movement in NZ, the market would have to address a slew of social issues coming into view.
For instance, Jameson said “modern slavery” was emerging as a key focus area for companies and investors alike. NZ has joined up to various global initiatives to combat modern slavery but has yet to follow the lead of Australia, which introduced legislation to tackle the problem.
But, according to the Ministry of Foreign Affairs and Trade, “policy work is currently underway to explore legislative and other options to address modern slavery including forced labour in international supply chains”.
Regardless of current legal obligations, Jameson said NZ organisations should make an effort now to identify exposure to “modern slavery in their supply chains”.
Other social-related issues are also brewing with diversity – gender and cultural – among them. In fact, he said there was growing enthusiasm to add another letter to the ESG tag with ‘culture’ taking the lead role.
Whether CESG takes off or not as a label, Jameson said companies and investors would increasingly consider decisions “through a cultural lens”.
In NZ, for example, more organisations are incorporating Māori values, even down to the production of bi-lingual investment product disclosure statements.
And even as the NZ market braces for the introduction of new climate-reporting rules and terminology such as the Taskforce on Climate-related Financial Disclosures (TCFD), other issues like biodiversity loom on the horizon, he said.
“Now there’s TNFD – or the Taskforce on Nature-related Financial Disclosures,” Jameson said. “There’ll be consultation on the TNFD next year.”
If the flurry of acronyms and abbreviations spilling into industry discourse in NZ seems daunting, the European example suggests more is to come.
Jean-Florent Richard, BNP Paribas Securities Services regulatory watch practice leader EMEA, detailed for the NZ webinar audience a raft of new ESG regulations floating into the European market.
Richard said European investors, for example, were slowly coming to grips with the Sustainable Finance Disclosure Regulation (SFDR) regime that imposed some complex product reporting obligations.
Under SFDR, financial firms are obliged to class products according to strictly defined ESG and sustainability measures and “taxonomy” developed by European regulators.
The European regime has been designed partly to “fight greenwashing”, Richard said, as well as to provide transparency for investors to ensure products align “with their preferences”.
Nadim Jouhid, BNP Paribas Securities Services head of investment solutions Asia Pacific, said the European example highlighted the “data challenge” for investors trying to comply with the blizzard of ESG regulations and client demands.
Jouhid said the recent BNP Paribas global institutional investor survey found the data debate has shifted notably in the last couple of years.
In the 2019 survey the most common investor complaint was where to source ESG data from, he said.
“Now there are many ESG data providers so that’s not an issue,” Jouhid said. “The problem today is one of data consistency.”
Differences between data providers in how they source and create ESG ratings has inevitably led to reporting inconsistencies.
Many investment firms now tap data from multiple external ESG researchers while also employing in-house teams to interpret the information or build bespoke analytics.
He said while a data solution was in sight, asset owners are also becoming more sophisticated in selecting managers based on their ESG credentials.
Institutional investors are increasingly concerned with matching their “ESG values and mission” with underlying fund manager choices, Jouhid said.