ESG-linked remuneration survey part of engagement toolbox

A Devon Funds survey of S&P/NZX50 companies has found linking remuneration to ESG reporting is essential for sustainability credibility.

Thursday, March 21st 2024, 6:36AM

by Andrea Malcolm

The survey was part of Devon’s engagement strategy, outlined in its latest sustainability report.

The second most common ESG issue that was evaluated within KPIs for remuneration was greenhouse gas emission (scope 1 and 2) reductions and the fourth most common was greenhouse gas emission (scope 3).

Devon says the survey provided an overview of the ways in which ESG issues are embedded within remuneration packages for CEOs across the NZ market.

“It provides a focus for engagements and we will use the survey as a tool for discussions with boards and executive teams.”

Reporting on its engagement, Devon said it had a targeted engagement approach for decarbonisation and has modelled the carbon emissions reductions it expects from companies according to their own targets and NZ’s net zero by 2050 goal.

As a member of the Climate Action 100+ group, Devon is part of an ongoing engagement with Woolworths across Australia and NZ, the report says.

It has also collaborated with other fund managers through the NZ Corporate Governance Forum, of which it is a founding member.

Devon, ($2.3b AUM) has 10 funds, all of which are ESG integrated with corporate engagement and shareholder action.

Companies are screened monthly for ESG related controversies. A particular focus is company progress towards interim and net zero goals and models are updated on this yearly.

The firm has seen a significant increase in appetite for sustainable investment, it says.

Of all 10, four funds have sustainability themed investing, one of which - Devon Sustainability Fund ($28m AUM) offering Australasian equities - is managed internally. Last year it had a 7.14% return after fees and tax against the market index of 7.07% (no deduction for charges and tax). Total fund charges are 1.25%.

The Devon Global Sustainability Fund ($48m AUM) is a global equities fund managed by Wellington Management. It began in March 2022 and last year returned 16.25% after fees and tax, against a benchmark of $21.87% (no fees, no tax). The fee is 1.2%.

There are two impact funds. Devon began offering the diversified Australian and international Artesian Green and Sustainable Bond Fund (NZD) in June last year. The fund, managed by Australian Artesian Corporate Bond has ($6m AUM) and a fee of 0.59%.

The Devon Global Impact Bond Fund ($48m AUM) is also managed by Wellington Management Funds. It returned 5.38%after fees and tax last year against a 6.59% benchmark (no fees, no tax). The fee is 0.59%.

The TAHITO Te Tai o Rehua is also available through Devon.

This year Devon expects to see development of scope 3 emissions and nature biodiversity reporting and more collaborative action within the industry. It says best practice for reporting scope 3 emissions, is to break down emissions according to 15 categories within the Greenhouse Gas (GHG) protocol, and only exclude categories if they don’t have a material impact on emissions figures.

With no legislation in place around this, companies can choose what categories they report on and don’t need to disclose methodology, which causes inconsistencies. Devon is anticipating progress in this space in the year ahead.

Many companies depend on nature to operate and nature and biodiversity have become more of a concern for investors. The Taskforce on Nature-related Financial Disclosures (TNFD) has been developed to provide a set of disclosure recommendations and guidance for organisations to report and act on for nature-related impact, risk and opportunities. So far Lyttelton Port is the only New Zealand company to adopt the framework.

At 16 pages, the Devon sustainability report is more of a general overview compared with the more granular approaches taken by Harbour Asset Management and Pathfinder, both of which go into detail about their methodologies.

Tags: ESG