Directors on NZX-listed and New Zealand (NZ) incorporated companies should be aware that on 2 August 2023, the Companies (Directors Duties) Amendment Bill received royal assent. The amendment seeks to clarify section 131, which requires directors to act in good faith and the best interests of the company, it reads:

To avoid doubt, in considering the best interests of a company or holding company for the purposes of this section, a director may consider matters other than the maximisation of profit (for example, environmental, social, and governance matters).

Despite the clarification, there will be no change to the current duties of NZ directors. Criticisms of the amendment include that the Act as it originally stood did not prevent directors from considering ESG factors. Was it an over reaction to anti-woke guidance and threats such as those seen in US political interests in how state pension funds may be invested?

At its introduction to Parliament in 2021, the proposed amendment included a “non-exhaustive list of five ESG matters” and the principles of Te Tiriti ō Waitangi. The amendment, as it was passed into royal assent in August 2023, leaves an open interpretation of the environmental, social, and governance matters of which directors may consider.

It is usually practice for directors to consider factors outside the financials for the company’s best interests in the long term. That is to say, the content of the amendment is a de facto standard for directors. But why signal that ESG is ok to consider in legislation?

You can view the progress of the bill through parliament and into assent HERE:

You can view the full amendment bill HERE:

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