ASX Corporate Governance Principles and Recommendations

Our analysis looks at disclosures on the new and amended fourth edition Recommendations, which set out a range of corporate governance issues for boards and management to follow. The three papers examined:

• overall compliance
• diversity
• environmental and social risks.

The reports are based on examining public disclosures of approximately 600 ASX-listed companies covering the top 200; the next tier 201-500; and those below the top 500. They follow two similarly commissioned studies done by KPMG in 2016 on adoption of the third edition of the Principles and Recommendations in 2015.

Overall, our research shows that reporting on diversity, equity and inclusion among ASX listed entities has stalled, and a sizeable number of companies claim they have no material exposure to environmental or social risks.

• High levels of adoption of the new and amended fourth edition Recommendations was noted in this report, with 95 percent of the sampled entities disclosing the extent to which they had adopted the new and revised requirements.
  
• The depth of disclosure varied however, with some entities providing responses that simply restated Recommendations without explanation. For example, a majority of the sampled entities did not specify who conducted verifications of the integrity of periodic corporate reports (that were not audited or reviewed by an external auditor), nor called out how verifications were undertaken.
• Good practice examples featured in this report could be used by others to advance their own practices and disclosures to the extent that is fit for purpose.
  

• There has been only a fractional rise in the number of ASX entities disclosing a diversity policy in the past six years, with 88 percent in 2021 compared to 87 percent in 2015.
• Across all three ASX categories assessed, there has been a regression in disclosures on the proportion of women in at least one of the categories of general workforce, senior executives and board.
• Overall, the proportion of women in the workforce and in senior executive roles has remained stagnant. The number of women on boards has increased slightly across all three categories.
• The ASX 501+ cohort requires the most support and focus to develop and implement diversity initiatives, with the lowest rates of disclosure and proportion of women, and highest use of the ‘if not, why not’ exception.
• Over one-third of entities recognised the benefits to having a diversity policy in their reporting.
• It is clear that diversity has moved beyond gender, with the vast majority of entities including a broader definition of diversity in their disclosures. However, this has not yet translated to the reporting of measurable objectives or representation of diverse employees, with only a small percentage of entities disclosing on measurable objectives or representation of First Nations Peoples, those who are culturally or linguistically diverse, people with disabilities, or members of the LGBTIQA+ community.
  

• The number of companies reporting adoption of Recommendation 7.4 has increased compared to the 2015 Survey overall and the depth and sophistication of disclosure continued to mature, particularly across S&P/ASX 200 entities.
• While the adoption of the Recommendation was high, over a quarter of the sampled entities reported no material exposure to environmental and/or social risks.
• While acknowledging there is a significant breadth of entities with different circumstances and exposures within the sample, KPMG considers it unlikely that over 25 percent of the sampled entities did not have any material social or environmental exposures. A review of sector-specific reporting identified some instances of entities reporting no material exposure to environmental and social risks being out of step with same sector peers.
• The most common environmental exposures included climate change and related impacts, biodiversity and water scarcity, while the most common social exposures included community engagement, diversity, equity and inclusion and health and safety.