Australia: How Will CLERP 9 Impact Companies and Corporate Environmental Reporting?

By John Taberner and Emily Sunman

Traditionally Australian companies were not subject to mandatory reporting requirements in terms of their environmental performance. However, mandatory public environmental reporting became a reality after the entry into force of section 299(1)(f) of the Corporations Act on 1 July 1998.

Section 299(1)(f) provides that a director's report for a financial year must, if the entity's operations are subject to particular and significant environmental regulation, provide 'details of the entity's performance in relation to environmental regulation'.

Although discussions have occurred in the past about the removal of section 299(1)(f) from the Corporations Act, the section continues to remain unamended and in force.

In October 2003 the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Bill 2003 (Cth) (CLERP 9) was introduced into Parliament. Subject to any amendments, CLERP 9 will come into force from 1 July 2004.

One focus of the proposed amendments is an increase in the public disclosure requirements of corporations. An objective identified during the development of CLERP 9 was the need to include in corporate reports information to allow shareholders to make an informed assessment of the operations of a company, its financial position and business strategies.

As a result, the proposed section 299A in CLERP 9 requires listed public companies to include in the annual director's report information that shareholders would reasonably require to make an informed assessment of:

• the operations of the company reported on

• the financial position of the company, and

• the company's business strategies and its prospects for future financial years.

CLERP 9 does not provide any more specificity regarding the matters that will need to be considered by public companies and disclosed under the proposed section 299A.

Many commentators believe that the proposed section 299A can only be interpreted as including an obligation on public companies to report on significant environmental (and social) matters that could impact a company's future financial prospects. The move to include this requirement in the Corporations Act will make environmental issues a key reporting concern for companies and a key corporate governance issue.

Significant environmental issues that may require disclosure could include:

• climate change and greenhouse emissions issues

• access to future water resources, and

• increased salinity resulting from a company's activities.

The scope of the reporting requirement is extensive as many different environmental issues have the potential to significantly impact a company's financial position.

While section 299(1)(f) only applies to companies when its operations are 'subject to any particular and significance environmental regulation' under a Commonwealth, State or Territory law, the application of the proposed section 299A will be significantly broader applying to all listed public companies.

Under the current Corporations Act provisions a director of a company, registered scheme or disclosing entity contravenes the reporting provisions if they 'fail to take all reasonable steps to comply'. The failure is a civil penalty provision and if a court makes a declaration that the relevant provision has been breached, ASIC can seek a pecuniary penalty order or a disqualification order.

Other amendments proposed by CLERP 9 relate to existing enforcement provisions, including those relating to director's reports. For example, the maximum amount of a pecuniary penalty order is proposed to be $200,000 for an individual and $1 million for a corporation.

While ASIC is in the process of developing new policies and guidelines to give Australian companies guidance on dealing with the new requirements under CLERP 9, it has emphasised that companies must plan ahead to make the changes required.

We can assist your company prepare for the proposed changes to reporting requirements in a number of ways, including:

• discussing with you the nature of your business and whether the proposed amendments will affect you

• identifying with you what existing and future environmental matters may require inclusion in your director's report

• identifying and developing methods of representing and reporting those matters, and

• reviewing your future reports to ensure compliance with the provisions.

For more information, or if you would like to discuss any concerns your company has about dealing with the proposed amendments, please contact the authors of this article.