Significant reforms in climate reporting and aged care have major liability ramifications for directors and the AICD is advocating for better balance. The AICD has also provided input to the 2024–25 national budget process.
Climate reporting heats up
The AICD has called for significant improvements to draft laws on mandatory climate reporting, following federal Treasury’s release of an Exposure Draft in January. Under the new regime, companies will be required to disclose their current and anticipated climate-related risks over the short, medium and long term. Mandatory reporting is currently slated to commence for large companies and heavy emitters from 1 July 2024, with phased commencement for smaller organisations from July 2026 and July 2027.
The AICD supports the introduction of mandatory climate reporting in Australia and an internationally aligned regime that delivers high-quality, comparable climate disclosures. However, as directors know, this is a very complex reform. It requires material changes to the Corporations Act 2001 and corporate reporting framework, and a significant uplift in practice. Getting the legal settings and liability approach right is key to achieving the policy aims of comprehensive and useful climate disclosure.
The AICD has been a strong advocate for measures to provide certainty and confidence, including a regulator-only period of enforcement to limit private litigation, and phased implementation. While these positions are reflected in the government’s policy intent, the AICD’s review of the Exposure Draft identified serious gaps that we have raised as priorities:
- Drafting of the “regulator-only” enforcement period is too limited and narrow, and must be expanded to cover all forward-looking disclosures, including transition plans
- Director declarations should be suitably qualified to reflect the lack of reasonable assurance available for climate disclosures (currently proposed for 2030)
- Thresholds for reporting by Group 3 entities remain too low, risking high compliance costs for smaller entities with little public benefit
- NFPs are captured as eligible reporting entities in the Exposure Draft (while charities are excluded) with little consultation or engagement with the sector to date.
We have also raised issues with timing and commencement of disclosures, broad ministerial powers and technical drafting.
The AICD’s input was informed by consultation with members, policy committees, industry and market stakeholders and legal advisers (including a new legal opinion from King & Wood Mallesons). We thank members for their input and welcome further views at policy@aicd.com.au
Aged care directors face new criminal liability
The government is also consulting on further changes to the Aged Care Act 1997 as part of its response to the wide-ranging recommendations of the Aged Care Royal Commission.
FY24 regulatory priorities
The AICD advocates for fair, fit-for-purpose and modern regulations that support diligent directors in governing for growth. Our FY24 reform priorities include:
- Targeted cyber policies that lift national resilience
- Balanced policy setting that supports high-quality market disclosures and practice
- NFP regulation that promotes financial sustainability
- Coordinated and proportionate regulation
The AICD has supported key sector reforms flowing from the Royal Commission’s recommendations in previous consultations, including introducing a statutory duty of care for aged care providers. We also recognise the need for uplift in the quality of care and focus on care governance in the sector and are providing resources to support members (see breakout).
However, the AICD has strong objections to a proposed new “responsible person duty” in current consultations by the Department of Health and Aged Care. The proposed duty would make directors and managers personally liable for failings of the provider in the delivery of care to residents and in-home clients. Both civil and criminal liability is proposed to apply. This would expose directors to risk of criminal prosecution as well as significant civil fines for the organisation’s delivery of care. Of note, this new duty was not recommended by the Aged Care Royal Commission.
In the AICD’s view, this would be a punitive and unnecessary layering of duty in a sector that is undergoing profound change. Significant governance reforms to drive enhanced accountability in the sector have recently been enacted, requiring extensive resourcing and support. There is a real risk that such a punitive measure could drive experienced directors and managers out of the sector and exacerbate the viability challenges of smaller providers at a time of significant change.
The AICD has long-standing policy views on framing personal and criminal liability for directors. Non-executive directors should be held accountable for breaches of their directors’ duties by appropriate, proportionate and enforced laws. Directors are not in a position to prevent all instances of corporate misconduct and should not be cast as guarantors of corporate compliance through the imposition of personal liability. This is particularly important where criminal provisions apply.
The AICD will continue to advocate on this issue and welcomes feedback via policy@aicd.com.au
AICD pre-budget views
The AICD policy leadership team and chief economist have contributed to the national budget process with input on issues raised by members and directors. Australian entities and directors are operating in an increasingly complex regulatory environment, with new compliance obligations and sustainability issues on board agendas. Our recent 2024–25 pre-budget submission was an opportunity to reiterate concerns, including director views in the latest AICD Director Sentiment Index. The submission argues government should focus on regulatory design to ensure:
- Critical reforms in adjacent areas of AI, privacy law and cybersecurity are consistent, appropriately sequenced and don’t overlap
- Liability settings for directors and companies under climate disclosure legislation incentivise high-quality, comparable disclosures
- Complex NFP regulatory frameworks are simplified, including harmonisation of fundraising laws, and capacity-building initiatives for NFPs.
The AICD recommended an independent expert body to support corporate law reform, similar to the former Corporations and Markets Advisory Committee, and an Australian “regulatory grid”, modelled on the UK approach, to bring a cohesive view to the regulatory change pipeline.
This article first appeared under the headline 'Balancing Act’ in the March 2024 issue of Company Director magazine.
Louise Petschler GAICD is General Manager Education & Policy Leadership at AICD.
Practice resources — supporting good governance
Examples of the AICD’s contemporary governance practice resources for members:
Guide to Governing for Quality Aged Care
- New director guide covering recent reforms, practical steps for aged care directors and boards
Care Governance Webinar Series
- Join experienced directors and subject experts to upgrade your board’s care governance capabilities
Care Governance Course
- AICD’s refreshed care governance short course (one day) running in NSW, Queensland and Victoria in May–June
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