CSA Releases Guidance on Environmental Reporting 


Winter 2010 - (Environment, Energy & Emissions Trading Brief Winter 2010/2011)

Environment, Energy & Emissions Trading Brief Winter 2010/2011

Staff Notice 51-333 – Environmental Reporting Guidance (the "Notice") of the Canadian Securities Administration ("CSA") is intended to provide guidance to reporting issuers in meeting their continuous disclosure requirements under existing securities legislation relating to environmental matters. The Notice does not introduce new legislation or obligations. Rather, motivated by the increasing impact of environmental matters on issuers, the changing regulatory landscape and heightened investor interest, the Notice is intended to assist issuers in meeting existing disclosure obligations, which can be broadly categorized into risk identification, risk oversight and management and forward-looking information requirements. In addition, issuers must consider the impact on disclosure arising from the adopt ion of Inter national Financing Reporting Standards ("IFRS"), which for most entities will begin January 1, 2011.



The Notice highlights that, as in disclosure obligations generally, materiality is the determining factor in considering whether information is required to be disclosed. Would a reasonable investor's decision to buy, sell or hold likely be influenced by the information? There is no bright-line test in determining materiality, and the determination depends on the context and timing of the information. Determining materiality is a dynamic process, having regard to the nature and amount of the item, likely changes there to and also to the overall impact in the context of all items to be considered. In addition, materiality in cases of a known environmental trend, demand, commitment, event or uncertainty will turn on an analysis of (i) the probability that the trend, demand, commitment, event or un certainty will occur, and (ii) the anticipated magnitude of its effect. The CSA encourage issuers to err on the side of materiality and disclose information where there is any doubt about whether particular information is material.

Environmental Risks and Related Matters

The Notice indicates, and provides commentary on, five key disclosure requirements in National Instrument 51-102 – Continuous Disclosure Obligations ("NI 51-102") relating to environmental matters, namely: environmental risks, trends and uncertainties, environmental liabilities, asset retirement obligations and financial and operational effects of environmental protection requirements. Environmental risks may include physical, regulatory, litigation and reputational risks.

Risk Oversight and Management

The Notice notes that two key sets of disclosure requirements provide insight into an issuer's oversight and management of environmental risk: environmental policies implemented by the issuer and board governance. A TSX or non-venture issuer is required to describe in its Annual Information Form environmental policies which it has implemented that are fundamental to its operations. The Notice also suggests that issuers should disclose board oversight and management of risks, including environmental risks, if applicable, and any delegation of this responsibility.

Impact of Adoption of IFRS

Reporting issuers will be required to use IFRS for financial years beginning on or after January 1, 2011. IFRS may require issuers to accrue more environmental liabilities, at higher amounts, and provide more disclosure regarding these liabilities. The Notice summarizes certain key differences under IFRS with regards to liabilities, which include a lower recognition threshold (more likely than not to occur rather than likely to occur) and possibly higher amounts to be accrued under IFRS as compared to existing Canadian GAAP.

Forward-Looking Information ("FLI") Requirements

The Notice reminds issuers that they must comply with the FLI and future-oriented financial information ("FOFI") requirements in Part 4A  and Part 4B, respectively, of NI 51-102 when disclosing FLI or FOFI that is material information, such as a target or goal regarding environmental matters. The Notice also points out that where goals or targets are FOFI, they must be based on the accounting policies that the issuer expects to use to prepare the financial statements for the period covered by the FOFI and, as such, the impact of IFRS should be considered where the FOFI extends into 2011.

Governance Structures

Review, Approval and Certification of Disclosure

The Notice indicates that environmental disclosure in continuous disclosure documents is subject to three levels of over sight: review by the audit committee, approval by the board of directors, and certification by the CEO and CFO. The Notice provides guidance on what each level of oversight should consider in fulfilling its oversight function relating to environmental disclosure, including the magnitude, sources and nature of matters that have or that are likely to have an impact and their effects on revenues, expenditures, cashflow, financial condition and liquidity.

Controls and Procedures

Issuers must have adequate controls and procedures in place to support the review, approval and certification process and to provide rigour around their disclosure of environmental matters. There must be confidence that the systems, procedures and controls that are in place will enable reliable environmental information to be collected and reported in a timely manner.

Integration of Financial and Voluntary Reporting

Certain issuers provide information regarding environmental matters voluntarily in reports, in response to surveys, and on their websites. The Notice reminds issuers that where this information is material, it is required to be disclosed in their continuous disclosure documents. The Notice also notes that misrepresentations in such sources may be subject to the provisions under securities legislation regarding FLI and civil liability for secondary market disclosure. Issuers should also ensure that this disclosure is consistent with the disclosure in their continuous disclosure documents.

In addition to the information set out in the Notice briefly summarized above, the Notice also provides issuers with examples of entity-specific disclosure relating to environmental matters. However, there is no "one size fits all" disclosure on environmental matters, so issuers will need to devote sufficient resources to satisfy their disclosure obligations on an ongoing basis.

Ed.: This is only a brief summary of the Notice and is not, nor should it be construed as, legal advice.

By Paul Collins and David Mendicino

This article appeared in Lang Michener's Environment, Energy & Emissions Trading Brief Winter 2010/2011 .