Canada: Environment @ Gowlings: January 7, 2011 - Part 2

Last Updated: January 10 2011
This article is part of a series: Click Environment @ Gowlings: January 7, 2011 - Part 1 for the previous article.

Edited by Harry Dahme


Analysis of CSA Staff Notice 51-333 Environmental Reporting Guidance
By Patricia Leeson

In the coming proxy season, public issuers and their counsel will be scrutinizing the recent publication by the Canadian Securities Administrators (CSA) of CSA Staff Notice 51-333 Environmental Reporting Guidance (CSA Notice).  Although the CSA Notice does not (and cannot) create new laws, it does breathe life into the existing continuous disclosure obligations of public issuers for environmental matters in their public filings.

Securities regulators state that the environmental reporting guidance responds to developments in the marketplace that recognize the effect of environmental matters on public issuers' performance and operations, changing environmental regimes domestically and internationally, and increased investor interest in environmental reporting.

The CSA Notice is a sequel to the Ontario Securities Commission (OSC) Staff Notice 51-716 Environmental Reporting (OSC Notice) published in February of 2008 after the OSC completed a targeted review of 35 Canadian public issuers.  In December 2009, the OSC signaled 1 it intended to issue a further staff notice providing guidance on compliance with existing environmental disclosure requirements under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) by December 2010, in time for reporting issuers preparing annual continuous disclosure filings for 2010.2  The guidance is largely applicable to TSX-listed issuers.

The CSA Notice expands earlier guidance for environmental disclosure under NI 51-102 and also provides integrated guidance for relevant disclosure requirements and governance matters under National Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101) and National Instrument 52-110 Audit Committees (NI 52-110).

It is significant that the CSA Notice has the support of securities regulators from other jurisdictions besides Ontario, notably Alberta, British Columbia, Manitoba, Quebec and New Brunswick.  Consequently, the environmental guidance will apply to public issuers in all of these jurisdictions and is no longer confined to public issuers who distribute securities in Ontario.

Enhancements to OSC Notice

The format of the CSA Notice is a vast improvement over its predecessor as the expanded guidance groups the environmental disclosure requirements under NI 51-102 into five key requirements supported by examples as well as samples of disclosure in an attached Appendix.  The continuous disclosure requirements most likely applicable to environmental matters are found in the form requirements for management discussion and analysis (MD&A) attached to the financial statements and the annual information form (AIF). The CSA reinforces that only material environmental information is required to be disclosed.3

  • Environmental risks – Public issuers that are required to file an AIF, are required to disclose risks relating to their business and operations.4 Environmental risks that may impact a public issuer's business and operations can be grouped into (i) litigation risk; (ii) physical risk; (iii) regulatory risk; (iv) reputational risk; and (iv) business model risk.  The CSA Notice sets out a table identifying each of these risks with relevant questions for an issuer to help direct a considered response for each environmental risk.
  • Trends and uncertainties – Public issuers must provide a narrative explanation (MD&A) along with the financial statements for the period covered that includes the issuer's financial condition and future prospects.5  The CSA Notice advises that public issuers should examine trends and uncertainties respecting environmental matters that may affect the issuer's future performance.  The guidance includes a table of questions related to an issuer's revenues and expenses that may be impacted by environmental matters.
  • Environmental Liabilities – Environmental liabilities can include actual or potential legal obligations to make future expenditures due to current or potential adverse effects on the environment.  The CSA Notices provides that environmental liabilities involving critical accounting estimates require specific analysis that should be quantified if possible.6 The CSA is of the view that asset retirement obligations (discussed below) are, in most cases critical accounting estimates to be included in the MD&A.7
  • Asset Retirement Obligations (ARO) – An ARO is a requirement to perform certain procedures in relation to assets that are sold, abandoned, recycled or disposed of.  For example, AROs for a mine could include costs relating to the reclamation of tailings ponds and ongoing monitoring of groundwater and surface water quality. The CSA Notice states that public issuers should provide supplemental disclosure in their MD&A about AROs and provide a description of the asset to be reclaimed, restored, abandoned or disposed of.  AROs that are long term obligations should be included in a table that sets out summary contractual obligations.8
  • Environmental Protections Requirements – The AIF requires public issuers to disclose the financial and operational effects of environmental protection requirements on the issuer's capital expenditures, earnings and competitive position in current and future financial years.9 Guidance suggests that costs associated with these requirements should be quantified if possible (i.e. pollution abatement equipment).

New Guidance


The CSA Notice sets out expectations for directors and officers of public issuers for management and oversight of environmental risks that attach to their legal disclosure obligations.  The financial statements, MD&A and the AIF are the continuous disclosure documents that will contain material disclosure related to environmental matters. The board must approve annual financial statements and MD&A.  The board or, by delegation, the audit committee must approve interim financial statements and MD&A and the audit committee must review these documents before public disclosure. The chief executive officer and chief financial officer must certify that the issuer's financial statements, and financial information included in the MD&A and AIF, fairly present the issuer's financial conditions, results of operations and cash flow.  Boards, audit committees, other standing committees and certifying officers will need to be cognizant of the materiality of information on environmental matters contained in these documents.

The AIF10 requires a description of an issuer's environmental policies that are fundamental to its operation and how they have been implemented.  The CSA Notice recommends that issuers explain the purpose of their policies, the environmental risks the policies are meant to address and how the policies are being monitored and updated.  This may well involve a discussion of the role of the board in reviewing the approval, implementation and amendment of environmental policies as well as any delegation of responsibility for oversight. 

Boards that adopt a written mandate are responsible for adopting a strategic plan and identifying the principal risks (including environmental risks) of the issuer's business.   Any written mandate and all standing committees and their function must be disclosed in the issuer's AIF or in the management information circular.11If the audit committee's responsibility for risk management includes environmental risk management this must be disclosed in the text of the audit committee's charter in the AIF.

Effect of IFRS 

Since the publication of the OSC Notice, reporting issuers are now subject to the changeover to new standards for the preparation and reporting of financial information.  Starting with financial years commencing on January 1, 2011, reporting issuers will be required to use International Financial Reporting Standards (IFRS) rather than Canadian GAAP.  Regulators anticipate that, under IFRS, issuers may be required to accrue environmental liabilities at higher amounts and provide more note disclosure of provisions and contingent liabilities related to environmental matters in their financial statements.

Forward-Looking Information

The CSA Notice includes new commentary respecting forward-looking information (FLI)12 and future-oriented financial information (FOFI) or financial outlooks as these requirements apply to continuous disclosure documents, voluntary reports and websites. Regulators warn issuers that disclosure of environmental goals or targets, such as greenhouse gas reduction targets, could qualify as FLI or FOFI and therefore must comply with NI 51-102.   This is of concern to public issuers that use voluntary reporting and websites for the disclosure of environmental matters. The guidance asks public issuers to take note of their voluntary disclosure of environmental matters to ensure consistency with its continuous disclosure documents, to ensure material environmental disclosure in voluntary disclosure is also included in continuous disclosure filings and that any FLI complies with NI 51-102.

Climate Change Disclosure

Curiously absent from the CSA Notice is the discussion of any dedicated climate change disclosure guidance.  In early 2010 the Securities Exchange Commission (SEC) released interpretative guidance respecting existing disclosure rules that may require a company to disclose the impacts that business or legal developments related to climate change would have on its business.  The CSA has not followed in lock-step with the SEC.   However, the Appendix to the CSA Notice does provide some specific disclosure examples under "regulatory risk" for an issuer subject to greenhouse gas emission regulation.   The example contemplates quantification of future compliance cost and estimates of carbon prices.

Future of Environmental Disclosure under Securities Legislation

The CSA Notice provides extensive guidance for substantive continuous disclosure requirements relating to environmental matters and for governance structures around environmental disclosure.  Current mandated securities disclosure includes MD&A for financial statements and CD&A (compensation discussion and analysis) for executive compensation disclosure.  It may be that the CSA Notice is the first tangible step to a future mandatory environmental discussion and analysis (ED&A) as part of a public issuer's continuous disclosure filings.


1. OSC Notice 51-717 Corporate Governance and Environmental Disclosure published on December 18, 2009.

2. 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.

3. Information is "Material" if a reasonable investor's decision whether or note to buy, sell or hold securities in a company is likely to be influenced or changed if the information in question was omitted or misstated.

4. See Item 5.2 of Form 51-102F2 Annual Information Form.

5. See Part 1 and Item 1.4(g) of Form 51-102F1 Management Discussion and Analysis (Form 51-102F1).

6. A "critical accounting estimate" requires an issuer to make assumptions about matters that are highly uncertain a the time the estimate is made and different estimates could have been used in the current period or changes in the accounting estimate are reasonably likely to occur from period to period that would have a material impact on the issuer's financial condition or financial performance.

7. See Item 1.12 Form of 51-102F1.

8. See Item 1.6 of Form 51-102F1.

9. See Item 5.1(1) (k) of Form 51-102F2

10. See Item 5.1(4) of Form 51-102F2.

11. See Item 2 and 8 of Form 58–101F1.

12. Forward-looking information is defined in securities legislation to include disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. Future oriented financial information and financial outlooks presented as a forecast or a projection is also subject to disclosure requirements.   See Part 4A and 4B of NI 51-102.

Whats Happening

Gowlings–Environmental Law for Business, is an annual full day seminar hosted by Gowlings' Environmental Law National Practice Group in Toronto. Speakers include industry experts and members of Environmental Law National Practice Group.  Each year, the seminar examines changes and new developments in environmental law. For 2011, the seminar is scheduled for April 21. If there are specific topics which you would like to see addressed please e-mail Harry Dahme at 

Paul Granda of our Montreal office will be co-chairing the 2011 edition of the Environmental Law Forum organized by Cambridge International Forums, Inc. that will be held January 19-21, 2011. The Forum will be attended by senior Canadian environmental law practitioners who will be discussing the top environmental subjects of the day. David Estrin and Harry Dahme will also be attending.

Paul Granda has also been invited by the Law Faculty of Université de Montréal to speak on February 1, 2011 during its Environment Week. Paul will be speaking on the topic of the protection and development of water as a resource under environmental laws in Québec.

Ian Richler authored a chapter called "The Continuing Uncertainty over the Applicability of Provincial Environmental Law to Nuclear Facilities" in the recently published book, Key Developments in Environmental Law (Stanley Berger, ed., Canada Law Book, 2010).

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.

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This article is part of a series: Click Environment @ Gowlings: January 7, 2011 - Part 1 for the previous article.
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