Canadian investors push for stronger DE&I disclosure rules

NBIM, CPP argue for more limited requirements on grounds of flexibility and comparability in consultation response.

Canadian investors have come out in support of stronger DE&I disclosure rules proposed by the Canadian Securities Administrators (CSA) in response to a consultation which ended on 29 September.

The consultation on proposed amendments to the corporate governance disclosure requirements and policy relating to the director nomination process, board renewal and diversity was launched in April to prompt “meaningful disclosure” from issuers, according to the CSA.

The Canadian regulator extended the comment period deadline from July to September after receiving stakeholder feedback that it would be beneficial to have additional time to review the proposals.

The regulator suggested two distinct approaches. The first, Form A, would see issuers disclose how they tackle diversity with respect to the board and executive officers, but would not mandate disclosure of any specific groups other than women.

The CSA said this method would provide flexibility with regards to how diversity is addressed by issuers.

The second approach (Form B) would require mandatory reporting on the representation of five designated groups including women, Indigenous peoples, people from an ethnic minority background, disabled people and LGBTQ+ people, on boards and in executive officer positions. Both approaches would operate on a “comply or explain” basis.

Supporters of Form B included sovereign wealth fund Alberta Investment Management Corporation and pension funds Caisse de dépôt et placement du Québec, OMERS, Ontario Teachers’ Pension Plan and the University Pension Plan, as well as asset manager British Columbia Investment Management Corporation.

The International Corporate Governance Network (ICGN) and the Shareholder Association for Research and Education (SHARE) were also supportive of the more comprehensive disclosure in their responses.

AIMco said Form B “better aligns with investors’ needs for clear, comprehensive, standardised and comparable information” on the representation of women, as well as historically underrepresented groups on boards and in executive positions.

This was echoed by CDPQ, BCI, OMERS, OTPP, UPP, ICGN and SHARE. All said Form B would provide standardised and comparable disclosures, whereas Form A would leave too much discretion to issuers not to disclose any diversity information beyond gender.

They added that the groups in Form B are an appropriate reflection of Canadian society and in line with the designated groups identified under the Canadian Business Corporations Act with the exception of LGBTQ+, which would be a new reporting requirement.

AIMco said that, while Form A might be considered “more flexible and less prescriptive”, the designated groups in Form B “allow for diversity considerations to evolve over time”.

CDPQ noted that the flexibility offered in the first option could “limit, or even eliminate, the possibility for investors to analyse, consolidate and compare the data disclosed”.

Less stringent disclosure

By contrast, asset manager CPP Investments and Norway’s trillion-dollar sovereign wealth fund Norges Bank Investment Management favoured the less stringent disclosure requirements proposed in Form A.

CPP Investments argued for it on the grounds that its flexibility was consistent with the International Sustainability Standards Board’s disclosures, establishing a baseline “but leaving the materiality determination” open to the issuer’s assessment.

It added that the scope of Canadian diversity is “not fully captured” in the proposed list of designated groups in Form B and could result in data being collected and publicly disclosed which is “not widely or meaningfully” used by investors.

NBIM acknowledged the benefits of Form B for better comparability across companies, but said Form A “allows preparers flexibility in determining and disclosing their approach to diversity”. It added that the designated groups in Form B could potentially “not be comparable with board diversity disclosures in other markets”.

The Norwegian fund said it had encouraged the ISSB to include DE&I in future projects, and has suggested that the CSA engage with the standard setter to ensure that any Canadian-specific disclosure are compatible with any potential future standard.

Royal Bank of Canada also told Responsible Investor that it had “concerns” about the categories in Form B and believed further work was needed “to ensure they are appropriate” disclosure requirements.

The CSA’s comment period has ended just as the UK’s Financial Conduct Authority has launched its own consultation on more comprehensive DE&I disclosures beyond gender and ethnicity.