The ASX Corporate Governance Principles provide recommendations of corporate governance practices for entities listed on the Australian Securities Exchange (ASX). Published in February 2019, the Corporate Governance Principles are in their 4th edition and came into effect from 1^st January 2020. This edition is notable for its attempt to drive culture, conduct and values into better corporate governance practices.

The Corporate Governance Principles ‘if not, why not’ approach remains a key characteristic of the principles. If the board of directors of a listed entity considers that a recommendation is not appropriate to its circumstances, it is entitled not to adopt it. If it does not adopt a recommendation, however, under Listing Rule 4.10.3, it must explain why it has not adopted the recommendation.

The eight principles:

• Lay solid foundations for management and oversight
• Structure the board to be effective and add value
• Instil a culture of acting lawfully, ethically, and responsibly
• Safeguard the integrity of corporate reports
• Make timely and balanced disclosure
• Respect the rights of security holders
• Recognise and manage risk
• Remunerate fairly and responsibly

Some of the key changes in the 4^th edition are:

• Improved disclosure of social and environmental risks. This includes reporting using the Integrated Reporting Council’s International <IR> Framework, or sustainability reporting using other international reporting standards
• A new requirement for listed entities to articulate and disclose their organisational values and ensure alignment with business strategy, remuneration structures and delivery of long-term growth. This includes a new Board responsibility to define organisational purpose.
• An expanded requirement to ensure effective focus on risks such as conduct risk, digital disruption, cyber-security, privacy and data breaches, sustainability, and climate change. This includes a requirement to have strong policies to on whistleblowing, bribery and corruption.
• Entities will now be required to set measurable objectives for achieving gender diversity and to have and disclose a gender diversity policy. For entities in the S&P/ASX 300 Index gender diversity in board composition should be at least 30%.
• An improved approach to remuneration to ensure that incentives don’t reward ‘conduct that is contrary to the entity’s values or risk appetite’.

These key changes are a shift towards recognising the importance of monitoring and taking responsibility for culture, conduct and behaviour within a corporate group and the focussed management of and the disclosure in relation to non-financial risks, including environmental, social and governance (ESG) risks, in addition to the traditional focus on financial risks and performance. The new recommendations are used to ensure that the board is provided with the information it needs to monitor the culture of the organisation.

1. Corporate governance describes the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled within corporations. It encompasses the mechanisms by which companies, and those in control, are held to account.
2. Good corporate governance promotes investor confidence, which is crucial to the ability of entities listed on the ASX to compete for capital.
3. Each ASX listed entity is required under listing rule 4.10.3 to include in its annual report either a corporate governance statement that meets the requirements of rule 4.10.3, or the URL of the page on its website where such a statement is located.
4. Listed entities should articulate and disclose their organisational values, disclose a code of conduct for its directors and disclose a whistleblower policy.
5. An expanded requirement to ensure effective focus on risks such as conduct risk, digital disruption, cyber-security, privacy and data breaches, sustainability, and climate change, with the inclusion of policies on bribery and corruption.
6. Entities are required to set measurable objectives for achieving gender diversity and to have and disclose a gender diversity policy.
7. A listed entity should disclose whether it has any material exposure to environmental or social risks and, if it does, how it manages or intends to manage those risks.
8. It is encouraged to consider whether entities have a material exposure to climate change risk by making reference to the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (“TCFD”) and, if they do, to consider making the disclosures recommended by the TCFD.