Canada: Environmental Issues Lead OSC And Accounting Profession To Focus On Climate Change Disclosure By Reporting Issuers

In the last few years, climate change considerations have begun to figure more prominently in the investment decisions of Canadians. This, along with the complexities of complying with the existing regulations (with the prospect of more to come) designed to reduce greenhouse gas (GHG) emissions, has led the Ontario Securities Commission (OSC) and the accounting profession to focus on the disclosure of climate change issues by Canadian reporting issuers to ensure that investors are fully informed. Two recent initiatives highlight this trend.

OSC Staff Notice 51-716 - Environmental Reporting

In February 2008, the OSC issued Staff Notice 51-716 - Environmental Reporting outlining the results of a targeted review by OSC staff to determine the degree to which reporting issuers were adequately disclosing information about so-called "environmental matters" in their annual financial statements, related management's discussion and analysis (MD&A) and annual information forms (AIF). The review focused on industries that would, anecdotally at least, be thought of as being most likely to require environmental disclosure – mining, oil and gas, environmental services, steel, transportation services and utilities.

While Canadian securities regulators have not specifically mandated the disclosure of climate change issues in a reporting issuer's public disclosure record, the requirements of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) are sufficiently broad so as to capture such issues. A reporting issuer's MD&A, for example, is required to discuss the effect of "known trends, demands, commitments, events or uncertainties" on the reporting issuer's "financial condition, results of operations and cash flows". Moreover, a reporting issuer's AIF is required to disclose such things as the "financial and operational effects of environmental protection requirements" on its financial position, including capital expenditures. An AIF is also required to detail "social or environmental policies" that are fundamental to the reporting issuer, as well as risk factors such as environmental risks and "regulatory constraints...and any other matter that would be most likely to influence an investor's decision to purchase" the securities of the reporting issuer.

The OSC noted that the standard (as outlined in NI 51-102) to be met by reporting issuers in determining if environmental matters must be disclosed is whether or not the matter is "material". Building on the guidance given in NI 51-102 as to the meaning of "material" in the context of disclosure documents, the OSC stated that information relating to environmental matters is likely material if a reasonable investor's decision whether or not to buy, sell or hold securities of a reporting issuer would likely be influenced or changed if the information was omitted or misstated. (This concept of materiality is consistent with that contained in the Canadian Institute of Chartered Accountants Handbook.)

The OSC's Staff Notice provides little in the way of detailed guidance as to (a) the "environmental matters" that should be disclosed in a reporting issuer's MD&A and AIF, (b) the way in such matters should be teased out of a reporting issuer's self-appraisal of its business or (c) the way in which such matters should be framed in disclosure documents. That said, some hints are given by the types of disclosure issues focused on by the OSC, which can be summarized as follows:

  1. Environmental Liabilities. Detailed analysis (beyond boilerplate language) of the cost estimates of environmental contingencies should be contained in the reporting issuer's MD&A. Moreover, a discussion of "material contingent environmental liabilities" should form part of a reporting issuer's MD&A and/or AIF regardless of whether the liability has accrued in the issuer's financial statements or disclosed in the notes to the financial statements.
  2. Financial and Operational Effects of Environmental Protection Requirements. A qualitative discussion in a reporting issuer's AIF of the effect on the issuer of environmental protection requirements (e.g. such things as GHG regulations and carbon taxes) should be accompanied by a quantitative assessment of the costs associated with compliance with such requirements.
  3. Environmental Policies Fundamental to Operations. A reporting issuer should discuss in its AIF the environmental policies fundamental to its operations, including the impact or potential impact these policies may have on their operations. Where a quantification of costs is available, they should also be disclosed.
  4. Environmental Risks. Included among the risks to be disclosed in an AIF are environmental risks that would be most likely to influence an investor's decision to buy a reporting issuer's securities. The review focused on environmental laws material to an issuer's operations as being "environmental risks" generally necessitating disclosure. Discussion of such risks should include whether or not the reporting issuer is in compliance with such laws, penalties for non-compliance and the cost of compliance.

While detailed guidance from the OSC may be lacking, the very existence of the review does signal to reporting issuers that it is necessary to seriously consider the effect of environmental matters and climate change on their business and to ensure that such matters are adequately disclosed.

Canadian Institute of Chartered Accountants – MD&A Climate Change Disclosure Guide

In late November 2008, the Canadian Performance Reporting Board of the Canadian Institute of Chartered Accountants (CICA) published a disclosure guide "intended to assist MD&A preparers in making decisions about the nature of annual MD&A disclosures regarding the business and financial impacts of climate change issues" (the Guide). The Guide is divided into five parts entitled: (i) Orientation to Business Issues of Climate Change; (ii) What Investors Want to Know About Climate Change; (iii) Developing MD&A Disclosures About Climate Change; (iv) Organizing and Presenting Disclosures; and (v) Overseeing the Integrity of MD&A Disclosures About Climate Change.

Orientation to Business Issues of Climate Change

The first section of the Guide is an attempt to orient reporting issuers to see their business through the climate change lens – something that many, other than those in industries with obvious environmental impacts such as those studied by the OSC in its review, have had little reason to do. The Guide notes that while climate change is, by its nature, an environmental issue, it is one that also has wide-ranging economic and social effects. The business impacts of climate change will require reporting issuers – even those that do not directly produce GHG – to implement strategies to both adapt to the effects of climate change on the reporting issuer's business and, in other cases, take action to mitigate the extent to which they produce GHG.

While the disclosure of such business impacts will be required only when the securities law threshold of "materiality" has been crossed, as the Guide illustrates, such impacts will likely go beyond the obvious responses to new or existing environmental legislation. For example, access to capital may be restricted for companies with high climate change risks, in some cases business may be interrupted, operations may have to be modified or relocated, additional capital expenditures may be necessary (with little or no return) and some reporting issuers will be forced to respond to "inter-jurisdictional operating complexities" brought about by operating in jurisdictions with varying GHG emissions rules, offset trading systems, taxes and their attendant risks and opportunities.

What Investors Want to Know About Climate Change

It is taken as given that quantifiable climate change business impacts characterized by discreet transactions or obligations (e.g. such as those stemming from carbon taxes or carbon offset trades) will be recognized and disclosed in a reporting issuer's financial statements as appropriate. However, as the Guide points out, investors are increasingly seeking more detailed and nuanced disclosure to understand how a reporting issuer views the impacts of climate change in order to assess its effect on current and future financial conditions, results of operations and cash flows. The source of such disclosure should be the reporting issuer's MD&A. Again, while only "material" issues need be disclosed, reporting issuers are cautioned that boilerplate disclosure is of no use to investors deciding whether to invest or continue to invest in an issuer.

The Guide outlines five types of information in MD&A that should address climate change issues:

  1. Business Strategy. Investors should be presented with an overview of the climate change factors that the reporting issuer has factored into its business strategy – such things as how climate change will affect the issuer's competitiveness, whether climate change issues present a threat or opportunity to the issuer's business, the strategy for reducing GHG emissions and other strategic implications for non-capital resources like the development of operating technologies, brand value and reputation.
  2. Risks. The physical risks (e.g. changes to weather patterns), regulatory risks (e.g. heightened regulatory oversight and scrutiny), reputational risks (e.g. negative customer perceptions of reporting issuers failing to address climate change issues) and litigation risks (e.g. lawsuits against heavy GHG emitters), for example, of climate change should be spelled out along with related mitigation strategies.
  3. GHG Emissions. To the extent that it is material to evaluating the performance and future prospects of a reporting issuer, a reporting issuer's direct and indirect GHG emissions and related intensity data should be discussed in MD&A.
  4. Financial Impacts. The impact of climate change on financial operations, cash flows and the financial condition of the reporting issuer should be discussed along with the future financial implications.
  5. Governance Processes. The governance and organizational processes used by the reporting issuer in identifying and managing climate change issues.

Developing MD&A Disclosures About Climate Change

The Guide recommends that, in general, it is sufficient to provide MD&A disclosures about climate change on an annual basis. Interim MD&A disclosures regarding climate change can be limited to material changes to information reported in annual MD&A.

Organizing and Presenting Disclosures

The Guide outlines three possible options for the placement of climate change information within MD&A: (i) a separate climate change section; (ii) a subheading within the risk section; or (iii) interspersed within the various sections of the MD&A "to reflect the linkages between climate change and other aspects of the company's business, such as corporate strategy, capital resources, liquidity, key performance drivers and outlook".

Overseeing the Integrity of MD&A Disclosures about Climate Change

The Guide reiterates the fact that both management and the board of directors of a reporting issuer have responsibilities for the reliability and timeliness of corporate disclosures such as MD&A. Management should establish and maintain appropriate information systems to ensure that the effects of climate change issues on the reporting issuer are readily discernable. Management should also be tasked with ensuring that a rigorous and thoughtful analysis of the reporting issuer's business is regularly conducted to reveal all material climate change issues.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions