The latest edition of the Australian Council of Superannuation Investors’ (ACSI) Governance Guidelines has been released. The new Governance Guidelines articulate the expectations of long-term investors on critical ESG issues.
ACSI updates the Guidelines every two years, to promote good corporate governance in Australian listed companies. The Guidelines will underpin ACSI’s voting recommendations in the years ahead and make it clear how the organisation will view a range of ESG issues.
“ESG risks and opportunities continue to be financially material to investors. Our Governance Guidelines reflect our expectations of how Australian boards can best protect long term value for their investors, especially the retirement savings invested by superannuation funds,” Ms Davidson said.
“This year has highlighted the financial problems companies can bring upon themselves when those risks aren’t managed properly, and when short-term thinking takes priority over long-term success. We expect boards to oversee these issues appropriately and move beyond a ‘check the box’ approach to governance.”
The updates in the 11th edition of the Governance Guidelines include:
- Cyber Security: the Guidelines include a new section on board oversight and governance of cyber security. These new expectations include a need for more understanding of the digital security expertise held by directors and/or the external expertise boards use for advice and assurance.
- Worker Safety: The quality of safety reporting practices among companies still varies widely, including whether fatalities have taken place, how ‘leading indicator’ safety metrics are used and the management of sexual harassment . ACSI has provided more detailed expectations of companies on safety disclosures and noted the importance of companies considering mental health, contractor safety and sexual harassment.
- Nature and Biodiversity: A new section outlines nature-related risks. Where a company’s impacts and dependencies on nature present material financial risks, ACSI expects a company to identify, mitigate and disclose these risks, working towards alignment with the guidance of the Taskforce on Nature-related Financial Disclosures (TNFD) framework.
- Climate-related Risks: New expectations and guidance are provided on how companies consider climate-related risks. This includes reference to the development of transition plans, supporting a just transition and the use of carbon offsets. New expectations also seek companies to disclose their exposure to material ‘circular economy’ risks and opportunities including resource use and waste management.
- Diversity: This section has been updated to reflect our latest gender diversity policy, further articulate broader concepts of diversity, and emphasise board responsibilities working to prevent and respond to sexual harassment in the workplace under the Respect@Work Positive Duty.
- Executive Remuneration: In the often-complex area of executive remuneration, ACSI has applied a back-to-basics approach with streamlined guidance focused on transparency and need for a clear link between incentives, the delivery of strategy and long-term value creation.
“The record number of strikes against remuneration reports this year is a clear reminder that shareholders are watching outcomes closely, and there is a need to better link incentives to the delivery of value to shareholders over the long-term. We hope that our new guidelines assist companies to make necessary changes where that link is broken,“ Ms Davidson said.