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Climate Change Disclosure for
Canadian Public Companies
Barbara Hendrickson
Corporate Reporting: Climate Change & Related
Environmental Disclosures
Design Exchange
January 28, 2009
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Overview
– Importance of climate change disclosure
– Disclosure requirements under Canadian
securities laws
– Shareholder resolutions for better climate
change disclosure
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Importance of Climate Change Disclosure
– Climate change disclosure for public
companies is becoming more and more
crucial
– Canadian public companies must consider
whether they should disclose risks and
opportunities associated with climate
change
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Current Disclosure Requirements
Under Canadian Securities Laws
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Material Changes / Material Information
Prospectus disclosure
Continuous disclosure (AIF, MD&A, F/S)
CEO and CFO certifications
Audit committee review
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Material Change Disclosure
– Companies must promptly disclose material
changes to the public (s.75(1) OSA)
– Only changes in business, operations or
capital which would be expected to have a
significant effect on the market price or
value of securities will be material changes
(s.1 OSA)
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Disclosure of “Material Information”
– Under TSX Rules “material information”
must be disclosed in a timely manner
– Includes both material facts and material
changes
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Disclosure of “Material Information” (cont’d)
– Material Information is defined to include
any information relating to the business
and affairs of a company that results or
would reasonably be expected to result
in a significant change in the market
price of the company’s securities (s.407
TSX Rules)
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Definition of “Material Facts”
– “Material fact” means a fact that
would reasonably be expected to
have a significant effect on the
market price or value of the securities
(s.1 OSA)
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Prospectus Disclosure
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Under securities laws prospectuses must
provide full, true and plain disclosure of
all “material facts” relating to the
securities issued or proposed to be
distributed (s.56 OSA)
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Prospectus Disclosure (cont’d)
– Prospectus Form Requirements require the
disclosure of:
– Environmental policies fundamental to the
company’s operations, including the steps the
company has taken to implement them (Item
5.1(4) NI 41-101F1)
– Risk factors relating to the company and its
business, such as environmental risks that
would likely influence an investor’s decision to
purchase securities of the company (Item
21.1(1) NI 41-101F1)
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Prospectus Disclosure (cont’d)
– Trends, commitments, events or uncertainties that
is both presently known to management and
reasonably expected to have a material effect on
the company's business, financial condition or
results of operation
– Legal proceedings of the company (Item 23 NI 41101F2)
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Prospectus Disclosure (cont’d)
– Where a prospectus contains a
“misrepresentation”, a purchaser under the
prospectus has a right of action for damages
against
– Companies or selling security holders
– Underwriters
– Directors of the company at the time the
prospectus was filed
– Experts who consented to disclosure of
information in the prospectus, and
– Every person signing the prospectus (s.130 OSA)
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Definition of “Misrepresentation”
– A misrepresentation is,
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an untrue statement of “material fact”, or
an omission to state a “material fact” that is
required to be stated or that is necessary to
make a statement not misleading in the light
of the circumstances in which it was made
(s.1 OSA)
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Continuous Disclosure
1. Annual Information Form (“AIF”)
2. Management Discussion & Analysis
(“MD&A”)
3. Financial Statements (“F/S”)
4. CEO and CFO Certification
5. Audit Committee Review
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Continuous Disclosure
Annual Information Form
– The form requires disclosure of
environmental issues including:
– Financial and operational effects of
environmental protection requirements on the
capital expenditures, earnings and competitive
position of the company in the current financial
year and the expected effect in future years
(Item 5.1(1)(k) NI 51-101F2)
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Continuous Disclosure
Annual Information Form (cont’d)
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Environmental risks in the order of their
seriousness (Item 5.2 NI 51-101F2)
Environmental policies (Item 5.1(4) NI 51101F2)
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Continuous Disclosure – Management
Discussion and Analysis
– MD&A is a narrative explanation, through
the eyes of management, of how a
company performed during the financial
year, and of a company’s financial condition
and future prospects
– MD&A complements and supplements the
F/S
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Continuous Disclosure – Management
Discussion and Analysis (cont’d)
– Rules require that MD&A should discuss
important trends and risks that have
affected F/S, and trends and risks that are
reasonably likely to affect them in the future
– MD&A focuses on material information
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Continuous Disclosure – Management
Discussion and Analysis (cont’d)
– MD&A rules require the following
disclosure:
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For companies that have significant projects
that have not yet generated operating
revenue, describe each project … any factors
that have affected the value of the project
such as environmental issues (s. 1.4
Instruction (ii) NI 51-102F1)
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Continuous Disclosure – Management
Discussion and Analysis (cont’d)
– The company’s analysis of the operations for
the most recently completed financial year,
including commitments, events, risks or
uncertainties that will materially affect the
company’s future performance and any unusual
events or transactions (Part 1(a), Part 2 1.2
Instruction (ii) NI 51-102F1)
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Continuous Disclosure – Management
Discussion and Analysis (cont’d)
– CICA Release: Building a Better MD&A
Climate Change Disclosures
– Latest guidance from the CICA in the
climate change area
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Financial Statement Reporting
– Climate change and other environmental
issues can materially affect a company’s
financial performance and prospects
– Under certain circumstances climate change
and the impacts of other environmental
issues are accounted for and reflected
within financial statements and the notes
thereto
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Chief Financial Officer and Chief
Executive Officer Certificates
– CEOs and CFOS must certify that:
– They have reviewed the AIF, F/S and MD&A
– There are no misrepresentations
– The F/S are a fair presentation of the financial
conditions of the issuer
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Chief Financial Officer and Chief
Executive Officer Certificates (cont’d)
– They are responsible for establishing disclosure
controls and procedures (DC&P) and internal
controls over financial reporting (ICFR)
– They have designed DC&P to provide reasonable
assurance that material information is available to
them in a timely way and disclosure to the securities
regulations is made in a timely way
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Chief Financial Officer and Chief
Executive Officer Certificates (cont’d)
– They have designed ICFR to provide reasonable
assurance regarding the reliability of financial
reporting in accordance with the issuer’s GAAP
– The name of the control framework
– They have disclosed, based on evaluation of ICFR,
any fraud involving management or employees to
the auditors and board
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Chief Financial Officer and Chief
Executive Officer Certificates (cont’d)
– The issuer has disclosed material weaknesses with
respect to design of the ICFR
– The issuer had disclosed the limitations on the
scope of design of DC&P and ICFR
– They have disclosed in the MD&A any changes in
ICFR
– That they have evaluated the effectiveness of the
DC&P and disclosed the conclusions of the review
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Chief Financial Officer and Chief
Executive Officer Certificates (cont’d)
– Significant penalties attach to
misstatements by CEOs and CFOs
(NI 52-109)
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Audit Committee Review
– Audit committees are required to review a
company’s F/S and MD&A before the
company publicly discloses the information
– The audit committee must be satisfied that
adequate procedures are in place for the
review of the company’s public disclosure
of financial information extracted from the
company’s F/S and must periodically
assess the adequacy of these procedures
(NI 52-110)
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Liability For Continuous Disclosure
– Companies, directors, officers, promoters
and other insiders and controlling persons
are liable for misrepresentations in publicly
filed or distributed documents and oral
statements and for failure to make material
change disclosure
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OSC Staff Notice 51-716 –
Environmental Reporting
– Notice reports on the results of targeted
review of compliance with Ontario securities
law that require public companies to
disclose information about environmental
matters
– Publication on February 28, 2008
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OSC Staff Notice 51-716 –
Environmental Reporting (cont’d)
– Material potential environmental liabilities
should be included in a company’s MD&A and
AIF whether or not the liability has accrued in
the F/S or disclosed in notes to F/S
– AIF should include where available a
quantification associated with environmental
protection requirements and the impact or
potential impact of these costs on financial and
operative results
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OSC Staff Notice 51-716 –
Environmental Reporting (cont’d)
– When discussing environmental policies
companies should evaluate and describe
the impact or potential impact on their
operations
– Risks relating to environmental laws that
are material to an company’s operations
whether national or international should be
included in the AIF and MD&A
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OSC Staff Notice 51-716 –
Environmental Reporting (cont’d)
– Meaningful discussion of material
environmental factors in MD&A and AIF is
important to achieve a fair presentation of
the company’s financial condition in all
material respects
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Shareholder Resolutions
– Investors are also taking action on climate
change by petitioning the companies in
which they hold shares
– Such resolutions historically received
support in the single digits but this is
changing
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Shareholder Resolutions (cont’d)
– Support for climate change-related
proposals has doubled since 2005
– Many such resolutions are specific to the
issue of climate disclosure
– Many such resolutions are withdrawn
following dialogue between the filers and
the company
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Conclusion
– Why disclose?
– Investors demand it
– Securities regulatory authorities require it
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Thank You
Barbara Hendrickson
Telephone: 1-416-865-7903
Email:
[email protected]
McMillan LLP
Brookfield Place, Bay Wellington Tower
Suite 4400, 181 Bay Street
Toronto, Ontario, M5J 2T3
Canada
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