| Fund manager Harbour Asset Management – provider of two funds we use in our ethical portfolios – has produced a summary of the three key themes they observed in working with New Zealand companies during 2024. These are climate change, looking after people and artificial intelligence (AI) governance.
Climate transparency The primary sustainability area of focus for the year was transparency over how climate change has impacted companies, and where the future risks and opportunities lie. Climate reporting requirements have been mandated under law in New Zealand. 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. Harbour observed a wide range in the quality and quantity of these initial reports. This was due to the newness of the regime and the lack of an international precedent with New Zealand being the first country in the world to mandate climate disclosures. As investors, they 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. Harbour believes 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, Harbour noted many companies are making encouraging progress in reducing the frequency and severity of injuries including fatalities. Steel and Tube was 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. This has not however 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, resulting 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. 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. Some of the cases mentioned by NZ companies in their disclosures have been to test Generative AI for analysing customer sentiment and engagement, and the trialing of Microsoft’s Copilot technologies to drive improvements in everyday productivity. Harbour’s 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 Harbour expects 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. They 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. Source: Harbour Asset management |