ASX Limited (ASX) has released a consultation draft of proposed changes to its Corporate Governance Principles and Recommendations (CGPR). The draft seeks to move on from the controversy that scuttled the former ASX Corporate Governance Council’s attempt to update the CGPR in 2024, on which we commented in the Autumn 2025 edition of Above Board.
Having brought the CGPR effectively in-house, by abolishing the 17 stakeholder-member Corporate Governance Council and replacing it with a smaller advisory group of individuals led by former Reserve Bank Governor Dr Philip Lowe, ASX is seeking to dial down the temperature and find consensus on a principles-based, market-led approach to good governance for listed entities.
The backstory
The CGPR have been a fixture of the ASX market since 2003; the fourth edition dates from 2019. The attempt in 2024 to produce a fifth edition generated significant pushback, particularly around proposals that were perceived as extending the CGPR into diversity and inclusion territory in ways that went beyond governance in the traditional sense. Whether or not this characterisation was fair, the process became a lightning rod for broader anxieties about mission creep in ESG-adjacent governance frameworks.
In the background are also concerns about ASX’s attractiveness as a listing venue and the competitive threat posed by the rise of private capital. In changing the institutional framework for developing the CGPR, ASX made it clear that it wanted the CGPR to play a role in ensuring the competitiveness of ASX’s listed equities market.
The consultation draft largely avoids the ESG and social justice content which was at the heart of the controversy over the 2024 attempt. References to diversity, stakeholders, indigenous Australians and ESG factors such as climate change have been removed or de-emphasised. ASX has also attempted to reduce the length and prescriptiveness of the CGPR.
At the same time, ASX has chosen not to tamper with key structural features such as the eight guiding Principles and the “if not, why not” disclosure framework. The consultation materials frame the fifth edition as "evolution, not redesign."
A change in approach
The current consultation draft retains the eight core governance Principles. However, it makes some important changes in its approach to communicating those Principles.
First, the draft removes obvious areas of overlap with the law. Since 2019, there have been significant legislative developments in areas previously covered by the CGPR, including whistleblower protections, mandatory climate-related disclosure and workplace gender equality reporting. Where a topic is covered by statute or regulation, corresponding recommendations in the CGPR have been largely removed or relocated. This is welcome. A soft law code that merely restates hard law obligations adds compliance noise without governance value.
Second, the draft draws a sharper structural distinction between the Principles (high-level foundations), the Recommendations (reportable "if not, why not" suggestions) and the Explanatory Material (non-reportable context and guidance). The fourth edition's commentary boxes were widely criticised for being overly prescriptive and for encouraging a box-ticking approach. Several have been removed entirely – including suggested content for diversity policies, codes of conduct, whistleblower policies, anti-bribery policies and remuneration guidelines. The intent is to push entities back towards substantive governance thinking rather than template compliance.
Third, the draft reinforces the "if not, why not" approach by making it more consistently applied. Embedded "if not" formulations in specific recommendations — for example, around nomination, audit, risk and remuneration committees — have been removed so that the framework operates uniformly. Each Principle is now accompanied by a statement explaining why it matters, which is intended to assist entities in articulating how their practices support the underlying principle even where they have departed from a recommendation.
Some listed entities criticised the fourth edition on the ground that, in practice, investors do not tolerate deviations from the CGPR's recommendations and even treat guidance in the CGPR's explanatory materials as prescriptive. Following the unsuccessful 2024 process, ASX stressed that the CGPR must provide sufficient flexibility for the broad range of entities listed on ASX. While the draft does not adopt any new drafting to address this concern, the intention seems to be that the reinvigorated “if not, why not” mechanism will provide smaller entities with the necessary flexibility to deviate from CGPR recommendations in appropriate cases.
Fourth, the draft is simply shorter. The overall effect of the changes is to reduce the volume of prescriptive material and redirect entities to a dedicated ASX webpage for supplementary resources. This represents a deliberate de-layering of the framework.
De-emphasising ESG?
The consultation draft has stepped back on some of the more controversial proposals dealing with diversity, stakeholder engagement, and the management of ESG risks.
- Board and workforce gender diversity: The draft does not take up the 40 per cent female board representation objective proposed in the 2024 process, instead retaining the 30 per cent objective from the fourth edition. It also abandons proposals for optional disclosure of other diversity characteristics and omits previous recommendations regarding workforce gender diversity and the requirement for a diversity and inclusion policy. More broadly, it reframes diversity as entailing cognitive and experiential diversity, “achieved through consideration of different factors … [such as] different genders, ages, cultures, demographic backgrounds and personal circumstances”.
- Stakeholder engagement: One of the main criticisms of the 2024 process was that it emphasised broader stakeholder considerations at the expense of security holder value creation, conceiving stakeholders expansively to include “employees, customers, suppliers, Aboriginal and Torres Strait Islander peoples, local community, law makers and regulators”. The current draft continues to emphasise the need for listed entities to understand and engage with security holders’ interests, including those of “employees, suppliers, customers, contractors and … communities in which [the entity] operates”.
- Management of ESG risks: While the fourth edition and the 2024 process specifically emphasised ESG risks in connection with risk management, the consultation draft now simply recommends that entities understand and disclose their material risks. ESG risks like climate change, biodiversity and worker underpayments are only briefly referenced in the explanatory materials as examples of emerging risks which entities should consider.
Three substantive proposals worth watching
We think there are three substantive changes worth watching, in the areas of director independence, board skills assessment, and executive remuneration.
- Director independence: The definition of independence has been materially reworked. The consultation draft removes the previous Box 2.3 factors relevant to assessing director independence and the rigid three-year look-back period, including them instead in the explanatory materials. The threshold for considering whether a director's shareholding might influence their independence has been aligned with the "person in a position of influence" concept in Chapter 10 of the Listing Rules – a substantial (10 per cent) holding – rather than the Corporations Act's lower 5 per cent substantial security holder threshold. The approach to materiality has also shifted. In the fourth edition, a director is treated as independent if they are free of any interest, position or relationship that might influence their capacity to exercise independent judgement in a material respect. The draft omits this qualifier and states that the materiality of the interest, position or relationship merely needs to be assessed.
- Board skills assessment: The recommendation to maintain and disclose a board skills matrix has been removed. In its place is a broader recommendation that the board determine the balance of skills, knowledge and experience it requires and disclose the outcome of that assessment. The skills matrix survives only as one possible tool referenced in explanatory material.
- Executive remuneration: A new adjustment mechanism is proposed where an entity has performance-based remuneration for senior executives, recommending mechanisms to adjust outcomes downwards when appropriate. This codifies what is already emerging as market practice in the wake of the Banking Royal Commission, but its inclusion as a formal recommendation will increase disclosure pressure on entities that have not yet adopted malus or clawback arrangements.
Takeaways
The draft is consistent with ASX’s apparent objectives of sidestepping the controversy over social issues and repositioning the CGPR to play a more functional role in promoting security holder value creation and the attractiveness of ASX as a listing venue.
Whether this attempt to reframe and refocus the CGPR succeeds remains to be seen. As a soft law mechanism, the success of the CGPR depends on how it is interpreted and applied by listed entities, investors, advisers and other stakeholders. The removal of prescriptive content may not eliminate the underlying expectations. It may simply shift the compliance burden from code-based reporting to direct investor engagement. If institutional investors continue to expect disclosure on diversity metrics, ESG risk management and stakeholder engagement regardless of what the CGPR formally require, the de-layering may prove more cosmetic than substantive. The answer will be revealing of the evolving state of the relationship between soft law frameworks and market practice in Australian corporate governance.
The consultation is open until 14 September 2026.