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06/08/18

Boardroom Brief: Week commencing 6 August 2018

Welcome to Edition 74 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.

KEY BOARDROOM BRIEF

Australian Council of Superannuation Investors (ACSI) releases report on sustainability disclosure. ACSI’s report, released in late June 2018, analyses how well ASX200 companies disclose their sustainability strategies and what that disclosure says about a company’s overarching governance framework and monitoring of environmental, social and governance (ESG) risks and opportunities. Key findings of the report include that: (i) 83% of all investments in the ASX200 are in companies that have “leading” or “detailed” reporting standards; (ii) 35 companies in particular have outperformed the rest of the ASX200 for the last four years, including BHP Billiton, Fortescue Metals, Qantas, Rio Tinto, Telstra, Wesfarmers and Woolworths; and (iii) only nine companies had been rated as “no reporting” for both 2016 and 2017. Further, nearly half of the ASX200 (95 companies) have a climate change-related policy statement, which is a strong indicator that our top 200 companies are integrating their climate risk and opportunity strategies into their business plans and board deliberations.  See also the Governance Institute’s article, summarising the main results of the report. Directors should note the trend towards increased sophistication in reporting on ESG-related matters by listed companies, a trend which is likely to continue if the ASX Corporate Governance Council’s proposed recommendations in relation to the “social licence to operate” are adopted.

Treasury makes submission to the Royal Commission. On 26 July 2018, Treasury made its submission on key policy issues to the Financial Services Royal Commission including: (i) the culture and governance of financial firms; (ii) the capability and effectiveness of regulators to identify and address misconduct; and (iii) conflicts of interest arising from remuneration and integrated business models. A key theme was that the outcomes unearthed by the Royal Commission reflect poor leadership and accountability across the industry, firm and business unit levels. Unsurprisingly, there was a clear message that not only did culture within industry need to change but also those subject to the law have to take responsibility for complying with it. The relative weaknesses of ASIC and APRA must also be addressed as well as their ability to work cohesively reinforced. Directors will note that “corporate culture” is now front page news (and will likely remain so for the remainder of the year) with a number of high-profile directors beginning to openly question whether the pendulum may have swung too far towards greater Board responsibility and oversight in this area. 

ASIC approves the Banking Code of Practice. In the midst of the debate over governance standards in the banking industry, on 31 July 2018, ASIC announced that it had approved the Australian Banking Association’s (ABA) new Banking Code of Practice (Code). This is the first time that ASIC has used its power to approve a broad industry code. In particular, the new Code protects small business borrowers against unfair contract terms, enhances protections for consumers and loan guarantors and improves complaints processes. The Code comes into force on 1 July 2019.

ASX releases Activity Report for July 2018. On 3 August 2018, ASX released its Group Monthly Activity Reportfor July 2018 - total capital raised during the month was $7.5 billion, representing a 51% increase on the previous corresponding period (pcp). The average number of daily trades was 5% higher than July 2017 and the average daily value traded on-market was $4 billion, down 1% compared to July 2017. The average number of daily traded future and options was 25% lower than July 2017, while the value of securities held in CHESS was 16% higher than July 2017.

THE WEEK AHEAD

Tensions are high ahead of a make-or-break ministers’ meeting on Turnbull’s energy policy. Against the backdrop of increased pressure from the federal government on the states to sign off on Malcolm Turnbull’s National Energy Guarantee Policy (NEG), major business and industry groups have today released a joint statement calling for states to back it and for Ministers to “put aside politics and ideology” for the sake of national interest. However, the Queensland, Victoria and the ACT governments have voiced concerns that the level of emissions cuts imposed on the electricity sector under the NEG are too weak and will undermine their own more ambitious renewable energy targets. The NEG’s fate, and whether it will end more than a decade of climate policy paralysis, will be decided by energy ministers this Friday in Sydney.

As of today, entities can lodge price–sensitive and cross-released announcements on ASX online. ASX-listed entities will be able to indicate whether an announcement lodged for release to the market is market-sensitive or materially relates to or affects another listed entity such that it should be cross-released against that other entity.

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