Our submission on the Companies (Directors Duties) Amendment Bill
Recently, NZ Parliament collected feedback on The Companies (Directors Duties) Amendment Bill, which seeks to clarify that company directors are permitted to consider a range of environmental, social, and governance (ESG) matters when making decisions for their company.
The Bill acknowledges that corporations have a responsibility to not only pursue financial gain, but also to consider the impact of their actions on the wider community, society, and the environment. The Bill is currently before select committee.
Traditionally, companies have been seen as entities whose primary objective is commercial profit. However, this Bill makes it clear that directors have the ability to take into account a wide range of factors when determining the best interests of the company. This includes considerations such as the principles of Te Tiriti, environmental impacts, good corporate ethics, being a good employer, and the interests of the wider community.
As a legal organisation, we support legislative change as a means of protecting the environment, and we view this Bill as a step in the right direction.
However, we think the Bill could go even further to support a sustainable financial system, so we’ve suggested the following amendments (among several more, which you can read in full in our submission).
Not just reducing, but avoiding: Clause 4 of the Bill refers to ‘reducing adverse environmental impacts’. We think this should be made broader, to include avoiding, remedying, and mitigating adverse effects.
Minimising ambiguity: The current drafting says that directors can take into account ‘recognised environmental factors’, but the meaning of ‘recognised’ is not clear. To truly minimise harm to the environment, we believe the drafting should allow directors to take into account environmental issues which are recognised in the scientific community, even if not yet widely understood or known by the public.
Mandating ESG considerations: We request that this Bill go further, and require directors to take specific environmental, social and governance matters into account. The United Kingdom has already enacted this, through Section 172 of the Companies Act 2006, which requires that directors consider the impact of their decisions on various stakeholders, including the community and environment as a whole. Because environmental issues now pose material risks for many companies, it is in the interests of shareholders and others that these are considered. This will result in better, more sustainable corporate decision making.
ELI also endorses the Institute of Directors’ white paper calling for a review of the corporate governance landscape in Aotearoa, as well as the implementation of recommendations in the Sustainable Finance Forum’s Roadmap for Action. Such a review could identify areas for improvement in our corporate governance and help establish a financial system that is equipped to address the environmental and social challenges of our time.
Read our full submission at the link below.
