Companies’ C&ESG ratings released

More companies are reporting and setting targets around carbon emissions according to Forsyth...
More companies are reporting and setting targets around carbon emissions according to Forsyth Barr’s latest Carbon, Environmental, Social and Governance report. PHOTO: GETTY IMAGES
The property sector has shown the biggest improvement over the past year among the companies monitored in Forsyth Barr’s second Carbon, Environmental, Social and Governance ratings report.

Yesterday, the wealth management firm released the report which reviewed 8300 data points from 58 of the country’s best known businesses listed on the NZX, including household names like Air New Zealand, Meridian Energy and Spark.

The companies were rated overall as either leaders, fast followers, explorers or beginners. Most were either fast followers (33 companies) or explorers (13) and there was a "significant" gap between the 11 leaders and one beginner, it said.

Report lead author and Forsyth Barr’s head of ESG Katie Beath said a clear motivation was noted for improved C&ESG performance by the property sector given strong tenant demand from large organisations wanting green buildings to help fulfil their own targets and given offers of lower interest rate funding for green assets.

This year, Ms Beath said the firm had "raised the bar" on its methodology and it had become harder for companies to score points as "easy to win" questions had been removed and a greater focus on outcomes was introduced.

But the main thing was there was a lot of momentum. Demand drivers for strong ESG credentials were very established and included the likes of client demand — both locally or internationally, regulation, investors asking questions, response to climate change, market capital access and employee attraction and retention, she said.

In the critical area of carbon reductions, five listed entities — Air New Zealand, Fletcher Building, Fonterra Shareholder Fund, Genesis Energy and Contact Energy — held the lever to driving real change in terms of reducing Scope 1 and 2 emissions as they operated in the emissions-heavy sectors of aviation, construction, agriculture and thermal electricity generation.

Overall, carbon emissions from the 58 companies were still increasing but more companies were reporting and setting targets. Good progress was seen on Scope 3 emissions which were indirect and arose from a company’s upstream and downstream value chain, including the emissions sources.

Some companies were choosing to report carbon intensity metrics rather than absolute reductions as reductions had not been realised due to operational growth or entrenched business practices.

"But with increasingly frequent and severe climate events affecting lives across the globe, all mitigation and adaptation efforts are needed to build resilience for an uncertain future. Going forward, we expect companies to develop very clear Climate Action Plans which meet emerging international standards of best practice and specifically outline how they are going to meet their targets.

Most companies showed progress on biodiversity and social impact, particularly in terms of staff wellbeing as it impacted retention and recruitment. "Clearly there is a fight for talent and these large companies realise that business purpose, sustainability and staff wellbeing are key factors in attracting good people," she said.

Fear of greenwashing allegations was causing a tightening of wording in disclosures and driving better accountability mechanisms. This year, 18 companies received validation of their emissions reduction targets by the Science Based Targets initiative and three were awaiting approval.

That was one example of where companies had been tidying up their disclosures and putting robust accountability mechanisms behind their commitments. In addition, 42 companies had remuneration linked to sustainability efforts, up from 33 companies last year.

In 12 months’ time, Ms Beath wanted to see a "wealth of commitment and accountability and policies and practices put into place", although she acknowledged that would take time.

"We need to see the fruits of all that work actually start to have positive impact on the environment and society," she said.