ASX opens consultation on the draft 5th edition of its Corporate Governance Principles and Recommendations

The draft has been developed with input from ASX’s Advisory Group on Corporate Governance (the Advisory Group), chaired by former Reserve Bank of Australia Governor Dr Philip Lowe. The consultation opened on 21 July 2026 and written submissions close on Monday, 14 September 2026.

Subject to the proposed timetable being maintained, listed entities will first report against the 5th edition for their first full financial year commencing on or after 1 July 2027.

The path to this consultation

The draft 5th edition is the culmination of a reform process that has been underway for more than two years. In 2024, the former ASX Corporate Governance Council consulted on a proposed 5th edition and received more than 100 written submissions. That proposal did not proceed after the Council was unable to reach broad consensus in support of the proposed changes, and the 4th edition, released in 2019, has remained in effect.

ASX has since assumed ultimate responsibility for developing, approving and issuing the Principles. Under the new framework, the Advisory Group, established in January 2026, considers developments in corporate governance and recommends changes to the ASX Limited Board, which is responsible for approving any amendments. For our earlier analysis of ASX’s proposed governance model and the opportunities for simplification, see our previous article.

It is clear that ASX has drawn on the 2024 consultation in preparing the draft. Where an earlier proposed change was well supported and remains appropriate, ASX has carried it through into the draft 5th edition. Where the earlier drafting was seen as overly prescriptive, duplicative of the law or at risk of being read as mandatory, ASX has reshaped it. The consultation package comprises a consultation paper, a clean draft of the 5th edition, and proposed consequential amendments to the ASX Listing Rules and Guidance Notes. A mark-up against the 4th edition and a roadmap of changes to each Recommendation are also available on ASX’s public consultation webpage.

The “if not, why not” framework is retained

The Recommendations do not prescribe mandatory governance practices for listed entities. Consistent with the current 4th edition of the Principles and the current Listing Rules, a listed entity may adopt governance practices that differ from the Recommendations where it considers those practices appropriate to its circumstances, provided the entity discloses in its corporate governance statement the extent to which it followed the Recommendations during the reporting period. Where the entity did not follow a Recommendation, it must identify that Recommendation and the period during which it did not follow it, explain its reasons for not following it and describe any alternative governance practices adopted in its place.

The draft consultation package proposes three principal refinements to this framework.

1. First, it draws a clearer distinction between the high-level Principles, the Recommendations against which listed entities must report and the Explanatory Material. The Explanatory Material is expressly stated to be non-prescriptive and is not intended to be reported against. This change is driven by what we understand to be an intention to return to “first principles” and facilitate ease of use of the Principles and meaningful disclosure for investors.

2. Second, the draft removes the “if not” formulations currently embedded in certain committee and internal audit Recommendations, with departures from those Recommendations instead addressed consistently through Listing Rule 4.10.3.

3. Third, ASX proposes to streamline Appendix 4G and is seeking views on whether it should be simplified further or removed altogether.

A further structural change is that each Principle is now accompanied by a short statement explaining its importance to good governance and how the related Recommendations support that outcome. This is intended to assist entities in explaining how their governance practices support the underlying Principle, including where they have not followed a Recommendation.

ASX also proposes to withdraw Guidance Note 9 (Disclosure of corporate governance practices) on the basis that much of its content duplicates the Listing Rules and the Principles. Guidance Note 10 (Review of operations and activities: Listing Rule 4.10.17) would also be withdrawn, with Listing Rule 4.10.17 instead referring to contemporary guidance on disclosure in an operating and financial review.

Recommendations removed where the law already governs

ASX proposes to remove generally applicable Recommendations where it considers the relevant matter to be adequately addressed by Australian law. This is a welcome change that will reduce duplication in company reporting processes. These removals include previous Recommendations concerning CEO and CFO declarations, voting by poll, electronic communications, auditor attendance at annual general meetings, remuneration disclosures and hedging, which are already addressed in the Corporations Act.

Under the proposed amendments, the standalone whistleblower and anti-bribery and corruption policy Recommendations would also be removed, reflecting the existing regulation of those matters under Part 9.4AAA of the Corporations Act and the Criminal Code Act 1995 (Cth). Similarly, the standalone diversity policy Recommendation relating to workforce and senior executive diversity has been removed in light of the reporting requirements under the Workplace Gender Equality Act 2012 (Cth) and associated instruments.

Several of these matters are proposed to be retained as limited-application Recommendations in Part II, principally for entities established outside Australia.

However, the existing remuneration disclosure Recommendation is instead replaced by new generally applicable Recommendations concerning senior executive performance-based remuneration, non-executive director remuneration and non-executive director ownership of securities. Part II also addresses directors working in different languages and the application of the Recommendations to externally managed listed entities.

Board composition, skills, diversity and independence

The draft recasts Principle 1 (foundations for management and oversight) around the respective roles and responsibilities of the board and management, with the board charter providing the central governance framework. Matters concerning director appointments move to Principle 2 (board structure), while written agreements for senior executive appointments are now addressed in the Explanatory Material (rather than as a specific Recommendation).

The proposed amendments to Principle 2 replace the existing requirement to disclose a board skills matrix with a requirement for the board to identify the collective skills, knowledge and experience it requires, assess whether it possesses them and disclose the assessment process and its outcome. A skills matrix remains one available method of conducting that assessment.

Board diversity also moves from Principle 1 to Principle 2 and is expressly linked to succession planning. The draft retains the objective for entities in the S&P/ASX 300 Index of having at least 30% women and 30% men on the board. ASX notes that the numerical gender diversity target has been effective, with the share of ASX 300 boards with more than 30% female directors rising from 38% in 2019 to 73% in 2025. It does not propose numerical targets for other diversity characteristics or require disclosure of those characteristics for individual directors. Workforce diversity would instead be addressed in the Explanatory Material to Principle 3, having regard to the existing reporting framework under the Workplace Gender Equality Act 2012 (Cth).

The draft also consolidates the Recommendations with respect to majority independence and independence disclosure. It relocates the factors relevant to assessing independence to the Explanatory Material, removes the existing three-year periods applying to certain former relationships and replaces the Corporations Act’s 5% substantial holding threshold for this purpose with the 10% threshold used in Chapter 10 of the Listing Rules to identify a person in a position of influence. The assessment of independence would remain a matter for the board’s judgement.

Culture becomes a matter for board oversight

Principle 3 is substantially recast to strengthen the board’s oversight of culture. The draft introduces a new Recommendation 3.1 that the board act in the best interests of the entity, have regard to security holders and other stakeholders, and disclose the entity’s processes for engaging with them. It also consolidates the existing Recommendations concerning board-approved values and the code of conduct into Recommendation 3.2.

The principal change is Recommendation 3.3, which requires an entity to reinforce a culture consistent with its values, strategy and risk appetite, ensure that the board is informed of material breaches, or trends in breaches, of key policies supporting that culture, and disclose the mechanisms by which the board monitors culture. ASX attributes these changes to developments in culture governance since 2019 and the findings of inquiries into the consequences of poor organisational culture.

Corporate reports, verification and the auditor

Principle 4 expands the verification requirements applying to periodic corporate reports. The verification Recommendation applies to any periodic corporate report released to the market and requires disclosure of the process used to verify its integrity. That disclosure may include the extent to which the report has been subject to assurance. Where internal or external assurance has been obtained, the Explanatory Material states that the nature and extent of that work should be disclosed in the report itself.

The Explanatory Material identifies annual directors’ reports, sustainability reports, annual and half-year financial statements, quarterly activity and cash flow reports, and integrated reports as periodic corporate reports. Entities will therefore need to consider whether their existing verification processes adequately address each category of report.

The new draft Recommendation 4.3 also requires disclosure of when the entity’s auditor was first appointed and when the audit engagement was last comprehensively reviewed. Audit committees should identify and consolidate the records required to support those disclosures. Related amendments to Principles 5 and 6 provide that market disclosure should be timely, balanced and accurate, and recast the entity’s role as supporting, rather than respecting, the rights of security holders.

Material risks, sustainability and climate reporting

The draft replaces the current Recommendation 7.4, concerning material exposure to environmental and social risks, with a broader Recommendation that an entity disclose its material risks and how it manages or intends to manage them, unless that disclosure would be unreasonably prejudicial. ASX considers that the current Recommendation overlaps with the sustainability reporting and operating and financial review requirements in Chapter 2M of the Corporations Act, including section 299A, and related ASIC guidance. Recommendation 7.3, concerning disclosure of an entity’s internal audit function, is also recast to require disclosure of whether the entity has an internal audit function, how that function is structured and the process used to assure the board of the effectiveness of the entity’s governance, risk management and internal control frameworks.

Remuneration

The proposed amendments to Principle 8 focus on the structure of remuneration rather than the disclosure of remuneration policies. The separate remuneration policy disclosure Recommendation is removed, reflecting the remuneration reporting requirements in section 300A of the Corporations Act, and two new Recommendations are introduced.

Recommendation 8.2 provides that an entity should have the ability to adjust the performance-based remuneration outcomes of senior executives downwards when appropriate. The Explanatory Material describes a performance adjustment mechanism as an important accountability tool for a board to utilise if new information materialises after performance-based pay has been awarded and a different outcome would have been reached had the issue been known at the time of the award. This formulation is less prescriptive than the 2024 proposal, which contemplated specified adjustment mechanisms operating after award, payment or vesting.

Recommendation 8.3 provides that non-executive directors should be remunerated only by fixed fees comprising cash and/or shares or units, together with superannuation contributions. It also requires an entity to disclose its approach to non-executive director ownership of securities. Remuneration committees should review existing incentive plans and non-executive director remuneration arrangements to determine whether they are consistent with the proposed Recommendations or will require an “if not, why not” explanation.

Timetable and what remains open

Written submissions close on Monday, 14 September 2026. Details are available on ASX’s public consultation webpage. The Advisory Group is expected to recommend changes to the ASX Limited Board by the end of December 2026, with the Board to determine the final form of the 5th edition. The proposed first application date is a listed entity’s first full financial year commencing on or after 1 July 2027. ASX has flagged that the timetable may change, so entities should treat these dates as indicative until the final edition is released.

What listed entities should do now

Listed entities and their advisers should use the consultation period to assess the implications of the draft for their existing governance arrangements and determine whether to make a submission. They should:

• compare the entity’s existing corporate governance statement and governance practices against the proposed Recommendations, having regard to the revised disclosure requirements;

• review the proposed requirements concerning board skills assessments, culture oversight and breach reporting, the verification of periodic corporate reports, and disclosures relating to the appointment and comprehensive review of the external auditor;

• review executive incentive arrangements to confirm that performance-based remuneration outcomes can be adjusted downwards when appropriate, and assess whether non-executive director remuneration arrangements are consistent with the proposed fixed fee requirements; and

• identify any matters on which the entity wishes to provide feedback and, if appropriate, lodge a submission by 14 September 2026, including in relation to the proposed implementation timetable, the future of Appendix 4G and the board skills, culture and remuneration proposals.