This is a service specifically targeted at the needs of busy non-executive directors (NEDs). We aim to give you a ‘heads-up’ on the things that matter for NEDs in the week ahead – all in two minutes or less.

In this edition (which covers the last two weeks), we discuss the issue by the Australian Accounting Standards Board (AASB) of its two inaugural sustainability standards, the record $12.9 million penalty imposed on Vanguard Investments Australia Ltd (Vanguard) for greenwashing, and various announcements by the Takeovers Panel concerning applications in relation to the affairs of Namoi Cotton Limited (ASX: NAM) (NAM), Energy Resources of Australia Ltd (ASX: ERA) (ERA) and Tissue Repair Ltd (ASX: TRP) (TRP).

In this week’s Over the Horizon, we discuss the revival of the now-annual Strategic Economic Dialogue conference attended by Australia and China to discuss their cooperative economic development, which may serve as a sign of prosperous growth to come.
 

Regulation 

AASB issues inaugural Australian Sustainability Reporting Standards 

On 20 September 2024, the AASB formally voted to issue its two inaugural Australian Sustainability Reporting Standards – AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information and AASB S2 Climate-related Disclosures. This follows the passage of the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 through Federal Parliament (discussed in last week’s edition of Boardroom Brief), which empowered the AASB to issue sustainability standards. AASB S1 is a voluntary standard and broadly has the same scope and content as IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information issued by the International Accounting Standards Board. AASB S2 is a mandatory standard and incorporates all requirements of IFRS S2 Climate-related Disclosures, subject to certain modifications. Both AASB S1 and AASB S2 will apply to annual reporting periods beginning on or after 1 January 2025 (i.e. the same reporting period for which the largest category of entities will be required to submit sustainability reports under the new sustainability-related financial disclosure framework adopted by the AASB).

Legal

Record $12.9 million penalty imposed on Vanguard for greenwashing conduct 

On 25 September 2024, the Federal Court of Australia ordered Vanguard to pay a record $12.9 million pecuniary penalty in connection with greenwashing conduct. As discussed in a previous edition of Boardroom Brief, Justice O’Bryan found that Vanguard made several misleading representations about environmental, social and governance (ESG) exclusionary screens which were purportedly applied to investments by the Vanguard Ethically Conscious Global Aggregate Bond Index Fund. Broadly, these representations were misleading because the ESG screens were not consistently applied, and the fund was exposed to issuers that violated applicable ESG criteria. Justice O’Bryan J noted that the penalty is “proportionate and strikes an appropriate balance between deterrence and oppressive severity”. Vanguard will also need to publish written adverse publicity notices on its website for a period of 12 months.

Takeovers Panel receives application in relation to the affairs of Namoi Cotton Limited

On 19 September 2024, the Panel announced that it had received an application from Louis Dreyfus Company Melbourne Holdings Limited (LDC) in relation to the affairs of NAM. NAM is currently the subject of two competing off-market takeover offers from LDC and Olam Agri Australia Pty Ltd (Olam). On 13 September 2024 Olam announced that it had increased its offer price. At the same time two shareholders with combined voting power of approximately 32% in NAM stated that they intended to accept Olam’s offer in respect of all of the NAM shares they hold (subject to certain qualifications), and Olam acquired a 9.99% stake in NAM from those shareholders through an unconditional off-market transaction, increasing its voting power to 16.34%. LDC submits that the circumstances are unacceptable on the basis that Olam’s agreement with those shareholders to acquire the shares, which was not made available to any other NAM shareholders, conferred a collateral benefit due to being immediate and unconditional. LDC seeks final orders preventing (or unwinding) the sale of the shares and requiring that, if Olam proceeds with an on-market acquisition of NAM shares while its takeover offer is still conditional, it gives 5 business days’ notice of this fact and provides NAM shareholders who have accepted its offer the right to withdraw their acceptances. A sitting Panel has not been appointed at this stage and no decision has been made whether to conduct proceedings.

Takeovers Panel receives review application in relation to its decision to decline to conduct proceedings in relation to the affairs of Energy Resources of Australia

On 25 September 2024, the Panel announced that it had received an application from Zentree Investments Limited and Packer & Co Ltd (together, the Applicants) in relation to the affairs of ERA. As discussed in a previous edition of Boardroom Brief, the Applicants applied to the Panel in relation to ERA’s proposed $800 million capital raise announced on 29 August 2024, which the Applicants submitted would result in Rio Tinto Limited (ASX: RIO) (Rio) increasing its voting power in ERA above the compulsory acquisition threshold of 90% in breach of Chapter 6 of the Corporations Act. The Panel decided to not conduct proceedings in relation to these affairs because it considered there was no reasonable prospect that it would make a declaration of unacceptable circumstances, based predominantly on the role that ERA’s Independent Board Committee played in the capital raise. The Panel was not minded to second guess the Independent Board Committee’s decisions in relation to ERA’s need for funds, the timing or amount of those funds, the assessment of alternate funding sources and strategies and the structure of the rights issue. On 26 September 2024, the Panel announced that it that it had received an application from the Applicants seeking a review of the Panel’s decision. A review Panel has not yet been appointed, and the Panel has not decided whether to conduct proceedings.

Takeovers Panel declines to conduct proceedings in relation to the affairs of Tissue Repair Ltd

On 20 September 2024, the Panel announced that it had declined to conduct proceedings in relation to the affairs of TRP. As discussed in a previous edition of Boardroom Brief, TRP applied to the Panel in relation to alleged undisclosed associations between certain TRP shareholders, who were seeking to change the composition of TRP’s board and exert control or influence over the conduct of TRP’s affairs via notices under sections 249D and 203D of the Corporations Act. Following the initial application to the Panel, the shareholders in question gave an undertaking to the Panel not to give those notices to TRP and to inform each other shareholder who signed those notices that they are free to exercise their voting rights in their absolute discretion. In light of these undertakings, the Panel concluded that there was no reasonable prospect that it would make a declaration of unacceptable circumstances and declined to conduct proceedings. 

Over the horizon

Australia and China renew economic relationship

On 26 September 2024, the fourth Strategic Economic Dialogue (SED) was hosted in Beijing and co-chaired by Federal Treasurer, the Hon Dr Jim Chalmers, following the joint signing of the Memorandum of Understanding for the China and Australia SED in Canberra on 17 June 2024. The SED marked a pivotal renewal of high-level economic discourse between the two countries after a glacial seven-year intermission, reinforcing the SED as a cornerstone of the two nations' economic partnership. Key discussions centred on the global economic climate, growth forecasts and policy strategies, with both countries committing to exchange macroeconomic policy information in the future to enhance their separate and joint economic development, advocating for transparent and efficient investment frameworks. It was agreed that the SED would become an annual dialogue to build on the positive momentum in areas such as trade and investment, green and low carbon development, and economic policy. With China being Australia’s largest bilateral trading partner, accounting for 27 per cent of Australia’s international goods and services trade in 2023, the implications of this continued, annual dialogue are significant, having the potential to substantially influence the fiscal policy and economic prosperity of both economies. The 2025 SED will be hosted in Australia.