Canada: Ontario Securities Commission Seeks Improved Environmental Disclosure

Copyright 2008, Blake, Cassels & Graydon LLP

HIGHLIGHTS

• A recent OSC Staff Notice reported that the disclosure relating to known and contingent environmental liabilities in the continuous disclosure documents of many reporting issuers does not fully satisfy applicable disclosure requirements.
• Two general concerns raised were that (i) issuers frequently relied upon boilerplate disclosure, which OSC Staff view as generally not sufficient, and (ii) disclosure often lacked detailed discussion and quantification of environmental liabilities.
• Reporting issuers should examine their disclosure and consult with their professional advisors to ensure that their environmental disclosure is consistent with the guidance provided by OSC Staff.

A recent Staff Notice published by the Ontario Securities Commission (OSC) reported that the disclosure relating to known and contingent environmental liabilities in the continuous disclosure documents of many reporting issuers does not fully satisfy applicable disclosure requirements.

OSC Staff Notice 51-716 – Environmental Reporting was issued following a targeted review of compliance by reporting issuers with the various environmental disclosure obligations contained in National Instrument 51-102 – Continuous Disclosure Obligations of the Canadian Securities Administrators (NI 51-102). In the course of the review, OSC Staff examined the continuous disclosure documents and Web sites of 35 reporting issuers, 22 of which are TSX-listed issuers and 13 of which are "venture issuers" (within the meaning of NI 51-102). Each of these issuers operates in one of the following industries: environmental services, industrial products, mining, oil and gas, steel, transportation services or utilities. OSC Staff specifically considered issuers' satisfaction of continuous disclosure obligations arising under NI 51-102 applicable to issuers' management's discussion and analysis (MD&A) and annual information forms (AIFs).

OSC Staff noted that the disclosure documents reviewed contained varying degrees of disclosure regarding environmental liabilities, policies and risks and that, in some instances, required disclosure items were not addressed. Two general concerns raised were that issuers frequently relied upon boilerplate disclosure, which OSC Staff view as generally not sufficient, and that disclosure often lacked detailed discussion and quantification of environmental liabilities.

Among the more specific comments made, OSC Staff noted the following:

• in disclosing critical accounting estimates in its MD&A, an issuer should, where quantitative information is reasonably available and would provide material information to investors, quantify the accounting estimates;
• an issuer should include in its MD&A and/or AIF a discussion of its material contingent environmental liabilities, whether or not such liabilities have been accrued in the issuer's financial statements or described in the notes thereto;
• if an asset retirement liability is material to an issuer, in addition to the required financial statement disclosure, the issuer should include supplemental disclosure in its MD&A;
• a TSX-listed issuer should consider whether to include asset retirement liabilities in the summary table of contractual obligations included in its MD&A;
• where it is reasonably possible to do so, an issuer should include in its AIF a quantification of the costs associated with environmental protection requirements and the anticipated impact of these costs;
• in disclosing its fundamental environmental policies in its AIF, an issuer should evaluate and describe the impact or potential impact of these policies on its operations and, where reasonably possible, include a quantification of the associated costs;
• an issuer should disclose environmental risk factors in its AIF, provided that if the issuer does not file an AIF, these risk factors should be described in the issuer's MD&A; and
• where risks relating to environmental laws are material to an issuer's operations, a description of such laws, whether domestic or international, should be included in the issuer's discussion of risk factors.

The Staff Notice also referenced the certification requirements arising under Multilateral Instrument 52-109 – Certification of Disclosure in Issuer's Annual and Interim Filings of the Canadian Securities Administrators, which requires that an issuer's certifying officers certify, among other things, that the issuer's financial statements, together with the financial information included in its AIF and MD&A, fairly present, in all material respects, the issuer's financial condition. OSC Staff noted that a meaningful discussion of material environmental matters in an issuer's MD&A and AIF, as applicable, is an important part of ensuring a fair presentation of the issuer's financial condition in all material respects. The Staff Notice also noted that under Multilateral Instrument 52-110 – Audit Committees of the Canadian Securities Administrators, an issuer's audit committee is required to review the issuer's financial statements and MD&A before they are disclosed to the public and must be satisfied that adequate procedures exist for reviewing the issuer's disclosure of financial information extracted or derived from its financial statements. OSC Staff commented that an audit committee's oversight of financial reporting relating to material environmental matters is an important aspect of meeting these responsibilities.

In light of the Staff Notice, reporting issuers should examine their disclosure and consult with their professional advisors to ensure that their environmental disclosure is consistent with the guidance provided by OSC Staff. As part of such an examination, reporting issuers should ensure that significant future liabilities, such as the rehabilitation of waste disposal or mining operations, have been fully analyzed in light of current environmental laws and regulations. Anticipated changes in environmental laws and their financial effects, such as the imminent regulation of greenhouse gases to combat global warming, should also be taken into account.

ADDITIONAL INFORMATION

The full text of OSC Staff Notice 51-716 is available on Blakes Web site at www.blakes.com in our Publications – Corporate Finance and Securities Regulation section and our Environmental section, together with a copy of this bulletin.

OSC Staff Notice 51-716-Environmental Reporting

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