Disclosures by publicly traded issuers concerning
environmental matters present unique challenges. These
challenges arise because although an increasing amount of
attention is focused on environmental matters generally,
environmental issues are by their nature especially difficult
to quantify. Notwithstanding the difficulties inherent in
environmental disclosures, the Ontario Securities Commission
(OSC) has issued clear notice that "boilerplate
disclosure" on environmental-related matters, in annual
information forms (AIF) and in quarterly and annual management
discussion and analysis (MD&A) of financial results, is not
acceptable. Given the potential for liability associated with
misrepresentations, environmental disclosures are clearly a
matter warranting increased attention.
In the OSC's Staff Notice on Environmental
Disclosure (the Notice), OSC staff advised that it had
conducted a review of 35 reporting issuers, examining
disclosure about the following five matters, in each case
finding that the disclosures being provided were generally
Financial Liabilities Related to the Environment
The Notice highlights that securities law requirements
stipulate that where disclosure of environmental liabilities
involves an accounting estimate (for example, potential
exposure from environmental litigation) certain disclosures
must be provided. In particular, in OSC staff's view,
issuers should quantify accounting estimates and provide a
detailed discussion of the estimates where quantitative
information is reasonably available and would provide material
information to investors.
The Notice also states that discussion of material
contingent environmental liability should be included in an
issuer's MD&A and/or AIF even where the liability
has not been accrued in the financial statements or disclosed
in the notes to the financial statements (for example, in the
case where potential environmental liabilities are not
reflected in the financial statements because their long-term
or contingent nature makes them particularly difficult to
Asset Retirement Obligations
The Notice reminds public issuers of the disclosure
requirements associated with asset retirement obligations, and
indicates that an issuer should provide supplemental disclosure
in its MD&A concerning such obligations, such as details of
environmental remediation costs.
Financial and Operational Effects of Environmental
The Notice reflects OSC staff's view that in order
for an issuer to discharge its obligation to disclose the
financial and operational effects of environmental protection
requirements on its capital expenditures, earnings and
competitive position, the issuer should include in its AIF,
where reasonably available, a quantification of the costs
associated with environmental protection requirements, and the
impact or potential impact of such costs. This is reflective of
OSC staff's recognition of the challenges of
quantifying environmental issues and its expectation that
additional disclosures including, where reasonably possible,
quantifications, should be provided.
Environmental Policies Fundamental to
Similarly, with respect to environmental policies, issuers
are expected by OSC staff to evaluate and describe the impact
or potential impact these policies may have on their
operations, including a quantification of the costs associated
with these environmental policies where quantitative
information is reasonably available and would provide
meaningful information to investors.
On the subject of disclosure of environmental risks, the
Notice is clear in discouraging use of boilerplate language,
indicating instead that disclosures should include a detailed
discussion of environmental risks.
The Notice is a clear statement of the importance attached
by securities regulators to public issuer disclosures on
environmental matters. Issuers must be aware of these
expectations, and prepare for the challenges presented by these
The content of this article does not constitute legal
advice and should not be relied on in that way. Specific advice
should be sought about your specific circumstances.
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