The new federal Environmental Enforcement Act received royal assent on June 18, 2009 and will come into effect upon order of the Governor-in-Council. The Act contains surprising new disclosure obligations affecting corporations convicted of offences under specified federal environmental legislation.
The Environmental Enforcement Act (EEA) amends certain enforcement, offence, penalty and sentencing provisions of various federal environmentally-related statutes (Amended Act(s)). (For a complete list of these Amended Acts and for further details of the provisions of the EEA, see the Osler Update of March 27, 2009.) The EEA also adds a new provision to each of the Amended Acts explaining that the fundamental purpose of the sentencing provisions under each Amended Act “is to contribute to respect for the law” enacted “through the imposition of just sanctions that have as their objectives”:
(a) to deter the offender and any other person from committing offences under this Act;
(b) to denounce unlawful conduct that damages or creates a risk of damage to the environment; and
(c) to reinforce the “polluter pays” principle by ensuring that offenders are held responsible and help restore and remediate the environment.
This three-pronged purpose of deterrence, denunciation and restoration/remediation underlies the EEA’s new provisions, which
(i) require shareholder notification of a corporation’s convictions;
(ii) expand the powers of the courts to order the general publication of information relating to any person’s conviction; and
(iii) require the federal government to maintain a public register of corporate offenders.
The Shareholder Notice Provisions Applicable to Corporations
Under the EEA, each Amended Act includes a provision requiring a court, upon convicting a corporation of an offence under the Amended Act, to make an order directing the corporation to notify its shareholders of the facts relating to the commission of the offence for which it was convicted as well as the details of the punishment imposed by the court (the Shareholder Notice Provisions). (For further details of the specific Shareholder Notice Provisions enacted in each Amended Act, see Table 1.)
The court may outline the manner of disclosure as well as the time period within which the disclosure must be made in the order. However, the court has no discretion to not issue such a disclosure order, even in situations where the conviction may be for a trivial offence. Only corporations convicted of an offence under an Amended Act are subject to the Shareholder Notice Provisions. There is no obligation or authority for a court to require that non-corporate organizations – such as trusts, partnerships, joint ventures and other such organizations – notify their owners, beneficiaries or members.
However, no distinctions are made between the types of corporations which may be affected by the Shareholder Notice Provisions. It does not matter if the corporation is a public company or is privately held, or if the shares of the corporation are closely or widely held. Moreover, federal and provincial crown corporations are not exempt from the application of the Shareholder Notice Provisions. (Note that mandatory disclosure to shareholders of privately-held corporations and crown corporations is of dubious value.)
Conviction Publication Orders Applicable to Everyone
The EEA amends each of the Amended Acts to either augment previously existing provisions or add new provisions, in each case permitting a court to direct anyone (not just corporations) convicted of an offence under an Amended Act to publish, in the manner specified by the court, the facts relating to the commission of the offence as well as the details of the punishment imposed. If the offender fails to do so, each Amended Act now allows the Minister of the Environment (Minister) to publish the facts relating to the commission of the offence and the details of the punishment imposed, and to recover the costs of the publication from the person involved. (For further details of the specific publication provisions enacted in each Amended Act, see Table 2)
Previously, only the Antarctic Environmental Protection Act and the Canadian Environmental Protection Act, 1999 contained both a provision permitting the court to direct anyone convicted of an offence to publish the facts relating to the commission of the offence (but not the details of the punishment imposed), and giving the Minister the power to choose to publish those facts if the person did not do so. The other Amended Acts either contained no such powers whatsoever or allowed for a limited court power to order publication of the facts without granting the Minister the power to publish those facts in the person’s place. As such, the EEA reflects the federal government’s effort to make these publication powers consistently applicable to the offences outlined in all of the Amended Acts.
Public Registry of Offenders
Under each of the Amended Acts and to encourage compliance, the Minister is required to create a public registry containing information about all corporate offenders and to maintain the information contained in the registry for a minimum of five years. (For further details of the specific public registry provisions enacted in each Amended Act, see Table 3)
Environmental Disclosure Requirements Under Securities Laws The Shareholder Notice Provisions under the Amended Acts are of dubious value to shareholders of public companies. In Canada, public issuers are already subject to continuous disclosure requirements which address environmental matters. Public issuers, which include not just public corporations but also other entities with publicly-traded securities such as income trusts, real estate investment trusts and limited partnerships, are required to prepare and file an annual information form (AIF) and Management’s Discussion and Analysis (MD&A) containing “material information,” including material information relating to environmental matters. For example, the AIF is required to contain “material information related to the issuer,” including a description of the “financial and operational effects of environmental protection requirements on the capital expenditures, earnings and competitive position of [the] company in the current financial year and the expected effect in future years.” Also, the AIF and MD&A must disclose risks, including “environmental risks.”
The inclusion of environmental matters in these mandatory filings is at the forefront of recent public commentary and consideration. For instance, in February 2008, the Ontario Securities Commission (OSC) issued a staff notice on the result of the staff’s review of environmental disclosure by a sample of 35 public issuers. This review highlighted continuous disclosure obligations relating to environmental matters and expressed the staff’s views on the quality of disclosure provided
Also, in December, 2008, the Canadian Performance Reporting Board of the Canadian Institute of Chartered Accountants issued guidance for climate change disclosure in the MD&A entitled Building a Better MD&A: Climate Change Disclosure. Further, on April 9, 2009, the Ontario Legislature approved a motion directing the OSC to adopt enhanced reporting standards for social and environmental information and to report to the Minister of Finance on its findings and recommendations by January 2, 2010. (For more information about the motion, see 39th Parliament, 1st Session, Private Members Motion No. 81).
Moreover, under Canadian securities laws, a corporation is required to issue a press release and to file a material change report if an event occurs that constitutes a “change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer.” Toronto Stock Exchange listing requirements extend this reporting obligation to any facts which would reasonably be expected to have such an effect.
These securities law disclosure requirements are all qualified by “materiality.” Generally-speaking, information is “material” under securities laws if a reasonable investor’s decision whether or not to buy, sell or hold securities in the issuer would likely be influenced or changed if the information in question were omitted or misstated. As a result, the Shareholder Notice Provisions duplicate securities law disclosure requirements concerning convictions which are material to the corporation. However, the Shareholder Notice Provisions go even further, requiring disclosure by corporations of any and all convictions of offences under the Amended Acts, even if those convictions would not be considered “material” events to that corporation’s shareholders or investors.
A requirement for public corporations to disclose information regarding all convictions, even trivial ones, under the Amended Acts may, in fact, be detrimental if, by obscuring material disclosures with unnecessary disclosures of immaterial information, it results in “information overload.” The Shareholder Notice Provisions, as well as the provisions under the Amended Acts expanding the powers of the court to order the publication of information relating to a conviction, leave it open to the court to delineate the manner of disclosure. How non-material convictions are disclosed will need to be carefully considered. For example, disclosure by press release could inadvertently mislead investors into thinking that a conviction on a trivial matter may be material to the corporation.
Legislative requirements for environmental disclosure are evolving. All levels of government are attuned to such developments because of their respective interests in environmental protection. For instance, section 8 of the newly enacted Toxics Reduction Act (Ontario) requires the owner and operator of a facility to create and make available to the public a summary of their toxic substance reduction plan, either by dissemination through the Internet and/or by other unspecified means in accordance with regulations that have yet to be developed. The summary will be required to include (among other things) a copy of the objectives of the reduction plan and a projection of how effective the reduction plan will be in meeting those objectives. (For more information on the Toxics Reduction Act, see the Osler Update of June 18, 2009.
The drafting of legislative requirements needs to be sensitive to the information needs of the recipients of environmental disclosure. Such legislation should provide for flexibility and the exercise of judgement in meeting those needs. The Shareholder Notice Provisions under the Amended Acts, however, are overinclusive in some respects, underinclusive in others and do not provide flexibility in administration. It remains to be seen whether Canadian governments will take a coordinated response to environmental disclosure requirements or whether too many cooks will end up spoiling the broth.