Craigs Investment Partners analyses environmental reporting for NZX 50

NZX 50 companies that have committed to Science-Based Target initiative (SBTi) verified targets or science-aligned emissions reduction targets are exceeding reduction targets set in the Paris Agreement, limiting global warming to 1.5°C compared to pre-industrial levels.

That’s the finding of a recently published report by Vanessa Stevens and Daniel Kibby of Craigs Investment Partners, analysing the environmental reporting of New Zealand’s largest listed companies.

Craigs’ senior sustainability analyst Vanessa Stevens says mandatory climate-related disclosures, which came into effect from January 2023, have enhanced New Zealand listed companies’ reporting on emissions, climate governance, and the management of climate risks within their operations frameworks and across their value chains.

While mandatory climate-related disclosures have made it easier to compare NZ listed companies’ operational emissions – direct emissions from owned or controlled sources (scope 1), and indirect emissions from purchased electricity (scope 2) – comparing value chain emissions (scope 3) remains a challenge.

“We have analysed the NZX 50 exclusively from an operational emissions perspective because data quality and availability for upstream and downstream supply chain emissions varies significantly between New Zealand listed companies,” says Stevens.

Craigs’ report found seven companies – Air New Zealand, Genesis, Fonterra, Fletcher Building, Contact Energy, Mainfreight and Mercury – together contribute 95% of operational emissions of the NZX 50. Stevens describes the result as “mostly unsurprising” given the nature of their operations, with Mercury a notable exception.

“Whilst Mercury produces 100% renewable electricity through its wind, geothermal, and hydro assets, the main contributor to its emissions are fugitive emissions from its geothermal stations,” says Stevens.

Stevens says operational emissions data only tells part of the story, with value chain emissions and progress towards achieving emissions reduction targets also important considerations.  

“Interestingly, if we were to consider both operational and available value chain emissions data in this analysis, Auckland International Airport would jump to second due to value chain emissions arising from the aviation fuel used by planes transiting through the airport. Similarly, a2 Milk would climb to ninth because of the emissions relating to methane produced by cows in the supply chain of its milk products.”

SBTi and science-aligned targets are proving effective

Sixteen of the companies assessed by Craigs, including five of the top seven emitters, have committed to or set Science-Based Target initiative (SBTi) verified targets and are for the most part reducing their emissions, says Stevens.

“Overall, the companies with SBTi or science-aligned targets are demonstrating a strong alignment with efforts to reduce the impacts of climate change, as a group they are exceeding the annual 4.2% emissions reduction needed to limit global temperatures from rising 1.5°C above pre-industrial levels,” says Stevens.

“Of the NZX 50 companies with SBTi and science-aligned targets, the average reduction per year is 8.7%. Even when the large outliers (over and under) are removed, the trimmed average becomes 6.2% per year.”

Craigs report found that seven NZX 50 companies have set their own emissions reduction targets not aligned with scientific recommendations, while 15 NZX 50 companies have not reported any emissions reduction target.

“The absence of climate targets can pose significant risks to companies, including increased vulnerability to regulatory changes, loss of investor confidence, and potential reputational damage. Without clear targets, these companies may struggle to navigate the transition to a low-carbon economy,” says Stevens.

Nature-related reporting

With biodiversity loss and ecosystem collapse identified as a top five global risk in the World Economic Forum’s 2024 Global Risks Report, Craigs’ report looked at whether companies within the NZX 50 are formally assessing their reliance on nature and, if so, whether they have established any initiatives, targets, or goals related to biodiversity.

“Given that most NZX 50 companies are moderately dependent on nature, we would expect a comprehensive level of reporting on how nature-related risks and opportunities impact those companies’ business operations. However, the current state of reporting falls short of these expectations,” says Stevens.

“An analysis of NZX 50 sustainability reports and annual reports reveals that the level of biodiversity and nature-related reporting is not advanced, and no company has yet adopted a formal nature framework.”

The report found only Contact Energy and Westpac have incorporated aspects of a formal nature-related framework. Contact Energy has used the International Union for Conservation of Nature (IUCN) Red List to identify nine species that reside in areas where it operates. Westpac has published a table showing its exposure to Taskforce on Nature-related Financial Disclosures (TNFD) reference sectors and outlined its focus areas to align with its Natural Capital Position Statement.

“Although the current level of reporting on biodiversity is not as advanced as we would hope, considering its importance to a number of NZX 50 companies, there is still reason for optimism. Over half of the NZX 50 companies have already initiated some form of biodiversity-related efforts,” says Stevens.

Initiatives include bee hotels in Mainfreight’s European branches, safe passage for migrating eels at Manawa Energy hydro schemes, and natural pest and disease suppression measures adopted by Scales.

Stevens expects nature-related reporting and biodiversity initiatives to increase once companies come to grips with their climate reporting requirements.

“Within the NZX 50, the management of climate-related risks is far more advanced than that of biodiversity or nature. This makes sense, given the mandatory climate reporting requirements and the visible impacts of climate change globally. Companies have been compelled to prioritise climate-related disclosures, driven by regulatory requirements and the urgent need to address global warming,” says Stevens.

“We anticipate that both areas will continue to progress over the coming years as companies, investors, and consumers enhance their understanding and commitment to sustainability.”

Stevens said the integration of biodiversity considerations into corporate strategies was expected to gain momentum as the interdependencies between climate change and biodiversity loss become more apparent.

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