Canadian regulators expect improved environmental disclosure from the country’s reporting issuers and have released a guidance document towards meeting that goal. “Issuers are increasingly recognizing the current and potential effects on their performance and operations, both positive and negative, that are associated with environmental matters,” states the document, which was released by the Canadian Securities Administrators, the umbrella group for Canada’s provincial securities regulators, late last month.
“A number of investors are increasingly interested in how environmental matters affect issuers and have been requesting information about these matters from issuers through a number of avenues, such as shareholder resolutions and the issuance of surveys.” And that where’s the disconnect lies, the CSA document suggests. During the OSC’s 2009 corporate review, concerns were expressed about the adequacy of disclosure about environmental matters. For example, material information is found in voluntary reports and not in securities regulatory filings; and the information provided is not necessarily complete, reliable or comparable among issuers. “Boilerplate disclosure does not provide meaningful information to investors,” theCSA document warns. “The information is not integrated into financial reporting.” It’s not as if those guidelines don’t already exist: there are five key disclosure requirements in the CSA’s documents that relate to environmental matters. The documents list the numerous risks an issuer faces when it does not include robust environmental reporting, such as litigation, physical risks (including health and safety), regulatory risks, and reputational risks. “How an issuer addresses environmental matters can have a positive or negative impact on core intangible assets such as brand value and consumer confidence.” And that last point could be the key, particularly in the wake of the disastrous Gulf oil spill. Eugene Ellmen, executive director of the Social Investment Organization, concedes that that the CSA is only issuing guidelines, which won’t actually change reporting obligations. “However, as a guidance document, I expect that this will receive a lot of attention. Corporate counsel and CFOs place a lot of weight on guidance from securities commissions, so we believe this will create new expectations on companies on environmental reporting issues. This is especially true because companies are paying so much attention on environmental issues in the wake of the BP oil disaster.
While it’s not mandatory that companies follow the recommendations, the guidance includes practical, easily implementable suggestions that we believe will establish a new paradigm for corporate reporting on environmental issues.” Ellmen points out one particular example of an issue he thinks will be important: asset retirement obligations (AROs). “The guidance is quite clear that where AROs are material to an issuer, then information on the costs of retiring the asset should be disclosed by the issuer if they are easily available.” This is expected to increase the amount of information on the costs of remediating the oil sands sites in Alberta, for example.“Another example is on climate change. If companies have expectations for the price of carbon in the future, it is recommended that they make reasonable disclosures on this, and discuss the impacts of various price scenarios on their future operations. We believe that this will create higher expectations for environmental disclosure by Canadian companies, and help to establish a new paradigm for environmental reporting globally.”
Doug Watt is an Ottawa-based writer and editor and co-founder of SRI Monitor, a blog on socially responsible investing.