Business - Parry Field Lawyers

What is negative screening?

Put simply, negative screening is seeking to avoid investing in industries that may be considered unsustainable or even harmful. A goal is to make a positive difference by excluding certain stocks.

Common exclusions are things like fossil fuels, tobacco, alcohol, gambling and weapons, sometimes referred to as ‘sin stocks’. Other criteria might be avoiding a geographic area as a way of avoiding supporting particular political regimes or avoiding stocks that are associated with unacceptable human rights practices. Often referred to as ‘socially responsible investing’, the goal is to minimise harm.

Investors can ask their financial advisors to avoid this type of investment or stocks in their investment portfolios. However, it can be difficult for investment advisors to completely filter out such industries due to a lack of information available about particular entities. Not all companies provide information on things that may matter, for example, the diversity of staff, or the proportion of products that might be classified as harmful. So negative screening can be rather a blunt tool.

What is positive screening?

By contrast, positive screening, sometimes called ‘best in class screening’ seeks to make a positive difference by supporting particular industries or practices.

This might involve supporting particular stocks that have positive outcomes, such as stocks that have low carbon footprints or that are seeking to solve an environmental issue. It is arguably simpler to identify and support companies that excel in their fields.

Positive screening is not perfect either and can be too exclusive, particularly if investors are looking for a diverse portfolio.

Neither approach is perfect, and often a mixed approach is adopted. The key is to ensure:

Myth busting

Some investors worry that investing in socially responsible options will limit their financial return or may be too risky. Our ‘Legal Opinion on Enabling Impact Investing’ sets out to bust some of the pervasive myths about impact investing. It encourages investors responsible for funds to think again about how their funds can make a meaningful difference and provide a financial return.

There are many other useful insights on our Impact Investing Information Hub. Please do get in touch if we can assist you with impact investing.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

Phase 1: Corporate Governance Reforms

Phase one of the reform will include the following key aspects:

Modernising and Digitising the Companies Act: the Act and other related legislation will be updated to remove outdated, ambiguous and overly complex provisions. This will aim to reduce compliance costs and better utilise modern technology for both businesses and regulations.

Director and Partner Identification Numbers: Unique identifiers will be introduced for company directors and general partners. This will help track their involvement across multiple businesses and combat illegal practices, such as phoenixing (where a business re-emerges under a different name after insolvency).
Enhanced Privacy for Directors and Shareholders: Directors and shareholders will be allowed to list an address for service on the Companies Register instead of their residential addresses, addressing privacy and safety concerns.
Insolvency Law Reforms: To improve outcomes for creditors, the period during which transactions with related parties can be voided when a business is insolvent will be extended to four years, following recommendations from the Insolvency Working Group.
Improved Use of the New Zealand Business Number (NZBN): The reforms will encourage greater uptake of the NZBN, simplifying transactions between businesses and government agencies, and allowing for automatic updates to company records using NZBN data.

Phase 2: Governance and Accountability

The second phase, led by the Law Commission in 2025, will focus on enhancing corporate governance by reviewing directors’ duties, liability, offences, penalties, and improving enforcement mechanisms.

These reforms are expected to streamline corporate processes, reduce costs, and enhance transparency, benefiting both businesses and the broader New Zealand economy.

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This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

Succession planning is a critical component of effective governance for any board, whether it’s for a corporate entity, charity, or for-purpose organisation. In New Zealand, where governance practices are guided by both legal frameworks and best practice principles, succession planning ensures that a board remains dynamic, diverse, and capable of steering the organisation into the future. This article outlines some practical considerations to keep in mind when developing a succession plan for your board.

1. Primary Responsibility of the Current Board

Succession planning is one of the board’s most important responsibilities, ensuring continuity and stability during leadership transitions.

(a) Evaluating Leadership Roles

Start by assessing the current leadership. Who is your Chair and how long have they been in the role? It may be time to consider appointing a deputy Chair who can learn the ropes now and ensure a smooth transition when the time comes for the current Chair to step down. Planning ahead mitigates risks associated with abrupt leadership changes and maintains strategic continuity.

(b) Emphasising Diversity of Thought

When considering successors, resist the temptation to simply replicate the existing board members. Instead, focus on bringing in new perspectives. Diversity of thought fosters innovative solutions and more resilience. Actively seek out individuals who bring different experiences, skills, and viewpoints to the table. We have also created a Board Skills Matrix which you can access over here.

(c) Mapping Out a Succession Plan

A clear, structured succession plan is essential. Consider implementing a rotation schedule for trustees, this could be legally enshrined in your Trust Deed. For instance, a trustee might serve for a term of three years, renewable for another three years, with a maximum of three terms (3+3+3), after which they must stand down for at least a year. This ensures regular infusion of fresh ideas while maintaining experienced leadership.

(d) Encouraging Healthy Board Renewal

Term limits and rotation schedules naturally create opportunities for board renewal. These mechanisms facilitate necessary discussions about new leadership without making it personal. Focus these conversations on the organisation’s needs rather than individual preferences to prioritise the entity’s long-term success.

2. Utilising a Skills Matrix

A skills matrix is a valuable tool for evaluating the board’s current composition and identifying gaps in expertise or experience. This can be used to decide where there may be areas to bring people in on. By regularly updating the skills matrix, you can keep your board aligned with the evolving needs of the organisation. Here is ‘needs matrix’ example from SportNZ.

3. Long-Term Vision: “Where Will We Be in 50 Years?”

While succession planning often focuses on the near to medium term, it’s crucial to consider the long-term legacy of the current leadership. The question, “where will we be in 50 years?” encourages the board to think beyond immediate challenges, nurture potential leaders, anticipate future trend and position the board to respond to long-term challenges and opportunities.

4. Conclusion

Board succession planning is not just about filling seats—it’s about ensuring that the board remains effective, diverse, and forward-thinking. By taking a proactive approach, utilising tools like a skills matrix, and thinking long-term, your board can continue to provide strong governance that drives the organisation’s success for decades to come.

If you would like to listen to a short podcast on this topic, the Institute of Director’s have released an episode featuring a Chartered Fellow of the Institute of Directors here where Steven Moe (the host of the show) talks through governance and board considerations.

If you need assistance in developing a succession plan tailored to your board’s needs or have legal questions regarding governance, contact one of our experts at Parry Field Lawyers.

This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified legal professional. Reproduction is permitted with prior approval and credit to the source.

In the context of contract law, understanding the differences between assignment and novation is important for effectively managing contractual relationships and obligations. They have significant differences in terms of their legal implications and requirements.

Assignment

Assignment involves the transfer of rights from one party (the assignor) to another (the assignee) without altering the underlying contract or requiring the debtor’s consent. Key points include:

Transfer of Rights: Only the benefits or rights under the contract are transferred. The assignor retains their obligations.
Consent: The debtor’s consent is not required for the assignment to be effective. However, the assignee cannot be imposed with obligations without their consent.
Notification: It is generally good practice, although not always legally required, to notify the debtor of the assignment.

For example, if Party B is owed money by Party A, Party A can assign the right to receive payment to Party C without needing Party A’s consent.

Novation

Novation, on the other hand, involves the replacement of an existing contract with a new one, requiring the consent of all parties involved. This creates a completely new contractual relationship and extinguishes the original contract. Key aspects include:

Substitution of Parties: A new contract is formed where a new party (the novatee) replaces one of the original parties (the novator), with the consent of the remaining original party.
Discharge of Obligations: The original contract’s obligations are discharged, and a new set of obligations is created under the new contract.
Consent Requirement: All parties involved must consent to the novation for it to be valid.

For example, if Party A owes Party B $100, and Party B agrees to transfer this obligation to Party C, with Party A’s consent, a new contract is formed where Party A now owes $100 to Party C, and Party B is released from the original obligation.

Legal Distinctions

The main differences between assignment and novation lie in the nature of the transfer and the necessity for consent:

Assignment: Transfers rights only and does not require the debtor’s consent.
Novation: Transfers both rights and obligations, discharging the original contract, and requires the consent of all parties involved.

In summary, assignment allows for flexibility in transferring rights without complicating the original contract, while novation provides a clean slate by forming a new contractual relationship. Each mechanism serves different strategic needs, depending on whether one wishes to transfer benefits alone or completely restructure obligations and parties involved.

We assist a wide range of clients with all aspects of commercial law. Please do get in touch if you would like assistance. Contact Steven Moe at stevenmoe@parryfield.com or Aislinn Molloy at aislinnmolloy@parryfield.com.

Climate-Related Disclosures: How this change will affect governance

In January 2023, the External Reporting Board (XRB) issued a framework of Climate Standards to facilitate the aim for Aotearoa New Zealand to ensure capital is allocated to activities which promote the transition to a low-emissions and climate-resilient future. To foster this objective it produced three climate-related disclosures (NZ CS 1, 2 and 3) for some entities to comply with.

In this article we breakdown the requirements because while currently it applies to the largest companies, it is likely to apply to others in the future as well. This will increasingly impact governance and reporting responsibilities for directors in the future.

NZ CS 1, 2 and 3

The first Climate Standard (NZ CS 1) sets out disclosure requirements for Governance, Strategy, Risk Management and Metrics, and Targets so entities consider how their activities raise climate-related risks and opportunities. It applies to entities that must prepare climate statements, by virtue of the Financial Markets Conduct Act 2013, to comply with the framework.

The second climate-related disclosure standards (NZ CS 2) allows for exemptions from the disclosure requirements to recognise that high-quality disclosures will likely take time to develop. Entities may use adoption provisions 1 to 4 (see exemptions underlined) under the NZ CS 2 during their first reporting period. Entities in their first, second and third reporting period can use adoption provisions 5 to 7 (see exemptions in italic underlined) and provisions 6 and 7 are available to entities who have previously prepared climate statements but not in the immediately preceding reporting period.

Under NZ CS 1 entities are required to disclose the following for each area:

Governance

The governance body responsible for overseeing climate-related risks and opportunities along with a description of their role and the body’s: processes, frequency of being informed, skills and competencies available to give oversight, way of considering risks and opportunities when implementing strategies and how it oversees the achievement of metrics and targets;
The management’s role in assessing and managing climate-related risks and opportunities, including how responsibilities are assigned to management-level positions/committees and when and how they engage with the governance body.

Strategy

The entities’ current climate-related impacts (physical, transition and financial);
The scenario analysis used to identify climate-related risks and opportunities and its business models’ resilience, including how it analysed 1.5 degrees Celsius, 3 degrees Celsius or greater, and a third climate-related scenarios.
The short, medium and long-term climate-related risks and opportunities and its links to strategic and capital plans, and decision-making processes around funding;
Anticipated impacts, including financial impacts, of climate-related risks and opportunities the entity reasonably expects;
Information regarding its current business model, strategy, business plan, internal capital deployment and decision-making to show how it will arrange itself while the global and domestic economy moves toward a low-emissions, climate-resilient future.

Risk-Management

Processes for identifying, assessing and managing climate-related risks and how these are integrated into its overall risk assessment processes by describing: the tools/methods used to identify and assess the scope, size and impact of the risk (and how frequently this is done), the short, medium and long term horizons, how the entity prioritises climate-related-risks in relation to other risks, and whether parts of the value chain are excluded.

Metrics and Targets

Relevant metrics of: gross greenhouse gas emissions (including standards used to measure this, the approach used, the sources of emission factors and global warming potential) and its intensity, transition and physical risks, the amount of assets, business activities, expenditure, financing, investment or remuneration aligned with or used toward climate-related opportunities and risks, and internal emissions prices;
Relevant industry-based metrics of the entities’ industry or business model, as well as other performance indicators, used to measure and manage climate-related risks and opportunities;
The targets used, and their performance, to manage climate-related risks and opportunities including information about timeframes, interim targets, the base year to measure progress from, descriptions of performance, and for each greenhouse gas emissions target: whether they have an absolute or intensity target, how it contributes to global warming to 1.5 degrees Celsius (and its basis for determining this), and the extent the target relies on offsets (and how these are verified);

NZ CS 3 sets out the following principles and general requirements to provide for high-quality climate-related disclosures:

Disclosures must achieve a fair presentation by meeting NZ CS 3 principles;
Disclosures must be relevant (i.e. capable of affecting primary users’ decisions), accurate (free from material error), verifiable (possible to corroborate information), comparable (enables primary users to understand similarities and differences in and among items), consistent (uses the same method from each reporting period), timely (available for primary users to make decisions in time);
The presentation of disclosures must be balanced (free from bias and manipulation), understandable (with clear and concise information), complete (does not leave out details that may result in information being false or misleading), coherent (presentation of disclosures explains context and relationships with other disclosures);
Disclosures may be prepared as a specific document or included within other documents such as annual reports;
When determining its climate-related risks and opportunities an entity is to consider the exposure of its value chain too (the range of activities, resources and relationships of an entity’s business model and external environmental it operates in);
Entities are to prepare climate-related disclosures for the same reporting period as its annual financial statements and use the same presentation currency that is in their financial statements;
Information must be disclosed where it is material (i.e. if leaving it out or obscuring it may reasonably influence primary user decisions);
Comparative information is to be disclosed for each metric for the immediately preceding two reporting periods and their trends, and changes to the methods of disclosure are to be explained to enable consistency;
Entities are to disclose their methods, assumptions and data and estimation uncertainty as well as methods, assumptions and limitations of methods to estimate greenhouse gas emissions;
Entities who comply with the Aotearoa New Zealand Climate Standards are to have a statement of compliance.

Exemptions under NZ CS 2

Entities who are in their first reporting period may adopt provisions 1 to 4 to be exempt from disclosing:

The entities’ current financial impacts of physical and transition climate-related impacts under paragraph 12(b) of NZ CS 1 (see ‘Strategy’ above).
Anticipated financial impacts of climate-related risks and opportunities the entity reasonably expects under paragraph 15(b) of NZ CS 1 (see ‘Strategy’ above).
Information regarding its current business model, strategy, business plan, internal capital deployment under paragraphs 16(b) and 16(c) of NZ CS 1 (see ‘Strategy’ above).
Gross greenhouse gas emissions under paragraph 22(a)(iii) of NZ CS 1 (see ‘Metrics and Targets above).

Entities who are in their first, second or third reporting period may adopt provisions 5 to 7 to be exempt from disclosure of:

Comparative metric information for immediately preceding two reporting periods under paragraph 40 of NZ CS 3, where entities have used adoption provision 4 above they are exempt from greenhouse gas emission metrics in second and third reporting periods (see NZ CS 3 principles above);
Comparative metric information disclosure for the immediately preceding two reporting periods under paragraph 40 of NZ CS 3 for entities in their first reporting period are only required to provide one year comparative information in their second report period (see NZ CS 3 principles above);
Comparative metric trend analysis from previous reporting periods to the current reporting period where entities are in their first and second reporting periods (see NZ CS 3 principles above);

Entities who have previously prepared climate statements but not in the immediately preceding reporting period may use adoption provisions 6 and 7 above too.

If you have any further queries please do not hesitate to contact one of our experts at Parry Field Lawyers- stevenmoe@parryfield.com, yangsu@parryfield.com, sophietremewan@parryfield.com, michaelbelay@parryfield.com or annemariemora@parryfield.com

This article is general in nature and is not a substitute for legal advice. You should talk to a lawyer about your specific situation. Reproduction is permitted with prior approval and credit being given back to the source.

Change is coming – are you ready?

The Corporate Sustainability Due Diligence Directive (CSDDD) is a European Commission directive that represents a significant shift in how companies approach sustainability and ethical practices. It compels companies to integrate rigorous due diligence processes into their corporate frameworks, aiming to hold companies accountable for negative environmental and human rights impacts across their operations, subsidiaries, and value chains.

What are the implications for businesses?

The CSDDD directive mandates compliance across various aspects of a business, including procurement, legal, and contractual processes. It requires a comprehensive approach that helps to ensure that sustainability and ethical practices are integrated into the core operations of the company.

How can businesses prepare?

While most people would agree that considering sustainability and ethical practices are good for the world and good for business, some work will be needed by most businesses. Some of the challenges include:

Data Collection: Obtaining reliable supply chain data is critical yet challenging. Companies need accurate information to identify potential risks and adverse impacts.
Value Chain Compliance: Ensuring compliance across the entire value chain requires extensive coordination and communication. This involves engaging with suppliers, partners, and subsidiaries.
Departmental Fluidity: Effective implementation requires an integrated approach across departments within the organisation, from procurement to legal to strategy.

Getting ready

To prepare for CSDDD, companies should start by mapping their existing due diligence policies.

Map Existing Due Diligence Policies: Conduct a thorough assessment of current policies and procedures related to environmental and human rights impacts. This mapping exercise will help identify areas that need improvement or updating.
Identify Gaps and Determine Readiness: Identifying the potential gaps in compliance frameworks is a crucial step for understanding the level of effort required to meet CSDDD standards.
Plot Out the Supply Chain: Companies need a detailed understanding of their supply chain. This includes identifying all suppliers, partners, and any other entities involved in the value chain. Mapping the supply chain helps pinpoint where potential risks might arise and where to focus due diligence efforts.
Identify Business Partners for Support: Engaging with business partners who can support compliance efforts is essential. This might include consulting firms, legal advisors, and sustainability experts who can provide guidance and assistance.

The implementation timeline

The implementation of CSDDD will be staggered, starting with the largest companies first. This phased approach allows smaller companies more time to adapt to the new requirements, but it underscores the urgency for all businesses to begin preparations immediately.

Enforcement

The enforcement of CSDDD is stringent. Companies that fail to address and prevent adverse impacts face severe penalties, including fines of up to 5% of their net worldwide turnover. Moreover, affected individuals have the right to claim compensation for damages, adding another layer of accountability. This legal framework ensures that the financial consequences of non-compliance are significant, making the cost of inaction potentially higher than the cost of compliance.

The CSDDD does not yet apply in New Zealand, but businesses here would be wise to consider how they might respond when similar requirements do come into force in Aotearoa. We would be pleased to discuss these provisions with interested businesses.

This article is not a substitute to legal advice and if you have any questions please do not hesitate to contact our experts here at Parry Field Lawyers.

We help answer questions all the time. If you would like to discuss further, please contact one of our team on stevenmoe@parryfield.com, sophietremewan@parryfield.com or annemariemora@parryfield.com.

New Zealand welcomes foreign investment as a way to develop the economy and boost the capability of New Zealand companies. However, if the investment involves sensitive New Zealand assets, the Overseas Investment Office (OIO), requires overseas investors to go through a mandatory application process. So, before an overseas investor makes a purchase in New Zealand it is important to be aware of what’s involved in order to stay safe and avoid fines or adverse publicity. Our summary is set out below and we are happy to discuss your situation with you. Also checkout our Doing Business in New Zealand guide.

Who is an overseas person?

An “overseas person” is defined as a someone who is not a New Zealand citizen or a person ordinarily resident in New Zealand, or an entity (partnership, trust, company) incorporated overseas or where an overseas person has more than 25% ownership or control.

Even if the person making the purchase is not an “overseas person” they may be an “associate” of an overseas person, meaning that someone overseas is controlling their actions. The term “control” is given a very wide meaning and can be specific or general, indirect or direct. It recognises that where control exists, the purchaser is really the overseas person, and therefore approval is still needed.

Buying sensitive land

Consent is needed for five hectares or more of non-urban land (this covers most farms), or land which is defined to be sensitive:

foreshore, seabed or one of certain named islands;
greater than 4,000 square metres and contains (or adjoins) a reserve, lake or foreshore;
land of historical or conservation significance.

Farm land is a particularly sensitive potential acquisition. Farm land being sold must first be offered on the open market in New Zealand so that New Zealanders have the chance to buy it before an overseas person. Find out more about how it must be advertised.

Significant Business Assets

Consent is also required if an overseas person plans to:

establish a new business at a cost of more than $100 million;
acquire a business if the value of the business exceeds $100 million; or
acquire 25% or more of a company where the value of the consideration or the assets of the target company and its subsidiaries exceeds $100 million.

These monetary thresholds may be impacted by agreements with other countries. For example, the figure in 2023 is $618 million for Australian non-government investors. For those countries which have signed up to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership the figure will be $200 million.

If one of the above actions is proposed, then an investment proposal application may be needed.

What do investment proposals include?

An overseas person wishing to invest will need to provide comprehensive information about themselves and the proposed investment. To succeed they will need to satisfy both the ‘Investor Test’ and the ‘Benefit to New Zealand Test’.

The Investor Test requires applicants to show they are of good character, that they have business experience, and are financially committed to that investment.
The Benefit to New Zealand Test has 21 criteria. These include the chance to highlight benefits, such as whether the investment will create new jobs, what access the public will have to the land, new technology that may be brought in, and how historic heritage or conservation areas will be protected.

When making its decision on the proposal the OIO will also consider what would happen if the applicant did not make the investment. For example, they will be interested in likelihood of someone else buying the property or business and whether that person would invest (or not invest) further money in it.

It is important to note that if a consent is granted it will typically contain conditions that must be followed and also contain some requirements to report back to the OIO. If a consent is not granted and the investment goes ahead, penalties such as divestment of the acquisition as well as fines and even imprisonment may apply. This article describes what can happen if investors fail to get consent and go ahead anyway.

How long does the process take?

The OIO will provide an estimate of how long it will take to make its decision. It aims to respond within 40 working days for Significant Business Assets applications and within 65 working days for Sensitive Land applications. However, it may take more or less time, depending on the situation and the number of applications it is dealing with.

Approximately 25% of applications are immediately rejected as they lack information or are of poor quality, likely because the applicant did not get advice first. The OIO may also ask for more information from the applicant, which can delay the process.

We recommend seeking expert advice to help ensure the application is as correct as possible to avoid issues arising. We have experience with assisting applicants through this process and would be pleased to assist you.

Be sure to check out our free guides such as ‘Doing Business in New Zealand’ and the ‘Start Ups Legal Toolkit’.

If you have any further queries please do not hesitate to contact one of our experts at Parry Field Lawyers- stevenmoe@parryfield.com, yangsu@parryfield.com, michaelbelay@parryfield.com or annemariemora@parryfield.com