Our approach
Downer and our stakeholders place a strong importance on governance and ethical conduct. This was reinforced in the materiality assessment that was undertaken in FY19, where governance and ethical conduct ranked as Downer’s second-highest issue. It remains a material issue in FY20.
Downer’s approach to sustainability is underpinned by a robust corporate governance framework. This framework provides the platform from which Downer’s Board provides strategic direction for the responsible and sustainable growth of the company. It also drives a culture that promotes high ethical standards and personal integrity.
Under our governance framework, Downer’s management is accountable to the Board, and the Board is accountable to shareholders for the operations, performance and growth of the company. The primary goal the Board has set for management is to focus on enhancing shareholder value, which includes responsibility for Downer’s economic, environmental and social performance.
Our Board recognises the need for the highest standards of behaviour and, as such, endorses the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Principles). Our Corporate Governance Statement for the year ending 30 June 2020 is included in our Annual Report.
Ensuring our governance and ethical standards are adhered to by our diverse supply chain remains a challenge, particularly around issues such as human rights and modern slavery, and data security.
Our performance
Downer committed to achieving the following governance targets and objectives in the 2020 financial year:
The performance information in this section includes Australian Operations, Spotless and New Zealand, including Hawkins, but excludes contractors and joint ventures.
Board structure
Board committees
At Downer, multiple Board committees assist the Board of Directors in carrying out its primary role of guiding the company’s strategic direction. There are seven Board committees:
- Nominations and Corporate Governance Committee
- Audit and Risk Committee
- Zero Harm Committee
- Tender Review Evaluation Committee
- Remuneration Committee
- Rail Projects Committee
- Disclosure Committee.
All charters for the Board and these committees are available on our website under the Board and Committees section. The names of the members of each committee are included in Downer’s 2020 Annual Report.
Internal audit and risk framework
Downer’s internal Audit and Risk function objectively evaluates and reports on the existence and effectiveness of our internal risk controls. The internal audit team is independent of the external auditor and reports to the Audit and Risk Committee.
In FY20, the team completed 18 internal audits comprising six project reviews and 12 reviews of key business processes, which included:
- Project valuation management
- Delegations of authority
- Procurement processes and management
- Workforce payments and entitlements
- Contractor and subcontractor management.
During the year, Spotless commenced a review of the applicable Enterprise Agreements (EAs) and Modern Award obligations, together with the assumptions regarding their interpretation and application in its payroll systems in order to validate the correct application of pay rates to employees, as well as identify historical underpayments and overpayments. The process is ongoing. On 1 July 2020, Spotless lost a Federal Court case with respect to Ordinary and Customary Turnover of Labour rate (OCTL) redundancy payments for employees made redundant on cessation of specific contracts.
Spotless has recognised an employee benefits provision of $41.1 million in relation to these matters, including interest and other remediation costs. Downer is committed to ensuring its people are paid in accordance with their employment agreements and the law and has a dedicated team investigating Spotless and Downer practices, systems and processes.
Standards of Business Conduct
Downer sets high expectations for how our people should conduct themselves when representing the company. These expectations are set out in our Standards of Business Conduct. Approved by the Downer Board, our Standards of Business Conduct is formally administered by Downer’s Group General Counsel and Company Secretary. It applies to all our people, including contractors and agents representing Downer and its subsidiary companies throughout the world. It stipulates what is required in relation to:
- Workplace behaviour
- Diversity and inclusiveness
- Corporate governance
- Engaging with stakeholders
- Sustainability
- Workplace safety.
When commencing employment with Downer, our people are required to read and agree to the Standards of Business Conduct as part of their induction process. For Directors and employees, refresher training must be undertaken at least every two years.
Downer also has a formal ‘whistleblower’ policy in place to report breaches of the Standards of Business Conduct including any inappropriate, unethical, corrupt or illegal behaviour, misconduct, or any other improper state of affairs or circumstances. Downer has both internal and external processes that allow for the reporting of breaches, including ‘Our Voice’, which is an external and independent service that allows employees to anonymously report such potential breaches.
Downer encourages its employees, subcontractors and partners to voice their concerns if they identify potentially unethical practices. Downer will not tolerate victimisation of a whistleblower and is committed to providing support and protection against any reprisal for reporting a breach or potential breach. Any employee found to have victimised another will be subject to disciplinary action. In FY19, Downer committed to reviewing its Standards of Business Conduct. This was completed in FY20 and included a number of important changes.
Setting the standard for how we conduct our business
Financial and corporate governance self-assessment
To monitor the effectiveness of our governance framework, we conduct a biannual assessment of our senior executives and senior managers through the Financial and Corporate Governance Self-Assessment (FCGSA).
Downer’s senior executives and senior managers are required by the Board to undertake the FCGSA to determine the compliance of their respective areas with financial and corporate governance policies and to furnish a declaration on the outcome of this assessment.
The Audit and Risk Committee receives a summary of issues and acts upon these in accordance with Downer’s policies and procedures. Declarations are used to support the Board in its statements to the ASX, NZX, ASIC, NZ Companies Office, ATO, NZ IRO, finance providers, insurance underwriters and others.
Downer conducted two Financial and Corporate Governance Self-Assessment surveys in FY20, with 333 senior executives completing the first, and 321 completing the second, both of which had 100 per cent completion rates.
In FY20, two material changes were made to the FCGSA to provide assurance that Downer complies with the law, its contractual obligations, its corporate policy, and Australian Accounting Standards. These changes consisted of:
- Amendments made within the Accounting and Financial Reporting section under the Leases question. The Australian Accounting Standards Board (AASB) 16 Leases, effective from 1 July 2019 for Downer, replaces the leasing standard AASB 117 which contains significant changes to the accounting treatment of leases around how to recognise, measure and disclose leases
- The inclusion of a dedicated question on modern slavery. Under the Commonwealth Modern Slavery Act, Downer is required to prepare and publish a modern slavery statement that describes its actions to assess and address modern slavery risks. In addition, Downer is required by its customers to notify of any incidences of modern slavery in its supply chain.
Timely, honest and transparent disclosures
Downer is committed to providing all investors with equal and timely access to material information about the company.
Downer’s Disclosure Policy sets out processes which assist the company to ensure that all investors have equal and timely access to material information about the company and that company announcements are factual and presented in a clear and balanced way. The Policy states that new and substantive investor or analyst presentations are to be released on the ASX Market Announcements Platform ahead of the presentation.
We are committed to implementing best practice in identifying and disclosing material and market-sensitive information, which is why our Disclosure Policy adopts procedures in accordance with the Corporations Act 2001 (Cth) and the ASX Listing Rules.
In FY20, we made 56 announcements and disclosures via the ASX and NZX. There were no breaches of continuous disclosure and Downer is unaware of any substantial complaints regarding breaches of privacy or other matters by customers or other stakeholders.
Spotless shareholder class action:
In May 2020, the parties to the Spotless Class Action announced that they had reached an agreement to settle the proceeding against Spotless Group Holdings Limited. Under the agreement, Spotless Group Holdings Limited will pay a total of $95 million, inclusive of interest and costs, to settle the claims of members in the Spotless Class Action.
The settlement is without admission of liability and is subject to the approval of the Federal Court of Australia. This claim has previously been disclosed as a contingent liability in Downer’s Annual Report. This relates to activities that occurred in 2015, prior to Downer’s involvement in Spotless Group Holdings Limited. The central allegations made in the Spotless Class Action are that Spotless misled the market by making a series of announcements without reasonable basis, and failed to disclose to the market operator information that had a material effect on the price or value of Spotless Group Holdings Limited shares.
Anti-bribery and corruption
Downer has a zero tolerance to bribery and corruption. We are committed to complying with the law in all jurisdictions in which we operate, as well as maintaining and reinforcing the reputation of Downer and our people for ethical practice.
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That is why we take steps to educate our people on the risks of bribery and corruption. Downer’s Anti-Bribery and Corruption Policy sets out our expectations around bribery and corruption and outlines the dangers of breaching these laws.
In FY20, we continued to implement our Anti-Bribery and Corruption training for our employees, with 732 employees completing the module across Australia and New Zealand. These numbers exclude Spotless, as the roll-out of training in Spotless was put on hold due to the impacts of COVID-19.
Political donations
To avoid the potential for bribery and corruption, Downer does not make donations, either in kind or directly, to political organisations, political parties, politicians or trade unions in any country without prior approval from the Chairman or CEO, through the Company Secretary.
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In addition, Downer will not make or solicit payments to organisations which predominantly act as an intermediary to fund political parties or individuals holding or standing for elective office without prior approval from the Chairman or CEO, through the Company Secretary. In FY20, Downer made a total of $1,100 in political donations, which was to the South Australian Liberals.
Insider trading
Downer is committed to preventing the misuse (or perceived misuse) of market sensitive information by restricting certain securities dealings undertaken by our people.
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Downer’s Securities Trading Policy has been developed to ensure that:
- Any permitted dealings in securities carried out by our people comply with legal and regulatory obligations (including the prohibition against insider trading)
- Downer maintains market confidence in the integrity of dealings in our securities. Our people must not engage in insider trading of Downer’s securities or in the securities of another listed entity.
In FY20 there were no reported breaches of the Securities Trading Policy.
Anti-competitive behaviour
Many of the jurisdictions in which we conduct our business have laws to promote or protect free and fair competition (usually called ‘competition’ or ‘anti-trust’ laws). Under these laws, it is usually illegal to make an agreement with another person to fix or control prices, market share and distribution practices (among other things).
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It is also illegal to make an agreement with a competitor to boycott suppliers or to deal with only specific customers or markets. Employees must not engage or be involved in any conduct that breaches competition or anti-trust laws.
Breaching these laws can have serious consequences for Downer and our people. Our people understand that even the perception of a breach of these laws will have a serious impact on the reputation of Downer and our people.
As Downer has operations in foreign jurisdictions, Downer employees are confronted by the challenges of doing business in environments where bribery and corruption are real risks. However, regardless of the country or culture within which our people work, Downer is committed to compliance with the law, as well as maintaining our reputation for ethical practice.
In FY20, there were no breaches or litigation associated with anti-competitive behaviour brought to Downer’s attention.
Supply chain management
Contractor management is Downer’s third-highest ranked material issue.
Labour practices and modern slavery
Downer is committed to operating responsibly, and establishing and adhering to the highest ethical standards across our Group. Downer supports fundamental human rights. We acknowledge that modern slavery is one aspect of human rights and we will not tolerate any forms of slavery or human trafficking.
Ensuring that slavery and human trafficking is not taking place in Downer’s supply chain, beyond our direct suppliers, remains a challenge particularly given the extensive nature and diversity of our service offerings and locations. However, we are implementing a risk-based approach and are committed to continuous improvement through the below measures, including engaging with our direct suppliers to educate, assess and encourage continuous improvement in their own capacity to manage modern slavery risks in their subcontractors and broader supply chain.
Downer plans to release our Modern Slavery Statement by 31 March 2021, which will span the financial year ended 30 June 2020. This is will be supported by our Group-wide Procurement Framework Policy and Standards of Business Conduct. These policies are supported by the following:
- Procurement induction and training module
- Supplier and subcontractor prequalification
- International Supply Standard – for international supply
- Standard precedent terms and conditions for all supply agreements and subcontracts, including our purchase order terms and conditions
- FCGSA Directors’ questionnaire
- Downer’s risk assessment process.
Downer’s risk assessment process sets a base level identification of modern slavery risk by considering country risk, and product/ service category risk.
To improve our understanding of local human rights contexts, as well as exposure to related issues such as corruption, we use tools including the Global Slavery Index. The majority by value of our payments are made to goods and services suppliers in Australia and New Zealand, primarily in lower risk categories such as skilled subcontractors, fleet, fuels and professional services.
We recognise there is risk, however, it is primarily in our lower category spend areas and products sourced from higher risk countries such as China.
For example, Downer works with suppliers in China through its partnership with CRRC Changchun, which is delivering Sydney’s Waratah trains and Melbourne’s new High Capacity Metro Trains. One of CRRC’s suppliers was the subject of public allegations concerning the treatment of their workforce with respect to human rights and modern slavery. These allegations have been strongly denied, however, incidents like this highlight the challenges Downer faces in managing these issues outside of our immediate supply chain.
While there are potential benefits and cost-savings associated with overseas sourcing, we need to consider the risks which include:
- Additional costs for international administration, foreign currency exchange, transport and custom duties
- Logistical challenges including import, customs and quarantine regulations
- Exposure to modern slavery and potential for bribery and corruption in some foreign jurisdictions
- Limited legal protections in foreign jurisdictions, should disputes arise
- Increased rules and regulations in foreign markets and dealing with foreign entities
- Language barriers and understanding of foreign supply market
- Differences in quality and safety standards.
To further enhance our risk assessment process, Downer is currently conducting specified testing for a sample of international procurement activities.
External consultation: Relationships and collaboration with our suppliers, business partners and relevant agencies help shape our strategies on modern slavery. We have actively participated in relevant forums to discuss and understand peer, industry and stakeholder views on human rights issues including modern slavery. These forums include:
- Infrastructure Sustainability Council of Australia Modern Slavery Coalition
- Business Council for Sustainable Development Australia
- Procurement and Supply Australasia Connect
- Supply Chain Sustainability School.
We are committed to continually moving forward to ensure the prevention of modern slavery through operational and supplier-driven processes across our value chain. We will continue to collaborate with our internal and external stakeholders to address our own modern slavery risks and continue to improve our processes. Several of our processes will help track our performance and will provide insight into areas for improvement.
Industry memberships and associations
Downer is a member of various peak industry bodies and organisations which influence policies on sustainability across industries. Some of these include:
- Australian Constructors Association (ACA)
- Australian Industry Group
- Australian Mines and Metals Association (AMMA)
- Business Council for Sustainable Development Australia
- Business Council of Australia
- Chamber of Minerals and Energy of Western Australia (CMEWA)
- Civil Contractors Federation
- Clean Energy Council
- Group of 100
- Infrastructure Partnerships Australia
- Infrastructure Sustainability Council of Australia
- Institution of Professional Engineers New Zealand
- Minerals Council of Australia (MCA)
- Queensland Resources Council
- Responsible Construction Leadership Group
- Supply Chain Sustainability School
- Sustainable Business Council of New Zealand.
Downer has representation on the Board of the ACA.
In FY20, the Minerals Council of Australia released its 10-point Climate Action Plan. Downer contributed to this plan through participation in the Energy and Climate Change committee. The Climate Action Plan reaffirms the commitment of the MCA and its members to decarbonising Australia’s minerals sector, consistent with the climate and development goals of the Paris Agreement. For further information, refer to the MCA’s Climate Action Plan.
In addition, Downer participated in the response from both the Business Council of Australia and the Minerals Council of Australia to the Federal Government’s discussion paper on the Technology Investment Roadmap, which aims to drive investment in low emissions technologies to strengthen the Australian economy and support jobs and businesses. This is considered a key priority for the Government on the road to recovery from COVID-19.
Sustainability performance related remuneration
Downer’s remuneration framework for key senior employees has been successful in creating alignment between senior Executives and shareholders.
Executive remuneration has a fixed component and a component that varies with performance. Performance is assessed annually for performance periods covering one year and three years. Payment for performance assessed over one year is a Short-Term Incentive (STI). Payment for performance over a three-year period is a Long-Term Incentive (LTI).
Sustainability performance is linked to Downer’s STI. The STI performance is assessed on Group NPATA, Divisional EBITA, Free Cash Flow, Zero Harm and a measure of employee engagement. An overarching financial gate applies to entry into the STI scheme.
The Zero Harm element includes safety and environmental measures, underscoring Downer’s commitment to customers, employees, regulators and the communities in which we operate. The measures for the Zero Harm element of the scorecard are set out below. For an STI to be awarded, a minimum financial performance gateway is required to be achieved. This is to ensure rewards are founded on financial sustainability. Further, there is a minimum performance gateway for the Zero Harm element of the STI, which requires the achievement of zero workplace fatalities and zero serious environmental incidents (Level 5 or 6).
Safety
- Total Recordable Injury Frequency Rate (TRIFR)
- Lost Time Injury Frequency Rate (LTIFR)
- Achieve TRIFR and LTIFR below the defined threshold for area of responsibility.
Environment
- GHG emissions reductions
- Review baselines and set targets for annualised GHG emissions reductions to contribute towards meeting Downer’s Science-Based Target for areas of control
- Identify, assess and determine Return on Investment (ROI) for three opportunities in each Line of Business that will contribute to Downer’s decarbonisation strategy.
Critical Risks (safety and environment)
- Conduct an operationally led review of bow tie analyses. Critically analyse Critical Risk control performance and initiate a program of projects to improve the resilience of Critical Controls.
Zero Harm leadership (safety and environment)
- Performance of a minimum number of Critical Risk observations by senior executives within their business, across businesses, and in partnership with customers
- Implementation of updated Group-wide consistent policies, procedures and supporting documents.
While there was sound performance against these KPIs throughout the business, no STI awards were made in relation to the 2020 financial year.
Our Governance response to COVID-19
Downer’s robust governance frameworks and processes provided a strong platform for the Group’s swift and effective response to COVID-19 and helped to minimise the impact on our operations, people, customers and communities.
Downer’s existing Business Continuity Plan (BCP) framework was enacted immediately and tailored to meet the different regulations introduced by different Governments in Australia and New Zealand. Our customers welcomed Downer’s swift and detailed response, with many borrowing our BCPs and other frameworks to guide their own responses.
Standardised health and safety procedures were developed and modified as the crisis unfolded to guide a best practice response to multiple COVID-19 scenarios.
Downer’s governance model positions our Zero Harm teams at the centre of crisis environments, allowing operational leadership teams to focus on the health and safety of their people and servicing their customers.
As Government restrictions tightened, Downer’s head offices and some sites were temporarily closed, meaning a large section of our workforce was required to work remotely. Previous investment in Downer’s IT systems and infrastructure meant that Downer was well equipped to cope with this sudden change in working arrangements. Online collaborating tools, including WebEx and Microsoft Teams, had already been deployed across the business, allowing our people to seamlessly switch from physical meetings to virtual meetings.
Downer’s governance frameworks and processes, combined with its strong leadership teams and Zero Harm culture, were critical in ensuring our people were able to adapt to frequent changes to health and safety requirements and Government regulations and continue to deliver essential services to our customers.
Leading during a crisis in New Zealand
Our future focus
Downer understands that, just as our business and customers are evolving, our governance structure must also evolve. We are committed to continuously improving our governance processes and policies to ensure the highest standards of corporate behaviour. In FY21, Downer will:
- Strengthen our governance of business integrity by launching a training module on Downer’s policies and practices for the management of whistleblower reports
- Continue to review our membership of peak bodies and industry associations
- Continue to review our labour practices and supply chain through updates to our existing frameworks, policies and processes to take into consideration modern slavery, in accordance with the NSW Modern Slavery Act 2018 and the Commonwealth’s Modern Slavery Act 2018. We will also progress work on a Modern Slavery Statement, which is due for completion by 31 March 2021
- Revise Downer’s Privacy policy to ensure that standards for the collection, use and disclosure of personal information are maintained
- Develop a training module on privacy, which will be made available to General Managers and above, as well as employees from areas such as IT, Human Resources, Payroll, Workers Compensation, Zero Harm, Insurance, Legal, Company Secretariat, Commercial and Procurement functions who handle personal information as part of the responsibilities of their roles.
