It may seem like it’s another day, another reporting requirement, but the Ontario Securities Commission’s recent staff notice on environmental liability reporting is nothing more than a heads-up.
However, the staff notice 51-716 issued at the end of February does send a strong signal that environmental liability disclosures are to be taken as seriously as other financial and market factor disclosures for those traded on the Toronto Stock Exchange.
And that’s not necessarily a bad thing, says Rick Sutin, senior partner at Ogilvy Renault LLP, noting the notice echoes a shift in public thinking around the environment.
“Its proactive,” he says. “It’s better than the OSC coming back to companies and saying, ‘You’ve been doing it all wrong,’ [and laying charges].”
He says the U.S. is heading down the same road and demanding public companies pay more attention to environmental issues.
The disclosure of environmental liability - and an estimate of what that is in terms of dollars - is another factor to rate the company’s viability in the marketplace, since exposure to being hit with environmental cleanup orders or an environmental disaster like a spill can wreak havoc on anyone’s bottom line.
Some companies, obviously, will have a higher risk than others, especially those in mining, for example, or oil and gas development.
In the notice the OSC noted: “The management discussion and analysis of some of the TSX-listed issuers we reviewed included a detailed analysis of the issuer’s environmental estimates. For example, in discussing reclamation costs, one issuer stated that its operations are subject to environmental laws in the various countries where it has closed mines and open mines.
“The issuer then stated that technical issues made the reclamation of closed mines uncertain, which, together with any future changes in environmental laws, made estimating reclamation costs difficult. Nevertheless, the issuer provided a breakdown of its estimated reclamation costs for its closed mines and its open mines, and provided the basis and methodology for making these estimates.
The issuer concluded its analysis by noting that it recognized changes in its estimated reclamation costs immediately for closed mines and amortized any changes in its estimated reclamation costs over the life of its open mines.”
However, it said, by contrast other TSX-listed issuers used boilerplate phrasing with minimal or no analysis, or did not discuss the environmental estimates at all.”
“We are of the view that boilerplate disclosure is insufficient because it does not specifically identify how the estimate relates to that issuer, and therefore does not provide meaningful information to investors,” the bulletin went on.
“It’s no different from discussion of known threats to a company’s business plan,” Sutin says. “It’s a way of saying we know things are changing, with carbon taxes and Alberta’s announcement on reducing greenhouse gases, and we don’t know what other forms it will take, so its incumbent on an issuer to start discussions on what they’re doing and to be cognizant of the impact and how they are going to plan for the costs associated with it.”
In some cases, he says, it could be an asset; a forestry operation may find it has valuable carbon credits vested in its properties.
“This is happening at all levels; consumers are demanding accountability and change around the environment,” he says. “Look at Wal-Mart and its environmental accountability demands on suppliers, it’s because their customers are demanding that change.”
Gray Taylor, chairman of the environmental group at Bennett Jones LLP, though, is a little more disturbed.
“It’s a shot across the bow and an indication the OSC is on the same agenda with Alberta,” he says.
The difficulty, he add, is that if companies can’t quantify the risk, they have to describe it as best they can.
And that opens up a can of worms many clients are reluctant to get into, he says, putting them in a choice between risking enforcement or entering into the precarious task or predicting a future that may never come to pass.
“We’ve had disclosure rules for materiality and now the landscape is changing in terms of importance of trying to quantify the environmental impact on an issuer in terms of liability,” says Philippe Tardif at Borden Ladner Gervais LLP.
“Really the OSC is just reminding issuers of the need to provide some quantification numbers and that those requirements have always been there, so it’s not that the OSC is adopting a brand new approach. On its continuing disclosure monitoring program it has reviewed a handful of reports and found that many come up short of the mark.”
He said it’s a prudent thing anyway for companies and notes the Canada Pension Plan and Ontario Municipal Employees Retirement System have both instructed their fund managers to review environmental and social risks as well as fiscal data when making their decisions.
However, the staff notice 51-716 issued at the end of February does send a strong signal that environmental liability disclosures are to be taken as seriously as other financial and market factor disclosures for those traded on the Toronto Stock Exchange.And that’s not necessarily a bad thing, says Rick Sutin, senior partner at Ogilvy Renault LLP, noting the notice echoes a shift in public thinking around the environment.
“Its proactive,” he says. “It’s better than the OSC coming back to companies and saying, ‘You’ve been doing it all wrong,’ [and laying charges].”
He says the U.S. is heading down the same road and demanding public companies pay more attention to environmental issues.
The disclosure of environmental liability - and an estimate of what that is in terms of dollars - is another factor to rate the company’s viability in the marketplace, since exposure to being hit with environmental cleanup orders or an environmental disaster like a spill can wreak havoc on anyone’s bottom line.
Some companies, obviously, will have a higher risk than others, especially those in mining, for example, or oil and gas development.
In the notice the OSC noted: “The management discussion and analysis of some of the TSX-listed issuers we reviewed included a detailed analysis of the issuer’s environmental estimates. For example, in discussing reclamation costs, one issuer stated that its operations are subject to environmental laws in the various countries where it has closed mines and open mines.
“The issuer then stated that technical issues made the reclamation of closed mines uncertain, which, together with any future changes in environmental laws, made estimating reclamation costs difficult. Nevertheless, the issuer provided a breakdown of its estimated reclamation costs for its closed mines and its open mines, and provided the basis and methodology for making these estimates.
The issuer concluded its analysis by noting that it recognized changes in its estimated reclamation costs immediately for closed mines and amortized any changes in its estimated reclamation costs over the life of its open mines.”
However, it said, by contrast other TSX-listed issuers used boilerplate phrasing with minimal or no analysis, or did not discuss the environmental estimates at all.”
“We are of the view that boilerplate disclosure is insufficient because it does not specifically identify how the estimate relates to that issuer, and therefore does not provide meaningful information to investors,” the bulletin went on.
“It’s no different from discussion of known threats to a company’s business plan,” Sutin says. “It’s a way of saying we know things are changing, with carbon taxes and Alberta’s announcement on reducing greenhouse gases, and we don’t know what other forms it will take, so its incumbent on an issuer to start discussions on what they’re doing and to be cognizant of the impact and how they are going to plan for the costs associated with it.”
In some cases, he says, it could be an asset; a forestry operation may find it has valuable carbon credits vested in its properties.
“This is happening at all levels; consumers are demanding accountability and change around the environment,” he says. “Look at Wal-Mart and its environmental accountability demands on suppliers, it’s because their customers are demanding that change.”
Gray Taylor, chairman of the environmental group at Bennett Jones LLP, though, is a little more disturbed.
“It’s a shot across the bow and an indication the OSC is on the same agenda with Alberta,” he says.
The difficulty, he add, is that if companies can’t quantify the risk, they have to describe it as best they can.
And that opens up a can of worms many clients are reluctant to get into, he says, putting them in a choice between risking enforcement or entering into the precarious task or predicting a future that may never come to pass.
“We’ve had disclosure rules for materiality and now the landscape is changing in terms of importance of trying to quantify the environmental impact on an issuer in terms of liability,” says Philippe Tardif at Borden Ladner Gervais LLP.
“Really the OSC is just reminding issuers of the need to provide some quantification numbers and that those requirements have always been there, so it’s not that the OSC is adopting a brand new approach. On its continuing disclosure monitoring program it has reviewed a handful of reports and found that many come up short of the mark.”
He said it’s a prudent thing anyway for companies and notes the Canada Pension Plan and Ontario Municipal Employees Retirement System have both instructed their fund managers to review environmental and social risks as well as fiscal data when making their decisions.
