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In this edition, we discuss the report issued by the Australian Council of Superannuation Investors (ACSI) analysing how ASX200 companies integrate climate-related metrics within variable executive remuneration structures, the payment by Fertoz Limited (ASX: FTZ) (Fertoz) of two greenwashing-related infringement notices issued by the Australian Securities and Investments Commission (ASIC), and the order of the Melbourne Magistrates’ Court that Mr Duncan Stewart to stand for criminal trial in connection with an alleged insider trading action brought by ASIC.

In Risk Radar, we reflect on the previous financial year and the rising rate of corporate insolvency.

Governance

ACSI report points to an increase in climate-related metrics in variable executive remuneration structures

On 25 June 2024, ACSI published a report analysing the ways in which ASX 200 companies have integrated climate-related metrics within variable executive remuneration structures. The report notes that 54% of the ASX200 have factored climate change into either their short or long-term incentive structures (up from 10% in March 2021). Notably, 47% of these companies have incorporated climate-related metrics in short-term incentive structures, whereas only 11% have included them within long-term incentive structures. Unsurprisingly, the adoption of these metrics is particularly high in industries that are highly exposed to climate risks (such as energy, materials, industrials, real estate and utilities). Ultimately, the report demonstrates that boards realise the financial materiality of climate change and the need to improve, or be seen to improve, their company’s approach to climate risk. However, ACSI considers that many climate-related remuneration metrics lack sufficient detail for investors to assess what the target relates to, how progress is measured, and what is required for management to achieve the relevant threshold or performance target. Directors are encouraged to ensure that their company’s disclosures include clear parameters of what is targeted, the rationale for inclusion, and an explanation of how performance is assessed against the target. 

Regulation

Fertoz pays two infringement notices issued by ASIC for alleged greenwashing

On 25 June 2024, ASIC announced that Fertoz had paid $37,560 to comply with two infringement notices in which ASIC alleged that Fertoz had made false or misleading statements in relation to its Reforestation Project in the Philippines (Project). Fertoz made statements in a presentation published on the ASX on 15 November 2023 claiming that it would commence planting for the initial hectares of the Project in the fourth quarter of 2023 and would secure an offtake partner or funding for the Project by the end of 2023. ASIC alleges that these statements were misleading as Fertoz had: (a) ended talks with two potential offtake partners in April and August 2023, which delayed securing a funding partner and initial planting; (b) not signed any letters of intent, non-disclosure agreements or engaged in advanced discussions with potential offtake partners as at the end of 2023; and (c) had not secured any funding necessary to progress the Project. Payment of an infringement notice is not an admission of guilt or liability. Directors are reminded of the importance of ensuring that there is a proper basis for the making of forward-looking and/or sustainability-related claims. 

Legal

Melbourne Magistrates’ Court orders Duncan Stewart to stand trial in relation to insider trading

On 26 June 2024, Magistrate Rohan Lawrence ordered Mr Duncan Stewart to stand trial for four criminal charges brought by ASIC in relation to insider trading. As reported in a recent news article, ASIC alleges that Mr Stewart engaged in insider trading on two occasions in April 2019, when he purchased shares in Kidman Resources Limited (Kidman) while in possession of inside information in relation to potential takeover approaches for Kidman prior to this information being announced to the market. ASIC further alleges Mr Stewart induced his brother to buy shares in Kidman. He will appear in Melbourne County Court on 24 July 2024.  

Risk Radar

The financial year ahead – a continued rise in corporate insolvency?

Corporate Australia has begun to feel the increasing financial pressure of inflation and interest rates over FY2023 – 2024, with some commentators suggesting that the impact has been even more severe than the global financial crisis. According to data published by ASIC on 24 June 2024, every sector recorded a rise in insolvencies over FY2023 – 2024. As noted by the Australian Institute of Company Directors (AICD) on 1 July 2024, the previous financial year was marked by new heights in corporate insolvency, with over 10,000 companies having entered administration in the financial year ended 30 June 2024 – a level Australia has not witnessed since circa 2012 – 2013. These collapses could have unforeseeable effects, for example, with corporate players now grappling to obtain adequate insurance to stay afloat in business. In light of these financially strenuous times, it is clear directors need to be more cognisant of their company’s financial situation and their duty and obligation to avoid insolvent trading. The AICD has suggested in an article that directors should: (a) ensure an accurate assessment of their company’s financial position; (b) review safe harbour eligibility criteria; and (c) review company policies and avoid complacency during times of financial distress.