NZSA Disclaimer
There’s always plenty to say on environmental sustainability and its relationship to financial returns.
On one hand, evidence tells us that increasingly, investors are wanting to ensure that their investments are not under any undue risks as a result of environmental sustainability issues. Most also want to ensure that they are supporting businesses that are part of the transition to an environmentally-sustainable planet.
For most investors, environment-related risks are treated no different to other business or strategic risks. Investors will normally consider the strategy of a company, and how that translates to sustaining or enhancing cashflows. As investors, we are quite happy to make a judgement on the future cashflows of a company based on the external threats and opportunities they face, coupled with the company’s internal strengths and weaknesses.
It would be a brave investor that ignores environmental impacts on a company’s cashflow in that context.
Many fund managers offer ‘ESG-themed’ funds, that offer a level of financial return the same or in excess of ‘non-ESG’ funds, offering evidence that sustainable investing does not need to come at the cost of financial return.
Of course, there as many shareholder opinions as there are shareholders.
In recent months, BP Group plc has become the poster-child for an investor-driven “pullback” from net-zero ambitions—a clear counter-narrative to the trend of embedding sustainability at the core of corporate strategy. In February this year, the company announced it would scrap its target to grow renewable power “20-fold by 2030,” instead reallocating roughly US$10 billion per year back into oil and gas production through 2027 – and cutting its low-carbon spending to barely 5 percent of total investment.
The company noted it was responding to investor concerns over earnings – particularly expressed by Elliot Asset Management, a near 5% holder of BP shares. Other investors had their say at the company’s AGM held in April, with nearly 25% voting against the re-election of the company’s Chair, Helge Lund, in protest at the Board’s abandonment of its previous climate strategy.
And BP’s share price? In the short term, the company’s shares reacted positively to the Elliot-driven announcement, from around 433 pence on February 7th to a high of 463 pence afterwards. But as global investors reacted, the subsequent movement has been less positive, with the shares currently trading at around 380 pence. Ironically, much of the decline has been attributed to BP warning of weak gas trading and marketing revenues.
This polarisation in BP’s shareholder base is partly reflected in wider capital markets – although those supporting a more sustainable approach to investment are likely in the majority.
Mainstream
Ultimately, a full consideration of environmental sustainability factors is simply good business, from both an investor and corporate perspective.
Environmental, Social, and Governance (ESG) considerations – especially climate – have moved from niche to mainstream in global capital markets. As of December 2024, over 5,000 institutional investors representing roughly US$128 trillion in assets have signed up to the UN Principles for Responsible Investment, underscoring the scale of investor commitment to ESG integration.
At the same time, the International Sustainability Standards Board’s IFRS S2 (effective for annual periods beginning on or after 1 January 2024) requires companies to disclose climate-related risks and opportunities in a structured way—covering governance, strategy, risk management, and metrics & targets—reflecting a shift towards decision-useful sustainability information for investors.
This is no surprise to New Zealand’s listed companies. At the time of its implementation, New Zealand’s climate-related disclosure regime was the first in the world. Whether you agree or disagree with New Zealand’s disclosure leadership, the fact is that most jurisdictions around the world have now overtaken New Zealand (or are about to) in terms of the disclosure requirements of their companies.
Unusually, New Zealand’s regulatory regime is only applicable to listed companies and large financial institutions – hardly a level playing field when it comes to the quality and confidence provided by listed markets.
Regulatory regimes worldwide are strengthening. The EU’s Corporate Sustainability Reporting Directive mandates detailed sustainability reporting for nearly 50,000 companies from FY 2024 onward, while Australia’s AASB S2 Climate-related Disclosures becomes mandatory for in-scope entities in financial years beginning 1 January 2025, aligning closely with IFRS S2.
Investors and Risks
But let’s get this article back to where it started. Ultimately, the conversation about environmental sustainability is about investor convictions and risk. Your convictions as an investor may come from studied analysis of long-term thematics and their impact on companies, or it may be driven by your own values and opinions.
There is plenty of information available to support you when it comes to looking at investment options that support your own investment convictions. For example, Mindful Money aims to help New Zealand investors to align their choice of KiwiSaver with their values, offering transparency on fund holdings.
If you are so minded, the platform provides tools that can help you make decisions in favour of responsibly managed investments.
While much of the discussion in New Zealand has been driven by climate, there are many environmental risks that can impact a company’s operations. A smattering of local examples are shown below – all of which hold (or held) direct relevance for their shareholders.
Mercury NZ (MCY: NZX)
Hydrological variability poses material risk to New Zealand’s largest renewable generator. In HY2025, Mercury reported EBITDAF of NZ$418 million (down 4% y/y) and a net loss after tax of NZ$67 million—its first half-year loss in over a decade—largely due to lower North Island hydro inflows and adverse derivative movements.
This volatility not only eroded short-term earnings but also heightens uncertainty around dividend streams, underscoring why investors must factor climate-driven water risks into valuation and portfolio allocation.
New Zealand King Salmon (NZKS: NZX)
Aquaculture is uniquely exposed to ocean warming. In FY2022, NZ King Salmon endured fish mortality rates as high as 42% during the country’s hottest summer on record, translating into revised harvest expectations and lower profitability.
In response, the company is investing in thermotolerance breeding programmes and its offshore project “Blue Endeavor,” illustrating how physical climate risks can drive both losses and strategic capital reallocation.
Fonterra (FCG, FCF: NZX)
Supply-chain contamination risk can inflict profound financial damage. In 2008, Fonterra’s 43% stake in China’s Sanlu Group was impaired by NZ$139 million following the melamine-tainted milk scandal, as the cooperative wrote down its carrying value and faced reputational fallout that rippled through its earnings and share price.
This highlights the necessity for investors to scrutinise governance and control processes across global operations.
Port of Tauranga (POT: NZX)
Operational activities at ports carry water-pollution risks with regulatory and reputational costs. In March 2022, a container-repair contractor discharging sediment-laden stormwater into Tauranga Harbour was fined NZ$49,000, as Bay of Plenty Regional Council flagged sedimentation as a key harbour-health issue with adverse effects on benthic ecosystems.
Port of Tauranga’s own environmental policy now emphasises stormwater management and spill-prevention measures—a direct response to water-quality concerns that investors must monitor as part of environmental-risk due diligence.
Future Evolution
Over the last couple of years, we have heard plenty from the listed company community when it comes to the compliance costs of the climate-related disclosure regime.
We hear that.
But we also hear (and see) investors concerned about disclosure of the risks that affect their investments. We also see what is occurring elsewhere in the world. And it does seem to be ‘good business’ to ensure that a company is resilient to whatever impacts the world’s changing environment can throw at it.
That is, of course, not limited to climate – as the examples above show.
Last week, the NZ Shareholders’ Association (NZSA) completed its submission to the External Reporting Board, as part of a request for information on the extent to which New Zealand should pursue global alignment when it comes to climate standards.
We have advocated for a pragmatic, principles-based evolution of New Zealand’s climate-reporting regime, favouring incremental alignment with international standards over wholesale replacement. NZSA recommendations include:
- Differential reporting thresholds similar to the EU’s CSRD and Australia’s AASB S2 to balance rigour and capacity.
- A phased approach to IFRS S2 alignment to minimise compliance shocks and build assurance capability gradually.
To ensure robustness over time, NZSA also suggests consideration of encouraging disclosure scope beyond climate to nature-related risks—such as water scarcity and biodiversity loss—using a materiality-driven, voluntary pilot phase for Taskforce on Nature-related Financial Disclosures (TNFD)-aligned reporting.
Again, unsurprisingly, there are different views – in New Zealand overseas.
Some business groups have voiced caution about mandating extensive disclosures. In the United States, the Chamber of Commerce have challenged the SEC’s climate-disclosure rules, arguing they exceed agency authority, inflate costs, and could clog compliance systems—all while legal stays delay enforcement.
Such debates underscore the trade-offs regulators face between investor-useful transparency and burdensome requirements.
Looking ahead, New Zealand’s regulatory evolution is likely to mirror these global tensions: a shift toward more granular, market-aligned sustainability disclosures, tempered by pragmatism on implementation timing and proportionality to local market scale.
By embedding ESG themes into investment decision-making, investors can better anticipate shocks, engage with management on resilience strategies, and harness opportunities from the transition to a sustainable economy.
Oliver Mander