The Australian Stock Exchange Corporate Governance Council
(ASX Council) has recommended that entities listed
on the Australian Stock Exchange (ASX) disclose
environmental and social sustainability risks to investors. This
legal update examines the proposal which is currently the subject
of public consultation.
The ASX Council announced in December 2012 that it intended to
update its Corporate Governance Principles and Recommendations
(Principles and Recommendations). These Principles
and Recommendations last underwent review in 2007, and the current
revision is intended to incorporate the lessons learned from the
global financial crisis and other local and international
developments in corporate governance.
A consultation draft of the 3rd edition of Corporate Governance
Principles and Recommendations Consultation Draft
(Consultation Draft) was released in August 2013,
together with a consultation paper which provides additional
context and commentary (Consultation Paper).
What are the Principles and Recommendations?
The Principles and Recommendations comprise 8 broad Corporate
Governance Principles, and 30 Recommendations intended to give
effect to them. In the ASX Council's view, these are likely to
achieve good governance outcomes and "meet the reasonable
expectations of most investors in most situations".
The Principles and Recommendations apply to all ASX listed
entities and are incorporated into the practices of listed entities
though ASX Listing Rule 4.10.3, which requires a listed entity to
include a statement in its annual report as to the extent to which
it has followed the Recommendations.
The Consultation Draft notes that, ultimately, an entity's
corporate governance practices are a matter for the entity's
board of directors, which is charged with the legal responsibility
for managing its business with due care and diligence. If a board
chooses to depart from a Recommendation, it must include a
statement in its annual report which explains its reasons for
departure, known as the "if not, why not" approach.
What is the recommendation regarding disclosure of
The proposed amendments to include environmental risk disclosure
are embodied in the revision of Principle 7.
Principle 7, titled "Recognise and manage risk",
recommends that "a listed entity should establish a sound
risk management framework and periodically review the effectiveness
of that framework".
Recommendation 7.4 states that "a listed entity should
disclose whether, and if so how, it has regard to economic,
environmental and social sustainability risks". The
commentary in the Consultation Paper states that this
Recommendation is intended to address "the increasing
attention being given by the investment community to environmental
and social issues and the investment risks they raise".
At present, there is no proposal to mandate this reporting, and the
ASX Council considers that it would be premature to expect listed
entities in Australia to adopt mandatory integrated reporting until
the international framework for such reporting is better developed
than it currently is. The consultation paper notes that, amongst
other things, the framework needs to adequately address issues such
as relevance, materiality, timeframe, exclusion of commercially
sensitive information and the compliance burden, before listed
entities across the board can be reasonably expected to adopt
The Consultation Draft is available for comment until November
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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