On December 18, 2009, the Ontario Securities Commission (“OSC”) issued OSC Notice 51-717 Corporate Governance and Environmental Disclosure (the “Notice”). The stated purpose of the Notice is to communicate the OSC’s plans respecting the disclosure of corporate governance and environmental matters by reporting issuers.
This summary focuses on the planned disclosure about environmental matters.
The OSC intends to issue a staff notice providing guidance on compliance with existing environmental disclosure requirements under National Instrument 51-102 Continuous Disclosure Obligations. The staff notice will be published by December 2010 (“2010 Notice”), after a period of consultation, and will provide guidance to reporting issuers preparing annual continuous disclosure filings for 2010. The OSC commenced this initiative in response to a resolution of the Ontario Legislature in 2009 directing the OSC to undertake a broad consultation to establish best practice corporate social responsibility and environmental, social and governance reporting standards.
The OSC initiative will build on existing OSC Staff Notice 51-716 Environmental Reporting (51-716) published in February of 2008 after completing a targeted review of 35 Canadian public issuers. A staff spokesperson for the OSC stated that the 2010 Notice will not include a targeted review like 51-617 but rather, will provide public issuers with further guidance to comply with existing requirements. Potential area of environment-related continuous disclosure requirements highlighted in 51-617 were:
- Form 51-102F1 (MD&A)
- Environmental liabilities that involve critical accounting estimates;
- Material asset retirement obligations.
- Form 51-102F2 (AIF)
- Financial and operational effects of environmental protection requirements;
- Environmental policies implemented by an issuer that are fundamental to its operations;
- Risk factors relating to the issuer including environmental risks.
The OSC commented that environment-related disclosure in the MD&A and AIF of targeted issuers in most cases required better quantification or more substantive qualitative description (avoiding boilerplate).
Similar guidance is being published in the United States by the Securities Exchange Commission (SEC); albeit with a focus on climate change disclosure. This agency has recently been examining the climate change disclosure obligations of public companies at the behest of advocates of increased climate risk disclosure (mostly large institutional investors). Like Canadian securities laws, SEC regulations require material disclosures by public companies for the benefit of investors. Like the Canadian Securities Administrators, the SEC provides guidance on how to interpret the disclosure rules. The SEC issued a press release on January 27, 2010 announcing the release of interpretative guidance respecting certain existing disclosure rules that may require a company to disclose the impacts that business or legal developments related to climate change may have on its business. The press release highlighted the following areas related to climate change that may trigger the disclosure requirements:
- Impact of legislation and regulation (including pending legislation and regulation);
- Impact of international accords and treaties related to climate change;
- Indirect consequences of regulation or business trends;
- Physical impacts of climate change on business and operations.
The OSC has not indicated whether the 2010 Notice will specifically focus on climate change guidance as part of the overall environmental guidance. However, there are a number of reasons the 2010 notice is likely to include climate change disclosure guidance:
- SEC rules and guidance are often a signal to the CSA to re-examine its own policies and rules in a related area;
- The Canadian federal government is following the US lead in climate change policy and legislation;
- Ontario is part of the Western Climate Initiative created to evaluate and implement a cooperative regional market-based cap-and-trade system to commence in 2012;
- The Ontario government introduced Bill 185 on May 27, 2009 enabling the passage of regulations to establish and regulate a GHG cap-and-trade program;
- Public issuers are already disclosing climate change related impacts on their businesses and operations pursuant to mandatory requirements or voluntarily. Disclosure in the AIF and MD&A can be the subject of a continuous disclosure review by securities regulators.
The OSC has invited securities regulators and staff in other CSA jurisdictions to participate. With the backdrop of the national securities regulator initiative and current provincial constitutional references, it will be interesting to see who, if any, may join the OSC in preparing this guidance. If the 2010 Notice is issued by the OSC only, it will exert considerable influence since the guidance applies to public issuers who are reporting issuers in Ontario irrespective of the location of their head office.