Investors want detail on risks: report

New Zealand risks lagging the world with what it requires businesses to disclose about their operations, a think tank says.

The McGuinness Institute has been running a policy project since 2016, with the aim of developing discussion about how to build an informed society. It publishes two new pieces of research this week.

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

A recent report from KPMG ranked the country below the international average for its rate of extended external reporting.

Most of the world’s big companies integrated financial and nonfinancial data in their annual financial reports. New Zealand’s rate was 69 per cent 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 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.

The fallout from Russell McVeagh’s sexual harassment allegations proved reputational risk was a key consideration.

Many investors also expected to consider climate change risks, but McGuinness said there were signs of a disconnect there, too.

As part of the new research, people involved in preparing company statements were asked how

"The uninformed investor is the most at risk." Wendy McGuinness

important they thought it was to disclose their business’s greenhouse gas emissions.

Fifty-three per cent said it was important or very important. But among those who made use of company statements, 79 per cent rated it important or very important.

There were many other disconnects. Seventy-per cent of those preparing the statements thought it important or very important to disclose deaths as a result of work, compared with 93 per cent of those using the information. And there was a difference of more than

10 per cent on whether total tax paid should be disclosed.

McGuinness said businesses should be required to file their annual reports with the Companies Office, not just their financial statements.

The institute found 41.5 per cent of the 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.

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 and the board’s abilities to run the business.

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

He said businesses that only focused on this year’s profit were neglecting to consider a wide range of risks.

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

‘‘The slam dunk is regulation … The uninformed investor is the most at risk. They don’t have massive wealth and resources in their investment portfolios.’’

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