A charitable update to your Dividend Reinvestment Plan

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Under the ASX’s CHESS Replacement due to be introduced next year, all companies with a Dividend Reinvestment Plan (DRP) will need to a review and change their DRP rules.

It’s an ideal opportunity to take a magnifying glass to where the ‘dead money’ - dividends accrued after investors leave a register – is ending up, and to consider redirecting the left-over cash to a charity, ShareGift Australia, a not-for-profit organisation that assists with such transfers, says.

“The recommendation is that companies consider inclusions to the plan rules to enable small amounts that are otherwise inconsequential for the investor and troublesome to the company to be donated to charity, where the collective amounts will be useful,” Group CEO for ShareGift Australia, Good2Give and Workplace Giving Australia, David Mann said.

“This is a win for the business, the investors and the community.”

ShareGift Australia Director, Stephen Dear said all organisations are encouraged to consider this option when reviewing their DRP.

“The planned introduction of specific ASX Settlement Operating Rules for DRP instructions and DRP enquiry processes for CHESS Replacement will require changes to every issuer’s DRP Rules,” Mr Dear said.

“We encourage every issuer to consider an active charitable giving outlet for the cash residuals often left behind when investors leave the register."

To further explain the issue, including an outline of a model clause recommendation, ShareGift has provided the following article:

Creating ESG value while simplifying

The movement to recognise and actively engage in CSR initiatives continues to grow. All responsible organisations are seeking ways that they can connect with their communities through everyday actions. The methods employed are plentiful, and the commitment varied, but the sentiment from the workforce, the investors and the broader stakeholder set is clear in its support.

One method of creating value for the organisation, its shareholders and employees is through the adoption of simple wording in areas such as Dividend Reinvestment Plans (DRPs) which both reduce complexity for all and provide a steady stream of support for chosen charities.

As CHESS Replacement proceeds toward its ultimate go-live date, all issuers will need to invest time and effort to review and amend their DRP rules. DRP rules and the FAQs that accompany them will need to reflect both the additional method available to investors to enrol and retire from a plan and make changes to their participation and make the plan properly align with new ASX Settlement Operating Rules. 

ASX has informed the market that the final version of ASX Settlement Operating Rules for CHESS Replacement is due for release by late June 2022. As part of this review, ShareGift Australia is encouraging all company secretaries, their boards and executives to consider the inclusion of a simple provision to enable small amounts that are otherwise inconsequential for the investor and troublesome to the company, to be donated to charity, where the collective amounts will be of real use.

To facilitate this, ShareGift Australia has developed a model clause, building on the successful implementation of the approach by a number of significant Australian companies. 

Model clause recommendation

While individual companies must ensure the right clauses are used to reflect their needs, the following might be considered as a model from which to work. This is based on the successful use of the charitable approach to DRP residuals by several major ASX listed companies.

  1. Definitions:

“Term:

ShareGift Australia

Meaning:

The Trustee for ShareGift Australia (ABN 27 086 590 485), a not-forprofit organisation (or any successor or similar entity in the event it is not in existence at the relevant time).”

  1. Body of Clause:

“At each record date, if a plan participant has terminated or is deemed to have terminated participation in the Plan, and there is a residual positive balance in the Plan Account applicable to that participant at that date, being an amount that is:

  1. in excess of $[insert amount applicable given company circumstance – most often in the order of $10-20], then the entire balance will be paid to the participant; or
  2. equal to or less than $[same amount as in (i) above], then the entire balance will be donated to ShareGift Australia. [The participant will not be issued with a receipt in relation to that donation.] [remove the text in square brackets if the optional clause below will be included]

    ShareGift Australia will select and arrange for donated funds to be distributed to charitable organisations with deductible gift recipient status.”
  3. Optional Clause [noting that the inclusion of this clause will add to the administration costs and reduce the impact of the gift to the charities]

“Participants who are Australian resident shareholders and deemed to have automatically donated more than $2 to ShareGift Australia under the Plan will receive a tax receipt from [company name] share registry.”

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