New Zealand financial sector most focused on ‘E’ in ESG

With new ESG regulation in the pipeline, investors and businesses will need to broaden their focus beyond the environment to include a range of cultural and social issues, according to BNP Paribas and KPMG.

Global sustainability policies are evolving rapidly, with a raft of measures currently underway in Europe, a commitment from US President Joe Biden to put climate front and centre and, closer to home, the introduction of world-first climate reporting disclosure laws in New Zealand.

According to Ian Jameson, Associate Director Impact Assurance, KPMG New Zealand, the local market is currently heavily focused on helping to combat climate change and contributing to the Paris Climate Agreement goal of becoming carbon neutral by 2050.

Yet the New Zealand Climate Bill will go deeper than previous legislation, with the External Reporting Board (XRB) also having the ability to issue guidance on a wide range of environmental, social and governance matters.

We have found there is currently a strong focus on the ‘E’ in ESG in the New Zealand market.

Ian Jameson, Associate Director Impact Assurance, KPMG New Zealand

Speaking at a recent event, Navigating the ESG Regulatory Roadmap, hosted by BNP Paribas, Mr Jameson said: “We have found there is currently a strong focus on the ‘E’ in ESG in the New Zealand market. However, we see an opportunity to look at ESG through a cultural lens ‘CESG’ with an expanded focus on areas such as modern slavery, supply chain and biodiversity.

“This year we launched KPMG IMPACT, a holistic approach to help organisations to be more sustainable, more resilient, more socially conscious, and more aware of their impact, all while unlocking economic value. The approach has an equally strong focus on the ‘S’ and the ‘G in ESG’.”

“The XRB will be looking closely at these issues and with the consultation draft from the Taskforce on Nature-Related Financial Disclosures (TNFD) expected next year, they are likely to increase in importance when it comes to ESG analysis.

“What we need to get right is directing capital that has a net positive impact and creating consistency in how these things are evaluated.”

The data conundrum

Nadim Jouhid, Head of Investment Solutions at BNP Paribas Securities Services said there was currently a high degree of alignment between regional regulators.

“In the Asia Pacific region, many are in the process of launching consultation papers and we expect there to be mandatory disclosure across the board by the end of 2022 or early 2023,” he said.

In making the transition, Mr Jouhid said a key challenge for asset managers and owners was the availability of consistent data. A recent BNP Paribas global survey of asset owners, institutions and asset managers on ESG found 80% of survey respondents noted this as a risk to the ESG reporting process.

“Most investors globally are looking to use multiple data services and compare them and some are also building their own ESG teams to tackle this data challenge. This is a trend we are also seeing play out in the New Zealand market.

“In the future, we would hope to see some stricter methodology on the scoring process and perhaps ratings agencies using a similar process, as they do with their analysis of credit markets,” he said.

Asset owners driving change

Mr Jouhid noted a recent push by asset owners to incorporate ESG criteria into their decision-making processes.

“When looking at which asset managers to work with, they are considering whether ESG values and mission align, the ESG know-how of the manager and the ESG track record. In the New Zealand market, support on ESG issues from a board level also goes a long way.

“In this sense, we see asset owners as key to helping asset managers in their ESG journey,” he said.

Mr Jouhid said custodians were also playing a key role in supporting their clients to navigate change in the ESG sphere.

“We are seeing strong demand from clients for assistance with reporting capabilities and data so they don’t have to build these capabilities in-house.

“Clients are also looking to us to provide connectivity between their data and the different ESG markets that are out there and we are currently deploying a tool in the APAC region to assist with this,” he said.

Looking forward, Mr Jouhid said ESG had become a core part of daily life, but as the recent Intergovernmental Panel on Climate Change (IPCC) Report outlined, there was still much work to do.

“Positively, we can see that our clients are getting better equipped and putting time and resources into building the capabilities to tackle the climate emergency and the other important issues of our time,” he concluded.

Suggested reading

ESG Regulations in New Zealand

BNP Paribas and KPMG recently held a dedicated event for the New Zealand market, “Navigating the ESG regulatory road map in a changing world”.