Introduction
The Australian Securities Exchange (ASX) has recently indicated it will scrutinise the reporting by listed companies of its management of ‘environmental’ and ‘sustainability’ risks in its annual corporate governance statement (CGS) when it reviews the CGS’s of listed entities for the 2007/2008 reporting period.
Corporate Governance Statements
Under the ASX Listing Rules, listed entities must provide a CGS in its Annual Report, detailing its compliance with the ASX Corporate Governance Principles and Recommendations. Previously, the ASX Corporate Governance Principles and Recommendations did not contain any obligation for listed companies to report on their environmental and sustainability risks. However, the ASX recently released the revised ASX Corporate Governance Principles and Recommendations (Revised Principles) which apply to listed entities on and from the commencement of its 2008 financial year (for example, 1 January 2008 or 1 July 2008). Whilst the Revised Principles contain non-mandatory obligations relating to environmental and sustainability risks, if a company does not adhere to them, that company is required to provide an explanation in the CGS as to why it did not adhere to them.
Disclosure of Environmental and Sustainability Risks
Recommendation 7.1 of the Revised Principles specifies that a company must establish policies for the oversight and management of ‘material business risks’ and disclose a summary of those policies. Further, Recommendation 7.2 states that the board should require management to design and implement a risk management and internal control system to manage the company’s ‘material business risks’ and should disclose that management has reported the effectiveness of the company’s management of such ‘material business risks’.
Although each company will need to determine what ‘material business risks’ it faces, the Revised Principles specifically outline that a ‘material business risk’ will include environmental and sustainability risks. Such environmental and sustainability risks are likely to include impacts of climate change, carbon pricing or environmental and sustainability legislation on the company. Ultimately each company will need to make its own determination of any environmental and sustainability risks it faces.
Scope of Disclosure of Environmental and Sustainability Risks
If a listed company is faced with an environmental or sustainability ‘material business risk’, it is not expected to disclose specific details of these risks nor is it required to disclose commercially sensitive information relating to these risks. Rather, listed companies may limit disclosure to a summary of any policies it has which deal with such risks.
Whilst listed companies whose balance date for the 2007/2008 financial year was 30 June 2008 are not required to comply with the Revised Principles until the 2008/2009 financial year, the ASX has encouraged such companies to comply with the Revised Principles when reporting for the 2007/2008 financial year.
Companies to Ensure Policies are in Place
In anticipation of reporting in accordance with the Revised Principles in future financial years, companies should ensure that they have established policies in place to address any environmental or sustainability material business risks and to ensure a smooth transition for future CGS reporting.
Alfonso Grillo
Partner
Phone: 03 9602 9716
Alfonso_Grillo@tresscox.com.au
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