Australia: Corporate Liability For Environmental Performance: Proposal To Repeal Laws

Last Updated: 21 October 2003

Article by John Taberner, Mark Dwyer, Tim Power, Tony van Merwyk and Michael Back

The spate of corporate failures in Australia and abroad in 2002 has prompted many businesses to re-evaluate the quality and effectiveness of their 'corporate governance' practices. This reflection has not been confined to the economic and financial management of these entities. Many companies and businesses, including the Australian Stock Exchange (ASX), have recognised that good corporate governance extends to recognising and managing the social and environmental effects of their businesses. In light of this trend, the Federal Government's proposal to repeal laws requiring corporations to report on their environmental performance appears worthy of reassessment.

The value to corporations taking a 'triple bottom line' approach to their governance is now acknowledged by many corporate leaders. Increasing numbers of business managers now accept that a 'triple bottom line' approach to corporate management represents business best practice.

In March 2003, the ASX published its own Principles of Good Corporate Governance and Best Practice Recommendations, which contained ten 'fundamental' principles that the ASX believes underlie good corporate governance. The principles are designed to evolve as community and government expectations change. In fundamental principle 10, the ASX states that 'there is a growing acceptance of the view that organisations can create value by better managing natural, human, social and other forms of capital'. Principle 10 recognises that corporations and organisations have responsibilities to the community, including protecting the environment.

In June 2003, Standards Australia published five Australian Standards concerning corporate governance, including AS 8003–2003 Corporate governance: Corporate social responsibility (AS 8003–2003). AS 8003–2003 is designed for use by government departments and public, private and not-for-profit organisations, and 'sets out the elements essential for establishing, implementing and maintaining an effective corporate social responsibility program'. It states that to meet the Australian Standard benchmark for good corporate governance, an entity's key performance indicators for environmental and social performance should be reported in annual reports, management reports, ad hoc statements or website updates. According to Standards Australia, good corporate governance should be reflected in the adoption and implementation of a corporate social responsibility management system, which would necessarily include the systematic identification of an entity's environmental impact and the implementation of procedures to manage, audit and monitor the entity's environmental impact.

Business is responding to, and in many cases leading, the adoption of corporate responsibility principles and the 'triple bottom line' approach to business management. This is seen through the introduction and reinvigoration of environment policies, increasingly among organisations whose day to day operations do not have a direct impact on the environment. For instance, in the past 12 months, AMP and the National Australia Bank have released commitments to the environment, while Telstra has strengthened its environment policy by incorporating an environmental purchasing policy. Freehills is also in the process of reviewing its objective-focused environment policy with a view to introducing a target-driven environment policy.

These corporate governance principles, and in particular the reporting specification in AS 8003–2003, could complement mandatory environmental reporting requirements imposed on corporations and business. The mandatory reporting requirement arguably should represent the minimum required of all corporations, and the guidelines published by the ASX and Standards Australia constitute the accepted 'best practice'.

It is therefore curious and arguably out of step with community expectations that the Federal Government is considering repealing section 299(1)(f) of the Corporations Act 2001 (Cth), which obliges certain types of corporations to disclose their environmental performance in their annual reports, without replacing this provision with an appropriate alternative regulatory regime. In the May 2003 edition of Environment Quarterly, we reported that the Federal Government, in an exposure draft of the Corporations Amendment Bill 2002, proposed the repeal of section 299(1)(f). The reasons given for proposing to repeal the section are that the section 'is vague and uncertain', 'it is desirable for public corporations to adopt appropriate governance structures and processes on an ongoing basis and in a non-prescriptive manner' and it 'duplicates existing … environmental reporting requirements'.

Section 299(1)(f) of the Corporations Act 2001 (Cth) is vague and ineffectual. However, the ineffectiveness of the section does not itself warrant the removal of mandatory environmental reporting from company legislation. Many would argue that shareholders and the community are entitled to know the environmental effects of corporate Australia's activities. There is a good case for arguing that a minimum benchmark should be set for those organisations unable to see the benefit of achieving best practice in corporate governance and reporting to ensure Australians are informed about the environmental performance of all corporations.

Consequently, rather than simply repeal the section, the Government should consider replacing section 299(1)(f) with a mandatory reporting regime that addresses its concerns. For instance, the Government could clarify the mandatory reporting requirements, provide guidance to corporate Australia and allow corporations to determine the form and timing of reporting subject to their fulfilment of a threshold requirement. If the Federal Government is concerned about duplication of reporting, it could allow corporations to utilise reports provided to State and federal agencies in their publicly accessible annual report to shareholders, rather than removing information from shareholders that they have now come to expect.

It is hoped that the Federal Government's decision to repeal section 299(1)(f) does not dampen the trend of businesses choosing to exceed government requirements with respect to corporate environmental responsibility, and consequently enjoy the commercial, employment and community benefits from adopting good corporate governance principles and a 'triple bottom line' approach to their business operations.

This article provides a summary only of the subject matter covered, without the assumption of a duty of care by Freehills. The summary is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.

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