ESG themes from company reporting season

This reporting season has seen a strong focus on social considerations, unsurprisingly triggered by Covid-19, which has presented a challenge but also an opportunity for companies writes Harbour Asset Management.

Saturday, September 19th 2020, 11:24AM

by Harbour Asset Management

Key points
• Health and safety are being prioritised in response to Covid-19
• Companies are broadly improving gender diversity and pay gap disclosure
• There is a rising alignment with climate change reporting framework

Many of New Zealand’s largest listed companies reported their financial results, as well as their sustainability initiatives, for the year and we observed some key themes this reporting season.

Covid-19 undoubtedly had a significant impact on company profitability and financial position but also on environmental, social and governance (ESG) strategies, with social considerations propelled to the forefront while, in some cases, environmental initiatives were deferred.

The key trends evident from companies this year focused on employee and customer health and safety, gender diversity and improved climate change disclosure.

Health and safety

The Covid-19 pandemic has brought health and safety considerations to the top of the agenda for companies, as they navigate the extraordinary circumstances of the lockdown restrictions introduced during New Zealand’s public health response.

Companies were forced to adapt quickly to the social distancing and working from home requirements in a safe and effective way.

Additional initiatives were introduced in many cases, such as stepping up cleaning procedures, added flexibility to working arrangements and providing financial relief to staff and customers experiencing hardship due to the pandemic.

Mental wellness has also been a focus for some companies, due to the anxiety and isolation effects that can arise from such situations. For example, Chorus provided support for its staff through webinars from mental health experts, and partnership with a mental health organisation Mentemia.

Broadly speaking, health and safety metrics across the market improved with the rate of injuries, especially serious incidents falling.

Gender diversity/pay gap

Diversity considerations, particularly moving towards gender equality, remains an important focus for companies.

Many companies have reported progress over the past year in higher representation of women across their businesses overall.

A common diversity objective is to achieve a 40:40:20 ratio, where there are at least 40% women and 40% men amongst staff, with 20% being either.

Gender equality has also extended to analysis of pay gaps for some companies, with targets to minimise these, especially when comparing roles at the same skill level.

However, challenges still exist in some companies when looking at total pay gaps where there is uneven gender representation for different types of roles at varying remuneration levels.

Spark has been a prime example in both aspects, achieving equal gender representation across its Board and leadership team with small pay gaps observed in some types of roles but larger ones in others.

Climate change disclosure

Although the shock brought by the pandemic has led to many companies deferring some environmental initiatives, we have still seen an improvement in the articulation of climate change approaches, acknowledging a best practice climate change framework known as the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.

This framework involves disclosing approaches across four pillars: governance, risk management, strategy, and metrics and targets, to provide both high level and granular details for the management of climate change considerations.

More companies have either started providing disclosure aligned with the TCFD framework or have committed to disclose this in the following reporting year.

Genesis Energy was a standout performer providing detailed TCFD-aligned disclosure for the first time. Meridian Energy also further improved its analysis by quantifying the financial impact on their business from various climate scenarios.

Conclusion

In our view, although the Covid-19 pandemic has represented a significant challenge to companies, it has also provided an opportunity to reassess how well they are managing their relations with staff and the communities in which they operate, leading to enhanced health and safety protocols and better social outcomes.

Harbour is pleased to see companies taking a proactive stance in improving sustainability disclosure by adopting integrated reporting and climate change frameworks, despite the circumstances, and we hope to see further uptake in future.

Aside from disclosure, Harbour would encourage companies to take more action to reduce their emissions to help achieve the country’s zero carbon targets and mitigate the worst effects of climate change.

Other themes, such as modern slavery, are likely to be scrutinised more closely going forward as companies and investors like Harbour take a deeper dive into how workers in their supply chains are treated, with growing regulation in the space.

Harbour’s investment process captures a comprehensive range of ESG factors; and we will continue to tilt our portfolios towards companies demonstrating leading and improving performance in this space.

We believe sustainable businesses are more likely to deliver better outcomes for investors over the long term.

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Tags: Climate Change Covid-19 ESG Harbour Asset Management investment Sustainability TCFD