ACSI ups ante on cyber security, worker safety and biodiversity on boardroom agenda

A group representing large investors has increased the emphasis on cyber and worker safety, as well as nature-related risks in a governance paper that will guide their voting at AGMs.

Australian Council of Superannuation Investors chief executive Louise Davidson. Picture: Aaron Francis

A group representing large investors with over $1 trillion in assets increased the importance of cyber, worker safety, and nature-related issues in a governance paper that will guide their voting at AGMs in coming years.

The Australian Council of Superannuation Investors (ACSI), which has 26 large funds and asset managers as members, has added new sections on cyber security governance and nature as well as biodiversity risks to its biannual governance guidelines.

The guidelines aim to clarify investor expectations for those and other current environmental, social, and governance issues, and underpin ACSI’s influential voting recommendations over the next two years.

The update also introduces new expectations around worker safety disclosures – including mental health – as well as climate-related risks, gender diversity and executive remuneration policies.

“We expect boards to oversee these issues appropriately and move beyond a ‘check the box’ approach to governance,” ACSI chief executive Louise Davidson said.

“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 added.

Over 30 companies – including Bank of Queensland, Fortescue, Magellan, Harvey Norman, Tabcorp, Qantas, Woolworths, and Whitehaven Coal – were slapped with a first strike on their remuneration reports this AGM season.

They face a mandatory shareholder vote to spill the board if they receive a second consecutive “no” vote on their remuneration policies next year.

Votes on pay are often used by investors as an avenue to express general dissatisfaction with board performance, as well as to voice concerns about a company’s remuneration policies.

ACSI’s new guidelines say companies should disclose whether or not a cyber strategy is in place, and how it intends to reduce social harm and protect its stakeholders through its data collection, storage, utilisation and privacy policies.

Cyber security breaches that constitute material information should be disclosed through an announcement to the ASX.

As regulation surrounding nature and biodiversity tightens, companies with operations that are dependent on, or have an impact on, biodiversity, should identify, mitigate and disclose those risks using the new guidance set by the international Taskforce on Nature-related Financial Disclosures framework.

The TNFD guidelines, released in September, recognise human life and industry are fundamentally dependent upon nature, and that population and economic growth are posing a serious threat to that ecosystem in which companies and markets depend.

Besides an increased focus by regulators to protect nature, Ms Davidson said there was “a growing sense (among investors) that biodiversity is a critical thing for us to maintain and that there are big risks to both industry but also to society in biodiversity loss”.

ACSI is also calling for boards to be more attuned to, and improve disclosures regarding, the wellbeing of employees – not only their physical safety but also their mental health.

“A lack of transparency may mask the extent of workplace harm and slow the identification of systemic risk,” the paper says.

“Companies should ensure that there is adequate support for workers’ psychosocial wellbeing (and) disclose how the company is working to support and improve the psychosocial safety of its workforce.”

Ms Davidson said the new “positive duty” under the Sex Discrimination Act – which comes in effect from today, means companies and boards need to have the appropriate systems in place.

“We see quite an increase in focus on sexual harassment and bullying and broader types of harassment within companies,” she said.

“We see this as a very important issue for boards to have the systems in place for reporting and supporting people in coming forward and ensuring any instances are being surfaced and boards know what’s going on.”

She also stressed that climate risk remained a “really big” critical issue with the potential to create “systemic risk” for companies and financial losses for investors.

“Whilst I don’t really want to pick one, I think climate is probably the biggest concern for investors in respect to all of the E, S and G issues,” she said.

ACSI does not specify pathways for company’s to lower their emissions, but its updated guidelines say companies’ strategies should be science-based and aligned with the Paris agreement.

Companies should also be disclosing progress against any climate-related targets as well as the role that offsets play in their transition to a low-emissions economy, the document says.