- Climate change disclosures have taken their place in the limelight on the back of new reporting regulations.
- Positive trends have been observed in company health and safety performance and action towards addressing modern slavery concerns.
- The oversight of artificial intelligence use is a key emerging issue at the governance level for company boards.
Sustainability considerations were particularly prevalent in company disclosures over the past year, especially within the climate change space as the first round of reports were published in line with new regulations. We recap this as well as other key themes we observed from New Zealand listed companies during 2024.
Climate transparency
Transparency over how climate change has impacted companies and where the future risks and opportunities lie has been the primary sustainability area of focus for the year. Climate reporting requirements have been mandated under law in New Zealand to disclose information according to standards developed by the External Reporting Board (XRB). This has caused many companies to step up existing voluntary disclosure on their efforts to mitigate and/or adapt to the effects of climate change to meet these new requirements.
We have observed a wide range in the quality and quantity of these initial reports given the nascency of the regime and lack of an international precedent with New Zealand being the first country in the world to mandate climate disclosures. As investors, we found some aspects of these reports particularly valuable such as the broader measurement of greenhouse gas emissions and commentary on past and anticipated climate impacts. For example, insights from the power generation companies including Genesis Energy and Contact Energy on the challenges with low rainfall and wind over the year helped explain the changes in emissions for the sector. We believe there will be improvement in these reports over time as the regime matures and there is convergence towards best practice.
Looking after people
Another important trend observed over the year has been companies prioritising the health, safety and rights of their employees and people working in their supply chains, particularly to help address modern slavery. Regarding health and safety, we noted many companies are making encouraging progress in reducing the frequency and severity of injuries including fatalities. Steel and Tube were an example of a company that has improved performance over the past seven years and for the first time over the last year, had no medical treatment injuries to report. This reflected the company’s commitment to robust health and safety practices and how it is now more embedded into its culture and values.
In terms of looking after people along the supply chain, the development of modern slavery legislation in New Zealand has been at a standstill but this has not stopped some companies from proactively taking action to search and address any findings of labour abuses amongst suppliers. Telecommunications infrastructure provider Chorus noted there were a small number of complaints received on this front which was acted upon and resulted in three service companies being required to undertake remedial action while three others were removed from further work on its network. This represented a practical case study of a company following through on its procedures outlined in its modern slavery statements ultimately to help the people affected by improper treatment.
Artificial Intelligence governance
Artificial Intelligence (AI) is not new and has been used for many years in a range of applications, however, there has been significant growth and utilisation of Generative AI and large language models (LLM) over the past year. This presents both risks and opportunities for businesses as it can create efficiencies and productivity improvements but can also threaten data security and privacy if proper safeguards are not in place. In addition, there may be negative environmental implications through higher energy use to consider as well depending on generation source.
In terms of regulation, the New Zealand Government has signalled a preference for updating existing regulation rather than developing a standalone AI Act[1]. However, there have been useful voluntary resources developed by industry bodies such as the Institute of Directors NZ which has published a director’s guide, outlining principles for effective board oversight of AI.[2]
Some of the use-cases mentioned by NZ companies in their disclosures have been to test Generative AI for analysing customer sentiment and engagement and the trialling of Microsoft’s Copilot technologies to drive improvements in everyday productivity. Our conversations with board directors as part of governance roadshows have also highlighted how companies are wary of the privacy risks and lack of safeguards in place for AI use. In one case, a board Chair noted that they had been closely following developments oversees such as the guidelines published by the Australian Institute of Directors.
Outlook
We expect climate reporting to continue to be a key sustainability priority in 2025, as companies refine their disclosures and address reporting requirements that were optional in the first year. We also see a continuation of other environmental, social, and governance (ESG) trends such as the growing focus on nature, initiatives to better integrate Te Ao Māori and evolving governance practices.
Harbour’s investment process captures a comprehensive range of ESG factors, and we will continue to favour companies demonstrating leading and improving performance in this space. We believe sustainable businesses are on average more likely to deliver better outcomes for investors over the long term. Our ESG Policy provides further insight into the ESG values and practices across the Harbour funds.
[1] https://www.mbie.govt.nz/dmsdocument/28913-approach-to-work-on-artificial-intelligence-proactiverelease-pdf
[2] https://www.iod.org.nz/resources-and-insights/guides-and-resources/governing-ai#
IMPORTANT NOTICE AND DISCLAIMER
This publication is provided for general information purposes only. The information provided is not intended to be financial advice. The information provided is given in good faith and has been prepared from sources believed to be accurate and complete as at the date of issue, but such information may be subject to change. Past performance is not indicative of future results and no representation is made regarding future performance of the Funds. No person guarantees the performance of any funds managed by Harbour Asset Management Limited.
Harbour Asset Management Limited (Harbour) is the issuer of the Harbour Investment Funds. A copy of the Product Disclosure Statement is available at https://www.harbourasset.co.nz/our-funds/investor-documents/. Harbour is also the issuer of Hunter Investment Funds (Hunter). A copy of the relevant Product Disclosure Statement is available at https://hunterinvestments.co.nz/resources/. Please find our quarterly Fund updates, which contain returns and total fees during the previous year on those Harbour and Hunter websites. Harbour also manages wholesale unit trusts. To invest as a wholesale investor, investors must fit the criteria as set out in the Financial Markets Conduct Act 2013.