The Ontario Securities Commission (the OSC) recently concluded a consultation on best practice corporate social responsibility and environmental, social and governance reporting standards. Following consultations with investors, analysts and other stakeholders, including the Prospectors and Developers Association of Canada and the Canadian Institute of Chartered Accountants, in December 2009 the OSC Corporate Sustainability Reporting Initiative – Report to the Ministry of Finance (the CSRI Report) was released.

While the CSRI Report concludes that environmental reporting obligations in Canada are broadly in line with international best practices, actual public company disclosure in response is inconsistent and often boilerplate. The OSC reported that, while the majority of stakeholders consulted indicated they would like to see the OSC assume a greater role in advancing and promoting corporate governance and environmental disclosure, most felt this could best be achieved through providing more guidance to issuers and conducting more continuous disclosure reviews, rather than by expanding existing disclosure requirements.

A second report to the Minister of Finance, expected to be issued some time in 2010, on corporate social performance reporting is likely to recommend that enhanced disclosure of corporate social performance information be encouraged by the Ministry and the OSC, consistent with the OSC’s approach to environmental disclosure. Corporate social performance information is expected to address matters such as employment and labour relations, human rights practices, health and safety, consumer relations, and aboriginal and community relations of a public company.

With the intent of encouraging “greater transparency for investors and the Canadian marketplace regarding (i) the nature and adequacy of issuers’ corporate governance practices and (ii) the nature and extent of environmental risks and other environmental matters affecting issuers”, the CSRI Report recommended that:

  • the OSC should conduct a follow-up compliance review of corporate governance disclosure to build on the results of the Canadian Securities Administrators 2007 compliance review outlined in CSA Staff Notice 58-303 - it is proposed that the review be completed by the end of 2010  
  • OSC staff should continue to act as instructors with TSX staff at educational workshops on corporate governance disclosure offered by the TSX to provide issuers and their advisors with an overview of the corporate governance disclosure requirements and practical guidance on how to apply them.  
  • the OSC issue a notice providing guidance on compliance with existing environmental disclosure requirements to build on the guidance set out in OSC Staff Notice 51-716 Environmental Reporting and respond to the evolving nature of environmental matters – expected to be published by the fall of 2010  
  • OSC staff should hold training sessions regarding disclosure of environmental matters in order to identify areas of concern and provide guidance on the types of comments that may be raised during continuous disclosure reviews.

The OSC’s plans regarding the foregoing recommendations and proposed compliance reviews are set out Staff Notice 51-717 - Corporate Governance and Environmental Disclosure.

As indicated, the OSC does not propose to impose new disclosure requirements on issuers. Existing securities law requirements mandating the disclosure of material information by public companies continue to be the basis for the required disclosure of material environmental and corporate governance matters. The OSC cautions, however, that issuers not fully complying with existing disclosure requirements may face greater compliance costs than in the past as they work towards improving their environmental and corporate governance disclosure.

The likely outcome of these sustainability reporting initiatives in Ontario will be an increased emphasis on compliance within existing requirements. Public companies should expect an ongoing process of engagement with issuers, investors and other stakeholders to define the scope of materiality as it relates to environmental and governance matters. There may also be increased efforts to standardize environmental and governance indicators and reporting standards. Public companies will, moreover, be increasingly encouraged to identify social and environmental issues and areas of social impact that are most likely to be material and relevant to their investors.