Welcome to Edition 123 of Boardroom Brief.
This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.
In this Edition, we consider the new Consumer Data Right, ESG reporting by the ASX200, climate change risk disclosure and scheme recommendations by interested directors.
YOUR KEY BOARDROOM BRIEF
Consumer Data Right law takes effect. The Consumer Data Right (CDR) legislation, passed earlier this month, received royal assent last week and so took effect on 13 August 2019. See our earlier Boardroom Brief for an overview of the CDR and G+T article “We have a Consumer Data Right!” for more analysis.
ACSI releases ESG report on ASX200 companies. The report of the Australian Council of Superannuation Investors (ACSI) “ESG reporting by the ASX200” benchmarks — based on annual reports, ASX announcements and corporate reports — ESG disclosures for the year to 31 March 2019. Key findings include: (i) a majority of ASX200 companies provide comprehensive ESG reporting, with all ASX20 companies now rated as either ‘detailed’ or ‘leading’; (ii) ‘no reporting’ companies are now outliers, with just 16 companies identified as providing no ESG information; (iii) 82 cents of every dollar invested in the ASX200 is in companies rated as ‘detailed’ or ‘leading’; (iv) UN Sustainable Development Goals (SDGs) are gaining traction, with 60 ASX200 companies now using them in their reporting (up from 39 last year); and (v) there is a trend towards improved climate change risk analysis and disclosure. Directors should ensure their companies identify, manage and monitor material ESG risks and opportunities so that corporate practices remain aligned with stakeholder expectations. See ACSI’s media release.
Climate change risk disclosure. On the subject of ESG reporting, Directors should note the following recent developments in relation to climate change risks:
- ASIC regulatory updates on climate change risk disclosure — ASIC has updated Regulatory Guide 228 (prospectus disclosure for retail investors) and Regulatory Guide 247 (operating and financial review (OFR) disclosure) to clarify the application of its guidance and assist companies comply with their obligations. Changes include: (i) incorporating a list of examples of common climate change risks that may need to be disclosed in a prospectus; (ii) highlighting climate change as a systemic risk that could impact an entity’s financial prospects and may require disclosure in an OFR; (iii) reinforcing that disclosures made outside the OFR should be consistent with disclosures made in the OFR; and (iv) confirming directors are unlikely to be found liable for a misleading or deceptive forward-looking statement in an OFR if the statements are based on the best available evidence at the time, have a reasonable basis and there is ongoing compliance with the continuous disclosure obligations when events overtake the relevant statement made in the OFR. INFO 203 now also highlights climate change risk may be relevant in determining key assumptions that underlie impairment calculations. See ASIC’s media release.
- ASIC surveillance on climate change risk disclosures — in the coming year, ASIC will conduct surveillance of the climate change risk disclosure practices by selected ASX listed companies. ASIC will also continue working with the industry and other stakeholders on climate change disclosure issues.
- Canadian regulator releases climate change risk disclosure guidance — On 1 August 2019, the Canadian regulator released Staff Notice 51-358 – Reporting Climate Change-related Risks, which provides guidance to directors and management of reporting issuers on how to properly identify and assess material climate change risks so that they may improve their disclosure of those risks.
Directors should note the increasing focus on climate change risk disclosure by market regulators globally and keep in check their risk management frameworks and disclosure policies against best practice.
Scheme recommendations by interested directors – a step away from Gazal? The Federal Court has seemingly relaxed its position regarding voting recommendations by “interested directors” of the target in schemes of arrangement. The Court in Re Kidman Resources Ltd  FCA 1226 disagreed with the earlier decision in Re Gazal Corporation Ltd  FCA 701, which suggested target directors should decline to make a voting recommendation where they would receive a benefit upon the successful implementation of the scheme. In Re Kidman, the Court took the view that each target director is obliged to make a voting recommendation (unless they are not present to consider the scheme) because of the disclosure requirements set out in Part 3 of Schedule 8 to the Corporations Regulations 2001 (Cth), irrespective of any personal benefit they will receive if the scheme is implemented. The Court did, however, reiterate that disclosure of the benefit is crucial and where interested target directors make voting recommendations, the court will ensure that the nature and extent of the relevant benefit that the director stands to receive is properly disclosed to target shareholders. Schemes of arrangement are increasing in popularity as a mechanism to implement change of control transactions. Directors considering or involved in one should follow developments to ensure conditions and disclosures are appropriate.
THE WEEK AHEAD
Last public hearing on ASIC’s responsible lending guidance today. The hearings are intended to test the views of stakeholders and provide greater understanding of business operations.
New Australian-Israeli tax treaty. The Government’s consultation on draft legislation to implement the tax treaty signed between Australia and Israel in March 2019 closes this Wednesday. The treaty aims to reduce tax impediments to bilateral trade and investment (see the explanatory memorandum) and will take effect once both countries have implemented it domestically.