ACSI publishes revised Governance Guidelines, includes new ESG themes

The Australian Council of Superannuation Investors (ACSI) has updated its revised Governance Guidelines, including practical examples of oversight on key themes of climate change, labour and human rights, corporate culture and tax disclosure.

The Governance Guidelines are an articulation of members’ expectations for governance oversight at listed Australian companies, and are updated every two years

“We work closely with our members in developing the iteration of our guidelines, and they were the four issues that are foremost on people’s minds, and they were not covered with enough detail in the previous guidelines,” said Louise Davidson, ACSI CEO. “Also, the purpose of this is that we want to have as much as is possible, transparency around what goes into our decision-making processes when we decide how we’re going to vote or engage on ESG issues.”

The guidelines state that directors should monitor environmental, social and governance (ESG) issues, assess their materiality and disclose any financial impacts on the company, and the guidelines provide practical examples of ESG oversight. The four issues outlined in the revised guidelines have been topical to this year’s AGM season. ACSI finalised the guidelines before the AGM season started, but held off releasing the new document until after the majority of the AGM season had passed, Davidson said.

“The guidelines are a product of the fact that these are significant issues for Australian companies at the moment,” she said. “It’s not that big a surprise that our members would be thinking of them, and at the same time that NGOs would be thinking about them, too. Climate change is clearly a massive issue. Labour and human rights- we’ve had a number of issues over the last two years where companies have disappointed in their management within their workforce and supply chain. If you look at corporate culture, the banking sector is providing an example of what happens when problems in your corporate culture leads to loss of social license to operate. The Panama Papers is leading to more questions about who is paying tax where.”

The guidelines have also expanded on topics including gender diversity, and how ASCSI will further their policy to support a 30% target for women on boards; shareholder resolutions and they factors ACSI members take into consideration when evaluating shareholder resolutions, chairperson workload, and their expectations for managing the chair’s capacity and other commitments, and remuneration.

“The discipline of corporate governance, and ESG more broadly, continues to evolve,” Davidson said. “For example, I think we are seeing more focus on the last 18-24 months on the S – labour and human rights issues, for example, even the ways in which corporate culture might impact on staff within companies. It takes time for investor to grapple with various issues, and I think governance is a starting point with investors, and more recently climate change has provided an impetus to learn more about and understand the implications of climate change on investment, and it’s a logical evolution that the focus on the S issues would come to the fore.”

ACSI emphasised that when assessing companies against the guidelines, they take a pragmatic and commercial approach, considering “a broad range of factors including the materiality of the issue, the context in which the issue arises and the size of the company,” plus the length of time in which shortcomings have occurred, history of engagement with the company, and if there has been any improvements in corporate behaviour.

“We take meaningful dialogue with companies, and take time to understand the issues as we see them, and understand how they understand risk on ES and G within the organisations, and our view is that the companies that can demonstrate good management of ESG is really proving to be a good proxy for good management,” Davidson said. “For companies that are forward looking, we think that should aid in terms of the longer term to be sustainable in the longer term, in an investment sense. We have had some constructive discussion with a number of companies and have ended up with strong commitments with various actions, particularly around climate change disclosure, but also around work on their supply chain for example. We think that there has been some very supportive engagement off the back of shareholder resolutions in this year’s AGM season.”