In December 2022, New Zealand’s Exchange (NZX) published its final set of updates of the NZX Corporate Governance Code and ESG Guidance Note, after a thorough consultation process spanning a year. The Code represents a set of recommendations that issuers are expected to implement and adhere to, on a voluntary basis, while the Guidance Note is designed to provide a resource to NZX-listed issuers to understand the benefits of ESG reporting, provide information about global frameworks, and support the effective communication of ESG opportunities and risks to investors and other stakeholders.
Directors of NZX-listed issuers will be expected to meet the standards set by the Code and Guidance Note, which came into effect on 1st April 2023.
Outlined below are a few of those final updates that are most likely to affect listed issuers.
Key updates to the Code
- In-depth guidance has been provided to address how an issuer may explain its adoption or non-adoption of a recommendation under the ‘comply or explain’ framework – and avoid using ‘templated’ disclosures that are not specific to the issuer.
- Disclosures are expected to be easy to locate (using an index or sub-heading).
- Issuers are to consider their legal obligations in relation to protected disclosure when determining the adoption of formal whistleblowing procedures.
- Staff should be regularly educated on the issuer’s code of ethics and the timing of this training should be disclosed.
Board Composition and Performance:
- The approach to director independence has followed the adoption taken in Australia whereby every issuer now must disclose the board’s assessment of a director’s independence (including why they are deemed independent when in the presence of factors the code has flagged for non-independence).
- The director’s tenure must also be taken into account when considering their independence and arrangements for later succession.
- The chair of the Board and CEO must also be different people.
- Attendance information at board and committee meetings must be disclosed.
- Improved board gender diversity is expected to be a target for larger issuers, including gender pay gap considerations.
- Diversity policies beyond gender should be considered.
- The issuer’s takeover committee must be identified and disclosed. At the commencement of the takeover process, the independence of the committee must be confirmed.
- Remuneration committees can only have non-executive directors. If this cannot be achieved, conflict management processes must be in place.
Reporting and Disclosure:
- Issuers must provide non-financial disclosures annually at the very least.
- This can be part of the annual report (where a link to the disclosures is provided) or in a standalone report.
- ESG reporting is expected to take more of a front seat.
- This may entail more regular disclosure than on an annual basis and could result in a standalone report.
- Director remuneration is expected to be disclosed in a more robust manner, with a remuneration policy for directors to be implemented.
- Disclosure of director remuneration components also to be disclosed.
- Any independent remuneration reports used in informing director remuneration decisions must be disclosed.
- Non-executive directors are not expected to receive performance-based remuneration.
- Equity-based remuneration is generally acceptable.
- Inclusion of disclosures relating to executive remuneration arrangements and any performance hurdles.
- Include in the issuer’s annual report a summary of their risk management framework.
- Clarification of the importance of internal audit functions to enable evaluation of governance processes.
Shareholder Rights and Relations:
- Issuers should design their shareholder meetings in a manner that encourages better shareholder engagement and participation.
- This may include holding ‘hybrid’ meetings.
- Shareholders are given the option to receive issuer communications electronically.
Key updates to the ESG Guidance Note
- Explain the relevance of ESG factors to the issuer’s business models and strategy.
- Provide an explanation of how these issues may affect the business.
- Have access to relevant, accurate and timely data which can be compared to global standards.
- Explain how new opportunities and revenue streams generated by environmentally and socially beneficial products and services may be accessed by the issuer.
- Identify if any parts of the issuer’s business can provide environmental solutions and support the transition to a low carbon economy.