Divisions over expanded company reporting, executive pay in NZX governance review

Institutional investors and listed companies were split on NZX's proposal to introduce more transparent reporting of non-financial measures and executive pay, submissions show.

The stock market operator today released submissions on proposals to broaden governance rules for listed companies, before a wider review of listing rules this year. NZX wants to bring governance into line with best practice, based on Financial Markets Authority guidelines and those adopted by the ASX. Among the proposals was whether to introduce guidance or recommendations for non-financial reporting covering environmental, social and corporate governance (ESG) and whether more detail on executive remuneration was needed.

Listed companies and law firms were generally wary of imposing an added burden of meeting non-financial reporting measures, saying any steps should be voluntary and tailored to a specific business so as to ensure relevance.

"At most, NZX should include some commentary or guidance that issuers should consider reporting on non-financial matters that are relevant to their business but we do not support including anything more prescriptive than that," law firm Chapman Tripp said in its submission. "Investors can make their own decisions about the importance of ESG matters and choose not to invest in issuers that do not satisfy the standard, or provide the level of disclosure on such matters, that an investor considers appropriate."

Among the few listed companies in favour of greater disclosure were professional landlord Kiwi Property Group, petrol retailer Z Energy and Auckland International Airport, who said more fulsome disclosure of ESG measures would give investors a greater understanding of their business.

Institutional investors Devon Funds Management and the Guardians of New Zealand Superannuation supported the introduction of measurable ESG policies that companies would measure themselves against, while the NZ Shareholders' Association, which represents retail investors, said specific guidelines would be a step too far and a commentary on issues relevant to a company's business would be more appropriate.

"Rather than determining the specific metrics to report on, the NZX should recommend that companies use well-developed and generally accepted reporting frameworks on strategy, risks and ESG disclosure," the Guardians said. "Our own snapshot of the quality of ESG reporting amongst the NZX50 issuers shows only a handful of very good reporters across their material ESG issues."

Executive remuneration disclosure also divided opinion. The Listed Companies Association said feedback from its members was mixed, and it had settled on recommending a high-level release of information which avoided commercially sensitive information that might relate to short-term incentives. Retirement village operator Ryman Healthcare said existing disclosure of $10,000 bands was sufficient.

Russell McVeagh said the NZX Code shouldn't go beyond what's required by the Companies Act on executive pay disclosure.

"We believe issuers would have commercial sensitivity concerns about disclosing individual remuneration packages and that additional banded or consolidated reporting of remuneration, over and above the Companies Act requirements, would impose additional costs that would outweigh any value to investors," the law firm said.

However, investors wanted to see more disclosure for executive pay, including key performance indicators that could be clearly measured.

The review attracted 45 submissions, with 26 listed companies making their views known either directly or through the Listed Companies Association submission. NZX also hired TNS New Zealand to interview 15 small and medium-sized issuers to get their opinion on the review.

NZX intends to release a follow-up consultation paper in the third quarter of this year to allow for more feedback before settling on changes.

(BusinessDesk)