AICD progress on proxy advice, class action risk reforms

The AICD is backing efforts to consolidate global reporting frameworks on sustainability and environment issues. The AICD has supported the establishment of a new International Sustainability Standards Board (ISSB) under the auspices of the global International Financial Reporting Standards Board (IFRS Board) to drive this work. The proposal for an ISSB has received G7 finance ministers support as well as endorsement by the International Organization of Securities Commissions (of which Australia’s ASIC is part).

ESG reporting standards

This push follows developments in a range of jurisdictions to mandate greater non-financial reporting. The AICD is closely monitoring these developments with our policy Reporting Committee, with strong support for greater consistency in standards expressed by listed company members. The AICD is also releasing more guidance for members on ESG issues, including recent reports on governing culture, stakeholder engagement and ongoing webinars and updates.

Under the current program the first climate reporting standard from the ISSB would be released in July 2022. Directors should note that G7 finance ministers and central bank governors have issued a communique from their June 2021 meeting supporting a move towards mandatory climate-related financial disclosures based on the TaskForce on Climate-related Financial Disclosures (TCFD) framework. This could come into effect overseas before it is contemplated in Australia.

Litigation funding

The AICD is contributing to a Treasury consultation that proposes setting a minimum return of class action proceeds to class members. The consultation follows last year’s parliamentary inquiry into the class action industry that recommended the Government consult on the best way to guarantee a statutory minimum return and whether a figure of 70% of gross litigation proceeds was the most appropriate floor.

The AICD supports the policy intent behind the proposals, and had recommended in its submission to the parliamentary inquiry that the Government consider introducing a regulated guarantee for a minimum return to class members in a securities class action, after legal costs. In our view, given the returns to investors from funding class actions, an equitable outcome requires class members to receive at least a substantial majority of any recovery after legal and funder’s fees have been paid.

The Treasury consultation concludes on 28 June and the Government has said that it will respond to the other recommendations of the parliamentary report later this year.

Proxy adviser regulation

The AICD has provided a submission in response to Treasury’s consultation on the regulation of proxy advice. Our submission was consistent with ongoing feedback from listed directors about the need for additional regulation of this significant global industry.

The AICD has supported consultation options to set standards of engagement between issuers and proxy advisers, require AFS licensing for proxy advice (including requirements on conflict of interest), and to require trustees to disclose how they vote. The AICD did not support the option to mandate arm’s length independence of proxy firms from superannuation funds. The AICD’s submission also encourages consideration of an investment stewardship code (on an ‘if not/why not’ basis) and recommends that the Australian Shareholders’ Association continue to be exempt from regulation of the proxy advice industry as a whole.

This is a highly contested policy space with strongly held views. Given the importance of this sector and the feedback we hear from directors, the AICD will continue to prosecute the case for reform. You can read a recent AFR column I wrote on this issue here (subscription required).

Continuous disclosure and AGM reforms

You will be aware that the Government introduced temporary relief provisions during COVID-19 for virtual AGMs, electronic signatures and continuous disclosure. The AICD advocated for these measures  as critical relief for companies in this challenging period.

The Government is now looking to extend those measurers through the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (the Bill) The AICD recently provided evidence to the Senate Committee examining the case for permanent reform.

The Bill proposes extending the COVID-19 relief to enable virtual AGMs and electronic signatures until 15 September, as well as introducing a fault element in respect to director and corporate liability for continuous disclosure requirements.

The AICD supported the Government’s proposal to extend the temporary relief measures for a further six months. In our view, organisations should have the flexibility to adopt the best meeting format for their circumstances, shareholders/members and stakeholders.  To support this increased flexibility the community will also rightly expect that companies adapt the format of their meeting to provide adequate opportunities for shareholders to engage. The AICD has prepared guidance with the Governance Institute of Australia, Law Council of Australia and the Australian Investor Relations Association to support companies to achieve this.

We also support the permanent introduction of a fault element into continuous disclosure laws and the extension to misleading and deceptive conduct provisions. The AICD supports robust continuous disclosure obligations. However, the strict liability nature of Australia’s laws are inconsistent with comparable jurisdictions and the complex, time sensitive judgements involved with disclosure decisions.

These changes will improve the effectiveness of the current securities class action regime whilst discouraging opportunistic claims.

The AICD has encouraged the Government to prioritise passage of the Bill in its current form.

Separately, the Government has today released an exposure draft bill seeking to make permanent amendments to the Corporations Act which will, among other things, hardcode into legislation the right of companies to use technology to hold AGMs including hybrid meetings (or wholly virtually meetings if expressly required or permitted by the constitution), send electronic communications and execute documents electronically.