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New ASX guidelines to force sustainability reporting

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Publicly listed companies will need to disclose exposure to economic, environmental and social sustainability risks for the first time under new corporate governance guidelines released today.

The principles, issued by the ASX Corporate Governance Council, are the first since the global financial crisis. Companies have previously not been required to disclose non-financial risk.

Sara Bice, a research fellow at the Melbourne School of Government, said the changes were a “big move”, particularly in the absence of government regulation. She said the changes fits with the new guidelines' increased focus on transparency and disclosure.

“These are risks that many companies identify through regular auditing processes, but previously they may have taken them into account for decision making but not publicly discussed or disclosed them.”

“The majority of ASX companies already produce sustainability reports, and if you look across the globe, 95% of the top 250 listed firms produce them too,” she said.

However Thomas Clarke, director of the Centre for Corporate Governance at UTS, said that while some very large Australian corporations had world-class reporting in these fields, “the majority of listed Australian corporations are lagging behind international best practice”.

He said successive federal governments had declined to regulate mandatory social and environmental risk reporting, even after it was recommended by a parliamentary inquiry and the Corporations and Market Advisory Committee.

“In the past social and environmental risks were dismissed by companies as externalities,” Professor Clarke said.

“What this meant simply is that while corporations were free to pursue profit, it was the wider community that picked up the bill for any social or environmental harm they caused.”

Companies listed on the ASX are required to comply with the principles or must give detailed reasons for their non-compliance. A failure to do so could ultimately lead to a company being delisted.

Originally developed in the wake of a series of corporate collapses in 2001, the guidelines were first released in 2003.

Citing “increasing calls globally for the business community to address matters of economic, environmental and social sustainability”, the guidelines require a listed firm to outline how it intends to manage those risks.

Other changes, which come after an extended consultation period, include a relaxation on requirements for independent directors.

Suzanne Le Mire, a corporate law academic at the University of Adelaide, said it’s possible that older standards requiring majority independent board members could have forced companies to accept directors with less expertise.

“These new changes have responded to those concerns by increasing the emphasis on obtaining expertise when directors are appointed to the board, and disclosing the presence or absence of expertise,” she said.

“One of the most controversial proposed changes was the refinement of the definition of independence to provide that directors who had been on board for more than nine years lacked independence.”

Dr Le Mire said it was “disappointing” this requirement had been removed. The new guidelines simply require the length of a director’s tenure “be considered”.

But she said an emphasis on diversity demonstrated a view that a “commitment to equity and diversity will enhance financial performance and board deliberations”.

“It’s interesting to see the conception of diversity has been shifted from an exclusive emphasis on gender diversity to a broader notion including age, disability, ethnicity, marital or family status, religious or cultural background, sexual orientation and gender identity.”

The new rules come into effect in July.

The Conversation

This article was originally published on The Conversation. Read the original article.

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