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 examine a proposed plan for mandatory financial disclosure on climate risk in Australia, ASIC’s consultation on crypto-based assets underlying exchange-traded products, the Takeovers Panel’s revised Guidance Note 20 and the Emissions Reduction Assurance Committee’s consultation on proposed carbon credits methodology for carbon capture and storage.  We also consider the key takeaways from Mergermarket’s report on the role of ESG in global M&A. 

GOVERNANCE & REGULATION    

Proposed plan for mandatory financial disclosure on climate risk in Australia. Last week, three founding partners of the Investor Agenda (a common leadership agenda focused on accelerating investor action for a net-zero emissions economy) released a proposed plan for Australia to adopt a mandatory financial disclosure regime for climate change risks over the next four years, based on the recommendations of the international Task Force on Climate-related Financial Disclosures (Task Force).  The roadmap details the actions Australian regulators and the Federal Government can take to build on existing work and further ensure there is clear and consistent reporting from companies, investors, banks and insurers that will produce comprehensive disclosure and ensure financial markets can properly price and act on the physical and transitional risks of climate change. Broadly speaking, the authors of the plan are seeking to catalyse investor action on climate change issues and streamline global disclosure expectations. Under the plan, “if not, why not” style of type of reporting would become mandatory by 2024. See the Investor Group on Climate Change's media release. As the world moves towards greater harmonization of climate change-related disclosures, Directors should consider whether the standards set out in this plan and the Task Force’s recommendations provide an appropriate template for their own companies’ disclosure on the subject, to meet investor and other stakeholder's expectations of greater transparency. 

ASIC consults on crypto-asset based ETPs and other investment products. ASIC has released its Consultation Paper 343 Crypto-assets as underlying assets for ETPs and other investment products (CP 343). This consultation paper contains best practice proposals for exchange-traded products (ETPs) and other investment products that provide retail investors with exposure to crypto-assets. These proposals intend to address ASIC’s concerns regarding the appropriateness of crypto-currencies as underlying assets for ETPs (particularly for retail investors) and whether they can be reliably priced.  Interested parties can make submissions on the Consultation Paper up until 27 July 2021.  See ASIC’s media release.  Although it relates to a specialist area, CP 343 provides an insight into ASIC’s key focus areas and concerns for crypto-assets.  We expect increasing regulator attention to be directed towards the sector as it gains widespread attention.

Notice of Revised Takeovers Panel Guidance Note 20: Equity Derivatives Effective Date. The Panel released the long awaited amendments to Guidance Note 20 last Friday afternoon. The new Guidance Note comes into effect on 4 October 2021.  Equity derivative positions will be required to be disclosed like substantial equity holdings, whether or not a control transaction is on foot.  If the long position of a person and their associates is over 5%, moves 1% of more from its disclosed position, or falls below 5%, it must be disclosed within two business days, unless it has been put in place by a market maker to hedge another long position.  If the long position is less than 5% but held by a bidder or their associate, it must be disclosed daily.  Disclosure to the company should be at least that information required for a substantial holding notice and must include any caps, collars and hedging, as well as any short positions designed to offset the long position.  The Panel also indicated a long position in excess of 20% is likely to be considered unacceptable, unless the taker has not attempted to influence the entity and would have had the benefit of a Chapter 6 exemption if the position was equity (eg a 3% creep).  Practically speaking, the market is now on notice of what the Panel regards as unacceptable.  Directors of companies with substantial derivative positions in listed shares should accordingly carefully consider the implications of the Panel’s guidance even before it comes into effect on 4 October 2021. See Takeovers Panel’s media release and G+T’s article on these amendments.

LEGAL

Emissions Reduction Assurance Committee consultation on proposed carbon credits methodology.  The Emissions Reduction Assurance Committee (an independent statutory committee which assesses the compliance of methodology determinations to ensure the integrity of the Emissions Reduction Fund) has developed a draft Carbon Credits (Carbon Farming Initiative – Carbon Capture and Storage) Methodology Determination, which would enable projects that capture and permanently store greenhouse gases in underground geological formations to generate Australian carbon credit units.  Carbon capture and storage (CCS) was recognised as one of Australia’s priority low emissions technologies in its first Low Emissions Technology Statement – 2020.  Accelerating the commercial uptake of CCS will assist in significantly reducing Australia’s emissions - and this proposed methodology seeks to recognise its importance and reward entities which make use of this technology.  Submissions on the proposed determination are due 27 July 2021.  See the Clean Energy Regulator’s media release. Directors should be alert to the potential opportunities CCS offers to reduce the carbon footprint of emissions-intensive industries, with the suggestion that CCS-focussed companies could emerge as stand-alone investment opportunities over the medium term.

OVER THE HORIZON

The increasing role of ESG in M&A. Consideration of environmental, social and governance (ESG) factors in investment and M&A decisions are more prominent than ever.  The Mergermarket ‘Global Dealmaker Series 2021 – Deal breakers and opportunity makers: The role of ESG in M&A’ (Report) outlines results and key themes identified from surveying various private equity, asset management, and corporate executives to better understand the extent to which ESG impacts M&A and investment decisions in the current market environment.  The Report recognises that ESG is now a critical consideration and dealbreaker when approaching transactions, and for their organisations more broadly. The Report notes that 60% of respondents reported that they have walked away from at least one deal after uncovering problems related to an ESG issue. In the past few years, many ESG themes have grown in prominence (such as climate change, modern slavery and racial inequality and discrimination) and there is an increasing expectation on businesses to respond to these issues.  This is largely driven by reputation and brand management as dealmakers recognise the importance of ESG to key stakeholders (such as consumers and employees).  Companies recognise that there may be damaging responses by these stakeholders if they act in a way that does not reflect prevailing social values. The Report found that ESG investment was already showing strong momentum before COVID-19, however, the pandemic has turbocharged the focus of ESG. This is only expected to further increase moving forward.