We are committed to ensuring that our corporate governance framework, policies and practices reflect a high standard of corporate governance and ethical behaviour. For AGL, ethical governance means more than just complying with legislative requirements – it means setting clear principles and values of expected behaviour and holding our people to account. We set clear expectations of our people through our AGL Values and our Code of Conduct.

Corporate governance

The adoption of best practice corporate governance principles is an important element of our sustainability performance.

Our corporate governance arrangements are consistent with the Australian Securities Exchange (ASX) Corporate Governance Council’s ‘Corporate Governance Principles and Recommendations – 3rd Edition’ (ASX Principles) issued in March 2014.

Details of AGL’s corporate governance framework, policies and practices can be found in our 2018 Corporate Governance Statement and on the AGL website. A ‘Corporate Governance Summary’ section has also been included in the 2018 Annual Report .

AGL Board and committees

As at 30 June 2018:

• the AGL Board comprised seven non-executive Directors and one executive Director, our CEO, Andy Vesey, and
• the proportion of female non-executive Directors on the Board was 42.9%. This meets the target set by the Board that, by 2018, at least 30% of non-executive Directors will be female.

The Board has established four standing committees that meet regularly to oversee key areas affecting the business. During FY18, each committee set aside time at one of its meetings to review and discuss its performance over the past 12 months. Each committee was satisfied that it had been effective in performing its responsibilities under its Charter (while also identifying areas for improvement).

Detailed information about the structure, responsibility and experience of the AGL Board and Board committees is included on the AGL website and within the 2018 Annual Report.

Our values

AGL’s values guide how we deliver value for our customers and other stakeholders while protecting the environment in which we live and work. In FY17, we refreshed our values to support the evolution of our business to becoming more future-focused.

Read more about our values in the Workplace culture and talent section.

Code of Conduct

Our values also underpin our Code of Conduct (Code). The Code, which we refreshed in FY18, applies to AGL and its directors, employees and contractors working on behalf of AGL (all of whom are referred to as ‘our people’ in the Code).

The Code sets overarching principles of ethical behaviour under the following commitments:

• We act with honesty.
• We observe the law, our obligations, voluntary commitments and internal standards.
• We value and maintain professionalism in all of our dealings.
• We respect confidentiality.
• We manage conflicts of interest.
• We look after our People.
• We recognise our responsibilities to our stakeholders.
• We uphold our values and behaviours outlined in the Code of Conduct.

Ethics Panel

The Code is administered by the AGL Ethics Panel. The Ethics Panel comprises the General Counsel & Company Secretary, Executive General Manager People and Culture, Head of Group Audit, and an independent person with expertise in managing employee grievances.

The responsibilities of the Ethics Panel include:

• reviewing the effectiveness of the Code and recommending any changes to the Safety, Sustainability and Corporate Responsibility Committee for endorsement and approval by the Board
• putting in place procedures for the effective dissemination of, and compliance with, the Code
• where appropriate, investigating any breaches of the Code, and
• reporting breaches of the Code to the Board (or a Committee of the Board to which that responsibility has been delegated).

The independent Ethics Panel member provides the AGL Ethics Line service, acting as a contact point available for reporting potential breaches of the Code and to investigate matters in an impartial and independent manner. Anonymity is offered in the use of the AGL Ethics Line.

Any breach of the Code is taken seriously, and may result in a range of disciplinary actions, including coaching, warnings, impacts to the payment of performance incentives, through to dismissal.

Induction and training programs

The Code of Conduct is included in the induction pack for all our new starters. We run a structured induction program that requires the completion of eight compulsory compliance training modules. These modules comprise:

• Code of conduct
• Privacy
• Managing risk
• Diversity and inclusion
• Health, safety and environment
• Training on the Competition and Consumer Act 2010
• IT – Focus on phishing, and
• IT – Cybersecurity.

Each compliance module includes a quiz to test understanding, with defined pass mark requirements.

On an annual basis, our people are required to complete mandatory compliance training topics. During FY18, around 92% of all eligible AGL employees completed this training. Our people are also required to make an annual declaration indicating whether or not they have any actual or potential conflicts of interest.

Investigation and resolution of workplace issues

We set clear expectations for our people about the conduct and behaviour that is expected in our workplaces and in relation to how we conduct business. Sometimes these expectations are not met. Employees and leaders are encouraged to speak up about and resolve issues when they occur. The Workplace Resolution Guidelines provide guidance on how best to resolve workplace issues such as bullying, harassment and discrimination.

Our Whistleblower Protection Policy provides avenues for our people to report corrupt, illegal or undesirable conduct (including anonymously, confidentially or to an independent third party through the AGL Ethics Line). We are committed to protecting and respecting the rights of any person who reports wrongdoing in good faith. The Policy includes a reporting and investigation mechanism that is objective, confidential and independent which protects the reporting employee from reprisal or disadvantage.

During FY18, we addressed five issues relating to unacceptable behaviour in the workplace (compared with 12 in FY16). Four of these issues were substantiated following investigation in accordance with AGL's Workplace Issues Resolution Guidelines (FY17: nine⁵). Disciplinary actions taken included written warning, coaching, mediation, one-to-one support, training, and cessation of employment.

Privacy

We are committed to protecting the privacy of our customers, shareholders and other people who we deal with in our business. We are bound by the Australian Privacy Principles (Principles) contained in the Privacy Act 1988 (Privacy Act) which are designed to protect the personal information of individuals that interact with us.

Our obligations and commitments regarding privacy are outlined in the AGL Privacy Policy. Customers and other external stakeholders can raise complaints about any aspect of their dealings with us via the complaints mechanisms listed on our website. Complaints are investigated in accordance with the AGL Dispute Resolution Policy and our Feedback and Complaints Management Framework.

We take active measures to secure the personal information that we manage on behalf of individuals and to protect this information from misuse, interference and loss, as well as unauthorised access, modification and disclosure. Protection of personal data is achieved through continuous improvement of our IT security capability and existing security controls. Visit the Data and IT security section for further discussion information on our approach to IT security.

Bribery and corruption

We do not tolerate any incidence of bribery or corruption committed by people either from within or outside our organisation.

Risk-based anti-bribery and corruption controls are embedded throughout our processes and policies, including within the AGL Code of Conduct and the Fraud and Corruption Risk Control Policy. We also have a comprehensive Anti-Money Laundering / Counter-Terrorism Financing Compliance Program and an Australian Financial Services Licence Compliance Program within our wholesale markets (energy trading) areas. We conduct regular risk assessments to determine the adequacy of the controls that are in place.

During FY18, there were no confirmed instances of corruption in relation to money laundering, counter terrorism financing or material instances of fraud.

Risk and Compliance Management

A strong risk management culture is critical to enabling AGL to achieve its strategic, operational and commercial objectives and can also be a source of competitive advantage.

We are committed to ensuring that risk management practices are embedded into all business processes and operations in order to drive consistent, effective and accountable action, decision making and management practice. One area of focus in FY18 was refining our Business Resilience Principles Framework, to ensure our organisation is able to anticipate, protect, respond, recover and adapt to uncertainty, change and disruption, with limited impact on our business.

We are subject to a wide range of compliance obligations, which comprise compliance requirements (things we must do, e.g. by law) and compliance commitments (things that we choose to do). Our compliance obligations include, but are not limited to:

• laws and regulations
• permits, licenses and other forms of authorisations
• orders, rules and guidance issued by regulatory agencies
• relevant industry codes and compulsory standards
• judgements of courts and administrative tribunals
• our own organisational requirements including policies and procedures, and
• obligations arising under contractual arrangements with third parties.

We are committed to managing compliance risk effectively and efficiently. In our view, this is pivotal to the ongoing and sustainable growth and success of our business.

We have a comprehensive compliance management framework to manage these requirements. Compliance risk management practices are embedded within our broader risk management and governance frameworks, and integrated into our business processes and operations to drive consistent, effective, and accountable decision making.

Information about how we identify, manage and review compliance risk is available in our Compliance Management Policy. This policy is aligned with the principles and requirements of the international standard ISO 19600: 2015 Compliance Management Systems, and outlines our expectations for a compliance culture. Accordingly, the policy applies to both legislative requirements and voluntary commitments (such as compliance with our policies and procedures).

We conduct internal reporting, investigation and remediation of compliance-related complaints, breaches, and incidents through established breach reporting and complaints handling processes. This is in addition to mandatory regulatory reporting regimes that we are subject to in various jurisdictions, which require companies to report various categories of non-compliance to relevant regulators.

Our compliance program monitors activities in relation to material compliance obligations; this includes the effectiveness of compliance plans. Compliance reports are provided to the Audit and Risk Management Committee approximately every two months, which provide an overview of activity, issues and breaches in relation to 17 compliance programs.

FY18 performance

During the financial year ended 30 June 2018, there were four non-compliances that became the subject of environmental and planning regulatory action under relevant legislation. In particular, there were three non-compliances that resulted in penalty infringement notices being issued and one non-compliance that resulted in an official caution being received.

The three non-compliances that resulted in a penalty infringement notice being issued were as follows:

• On 14 May 2018 a penalty infringement notice was issued to AGL Macquarie Pty Limited for an alleged failure to comply with a condition of its environmental protection licence (EPL 2122). This notice was issued in relation to an event that occurred on the 1 March 2018 where ash slurry overflowed from an ash pit into an area of sensitive vegetation. This notice included a $15,000 fine.
• On 4 May 2018 two penalty infringement notices were issued to AGL Upstream Investments Pty Limited for alleged breaches of a condition of petroleum title. The notice was based on an alleged failure to run cement bond logs on wells EM02 and EM04, respectively. Each notice included a $5,000 fine. On 15 June 2018 AGL requested a review of these notices, and specifically requested that they be withdrawn on the basis that they had been invalidly issued. At the date of this report, AGL was waiting to hear the outcome of the review.

In addition, on 21 February 2018 an official caution was issued to AGL Macquarie Pty Limited for an alleged failure to comply with a condition of its of environmental protection licence (EPL 2122). This notice was issued in relation to a dust event from the Liddell Ash Dam that occurred on the 20 December 2017 during hot dry and windy conditions.

During FY18, no issues occurred during FY18 that led to adverse court findings.

Environmental incidents

During FY18 we notified the relevant environmental authority of 14 environmental incidents, in accordance with mandatory notification provisions under legislation and/or environmental licences. Of these, nine incidents were assessed to have a severity of ‘High’ or above under our Risk Management and Assessment Framework, and five incidents had a severity of ‘Moderate’ or ‘Low’.

Of the incidents rated as high or above, two related to dust complaints received from residents in the vicinity of the Loy Yang Mine; four related to uncontrolled discharges to water from AGL Macquarie; one related to fugitive dust emissions from the Liddell Power Station ash dam; one related to an uncontrolled release of gas at Wallumbilla gas plant; and one related to an exceedance of permitted limits of E.coli at Bogong Village.

In the interests of transparency and operating to best-practice reporting standards, during FY18 we also voluntarily notified the relevant environmental authority of an additional seven environmental incidents. Of those voluntarily reported incidents, two related to exceedances of a pH licence limit; two related to dust emissions; one related to an uncontrolled discharge to water; one related to an exceedance of flow from a hydroelectric station; and one related to an administrative non-compliance.

The incidents were investigated, and corrective actions and process improvements implemented to prevent recurrence.

Also, as previously reported, in June 2017 the NSW Environment Protection Authority (EPA) commenced proceedings against AGL Upstream Investments Pty Limited, alleging that AGL had contravened a condition of its environment protection licence (EPL 12003). The alleged offence relates to a flood event that occurred in early June 2016 and impacted the Camden Gas Project, resulting in the loss of a small amount of produced water into the flood waters. There is no allegation that environmental harm occurred.

On 13 November 2017 AGL filed a notice of motion regarding matters in dispute relating to the charge. AGL’s notice of motion was dismissed by the Land and Environment Court on 16 March 2018. An appeal against the Land and Environment Court’s decision on the Notice of Motion was filed with the NSW Court of Criminal Appeal CCA on 29 March 2018. As at the date of this Report the appeal is ongoing.

Inquiries

• ACCC Electricity Inquiry: On 27 March 2017, the Federal Treasurer directed the Australian Competition and Consumer Commission (ACCC) to hold an Inquiry into the supply of retail electricity and the competitiveness of retail electricity prices. The review looked at the reasons behind energy price changes with the aim of restoring electricity affordability and Australia’s competitive advantage. AGL made several submissions to the inquiry and provided significant amounts of documents and information to the ACCC. The ACCC released a preliminary report on the 16 October 2017, and the final report on 11 July 2018 with 56 recommendations that the ACCC believes will boost competition, lower costs, and deliver better outcomes for consumers. We support the ACCC’s view that the industry must focus on addressing issues of affordability, particularly for vulnerable customers, and we agree that more needs to be done to increase transparency and comparability. AGL believes that investment in more generation supply is the key to driving down prices for customers.
• ACCC Gas Inquiry: On 19 April 2017 the Australian Government directed the ACCC to conduct a wide-ranging inquiry into the supply of and demand for wholesale gas in Australia, as well as to publish regular information on the supply and pricing of gas for the next three years. AGL is providing information as requested.

Safety issues

AGL Macquarie was charged by SafeWork NSW with contravening section 19 of the NSW Work Health and Safety Act 2011. The prosecution arose from an incident in which two AGL employees suffered burns due to an arc flash that occurred during maintenance work on a transformer at the Liddell Power Station in November 2015. An enforceable undertaking proposed by AGL was accepted by the Executive Director of Safework NSW on 16 April 2018. As a result, the proceedings were withdrawn with no orders as to costs.

Related information

• AGL Code of Conduct
• AGL Dispute Resolution Policy
• AGL Risk Management Policy