On October 27, 2010, the Canadian Securities Administrators (CSA) published CSA Staff Notice 51-333, Environmental Reporting Guidance (the Notice) to assist reporting issuers in meeting their existing continuous disclosure requirements under securities laws with respect to environmental matters.
The Notice is the product of recent consultations by the Ontario Securities Commission's Environmental Advisory Reporting Committee, among others. The Notice is also one of the first in Canada to illustrate guidance with examples of entity-specific disclosure based on assumed facts. These examples are not intended to set a floor or ceiling for an issuer's disclosure or to become boilerplate language, which the Notice generally discourages. Although some examples relate to climate change disclosure, the Notice is not restricted to climate change matters, but rather builds on recent efforts to address environmental disclosure generally.
In particular, the Notice provides guidance in the following areas:
Materiality. The Notice recognizes that some issuers have found materiality a difficult standard to apply in the environmental context, and so offers some guiding principles, including that the materiality assessment is not a bright-line test, but rather a dynamic process that should consider contextual and timing factors.1 Notably, the Notice indicates that, as with other types of disclosure, materiality in cases of a known environmental trend, demand, commitment, event or uncertainty turns on an analysis of (i) the probability that the trend, demand, commitment or uncertainty will occur and (ii) the anticipated magnitude of its effect.2
Environmental risks and related matters. The Notice highlights the continuous disclosure of five types of environmental matters under National Instrument 51-102, Continuous Disclosure Obligations: environmental risks; environmental trends and uncertainties; environmental liabilities; asset retirement obligations (AROs); and the financial and operational effects of environmental protection requirements. In addition, in discussing certain material environmental matters, such as AROs or the effects of certain environmental protection requirements, the Notice recommends that issuers include a quantification of the costs associated with these matters, if this information is reasonably available and would provide material information to investors.
Environmental risk oversight and management. The Notice discusses the disclosure of environmental policies implemented by the issuer, and board governance practices to provide insight into an issuer's oversight and management of environmental risks. According to the Notice, a reporting issuer should disclose, among other things, the board of directors' responsibility for oversight and management of environmental risks, if applicable, and any board and management-level committee that is responsible for oversight and management of environmental risks.
The impact of International Financial Reporting Standards. As of the financial year beginning on or after January 1, 2011, reporting issuers, among others, will be required to use IFRS, rather than existing Canadian GAAP. The Notice points out that under IFRS issuers may be required to accrue more environmental liabilities, at higher amounts, and provide more disclosure about these liabilities.
Forward-looking information requirements relating to environmental goals and targets. The Notice reminds issuers that goals and targets, if material, may be considered forward-looking information within the meaning of NI 51-102, and would be subject to the applicable disclosure obligations.
Governance structures for ensuring compliance with CD requirements. Finally, the Notice makes certain recommendations regarding the governance structures to ensure that an issuer's environmental disclosure in continuous disclosure documents undergoes the appropriate oversight by the audit committee and the board of directors, and to facilitate certification by the CEO and CFO under National Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings.
1 The CSA derived these principles in part from National Policy 51-201, Disclosure Standards, from the decisions of Canadian securities authorities and from a review of discussions of materiality in the environmental context, such as certain Canadian Institute of Chartered Accountants' guidance on climate change disclosure and the recent U.S. Securities and Exchange Commission's guidance on disclosure related to climate change. Note that although the Notice draws on some U.S. sources for guidance, the primary sources of guidance are Canadian and the approach to materiality remains particular to Canadian securities regulation.
2 This guiding principle is based in part upon the OSC's decision in Re YBM Magnex International Inc.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.