Tougher rules good but not enough, says SIO

New rules issued by the Ontario Securities Commission on financial reporting and auditing are welcome, but more disclosure is required to address longer term issues of corporate responsibility on social and environmental risk, says the Social Investment Organization.

"We applaud the new rules by OSC Chair David Brown," said Eugene Ellmen, Executive Director of the Social Investment Organization (SIO). "But the single-minded focus on management accounting and financial auditing is permitting companies to get away with a whole host of social and environmental risks that have huge impact on shareholder value."

Ellmen was responding to rules issued June 27 by the OSC calling for CEO and CFO certification of financial statements, as well as new rules concerning the role of audit committees and auditor accountability. The rules are part of the OSC’s response to the Sarbanes-Oxley Act, which toughened US company disclosure requirements after the corporate scandals of the last few years.

While the SIO welcomed the rules as a much-needed reform to make management and auditors more accountable on financial reporting, Ellmen said the new rules ignore growing demand for disclosure on social and environmental issues.

"Many studies have confirmed the link between social responsibility and investment returns," Ellmen said. "As well, there is growing evidence of hidden social and environmental risks on balance sheets that threaten long term shareholder value." He pointed to greenhouse gas emissions as one example of hidden balance sheet risk due to social and environmental issues.

"What's needed are accounting rules that will require companies to become transparent on critical risk factors of a social and environmental nature," Ellmen said.

For a detailed look at SIO's recommendations, see Improving Corporate Governance through Mandatory Social and Environmental Reporting, brief to the Canadian Securities Adminsitrators, September 2002.

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