SIO welcomes new continuous disclosure guidelines

New guidelines released by the Canadian Securities Administrators (CSA) call on companies to report on their social and environmental policies, a development that will advance corporate disclosure, says the SIO.

 On June 20, the CSA, which is an umbrella body for securities commissions across Canada,  released new continuous disclosure guidelines. SIO commented on an earlier set of guidelines in September 2002.

 “I think it's fair to say that the CSA seriously responded to our suggestions,” said SIO Executive Director Eugene Ellmen. “Social and environmental disclosure has been included in the instructions to corporate filers. However, the guidelines call for reporting of social and environmental policies, but not social and environmental risk factors.”

The CSA continuous disclosure filings are documents required under a new set of harmonized disclosure rules to be put in place by Canadian securities commissions in 2004. The two key documents in the rules -- the Annual Information Form (AIF) and MD&A (Management's Discussion & Analysis) form the basis of the new rules. Most of the instructions laid out in the new CSA rules cover detailed requirements for filing financial information. However, there are some significant instructions on social and environmental disclosure.

In the AIF, as part of the general description of their business, companies will be required to describe their "social and environmental policies and the steps your company is taking to implement them."  In the explanatory notes, CSA states that companies will now be required to “disclose their social and environmental policies when they describe their business."

In addition, in the MD&A instructions, the guidelines state: "Your MD&A must discuss material information that may not be fully reflected in the financial statements. Some examples are environmental, social or cultural matters, contingent liabilities and defaults under debt, off-balance sheet financing arrangements or other contractual obligations."

However, the new guidelines do not call for a broad disclosure of social and environmental risk factors. The instruction for disclosure of risk factors is very brief, mentioning "environmental and health risks" and "political conditions," but not laying out a broad instruction to disclose social/environmental risks.

 “This shows that the regulators are falling back on traditional notions of health, safety and political risk, but they do not accept our contention that social and environmental risk is a fundamentally important part of financial analysis,” Ellmen said.

 Ellmen said the SIO comment on the new rules, suggesting that CSA beef up its risk disclosure to include social and environmental issues.

For more information, visit  the CSA Continuous Disclosure rules  [http://www.osc.gov.on.ca/en/About/News/NewsReleases/2003/nr_20030627_osc-investor-rules.htm].

To view SIO’s response to the CSA, visit SIO Comments on Continuous Disclosure, August 2003.

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