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14/3/2018 — General
Listed companies need to disclose more

A think tank has claimed New Zealand risks lagging the world with what it requires businesses to disclose about their operations.

The Fairfax website stuff.co.nz said the McGuinness Institute has been running a policy project that started in 2016, aimed at developing discussion of how to build an informed society. It was publishing two new pieces of research this week.

Chief executive Wendy McGuinness said NZ was not keeping up with the rest of the world in terms of what its businesses told investors.

Stuff reported that a recent report from KPMG ranked NZ below the international average for its rate of extended external reporting. While most of the world's biggest companies integrated financial and non-financial data in their annual financial reports, New Zealand's rate was 69% last year.

The McGuinness Institute's work found two-thirds of end users of information thought extended external reporting information was not easily accessible.

McGuinness said there were factors that got in the way in NZ including the size of the companies operating – there had been a tendency to expect more from larger firms – and the number of businesses functioning “invisibly” here, while owned from overseas.

She said Fletcher Building's recent problems with its building and interiors unit highlighted the importance of businesses being able to identify the risks associated with all of their divisions.

“You need the board to ask 'what are the risks for each part of the business?'.”

Those risks should be detailed in annual reports, she said. Risk had become a much wider consideration.

“Boards used to be able to look at risk in a narrow frame. Now it's much broader.”

She said fallout from law firm Russell McVeagh's sexual harassment allegations proved reputational risk was a key consideration. Climate change risks were also something that many investors expected to consider, but McGuinness said there were signs of a disconnect there, too.

Companies were asked how important they thought it was to disclose their business's greenhouse gas emissions. A total of 53% said it was important or very important. But among those who used the information the businesses provided, 79% rated it important or very important.

McGuinness said businesses should be required to file annual reports with the Companies Office, not just their financial statements. The institute found only 41.5% of businesses in the Deloitte 2016 Top 200 by revenue only disclosed their financials. They did not include information on remuneration, donations or even the names of directors.

Stuff reported that the NZX has updated its corporate governance code to indicate that it expects boards to assess environment, social and governance (ESG) risks. That covers aspects such as emissions, air and water discharges, health and safety considerations and the abilities of the board to run the business.

Fund manager John Berry, of Pathfinder told Stuff he has renewed his focus on responsible investment and said those concerns could easily turn into financial risk for a business.

This, he said, is something that's going to change “possibly dramatically” in the near future for New Zealand. Businesses that only focused on this year's profit were not considering a wide range of risks but there was an increasing focus by some on the long-term horizon.

Fisheries firm Sanford, for instance, was taking a long-term focus to ensure its business was sustainable.

Wendy McGuinness said action by the NZX would only be part of the solution. The NZX is small by international standards and requires resources to police its efforts.

“The slam dunk is regulation,” she said. “I can't see how that's not going to happen… I think there's some urgency here, it can't be left. The uninformed investor is the most at risk.”

As boards made their value propositions known to investors, they should have to detail their risk propositions, too, she said.

Fairfax’s Stuff website is a media partner for this year's 2018 CFO Summit.

Source: stuff.co.nz

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Wendy McGuinness. Photo source: Fairfax Media.
Fletcher Building's glum meeting which had disenchanted shareholders. This highlighted the need to assess the risk across all divisions of a business. Photo: David White, Fairfax Media.