Thursday, January 14, 2010

Ontario regulator backs off on ESG rules

Following a lengthy consultation process, Ontario’s securities regulator has announced plans to enhance corporate governance and environmental disclosure requirements for public companies. However, the Ontario Securities Commission (OSC) stopped short of proposing new environmental, social and governance (ESG) regulations.

“The majority of stakeholders consulted as part of this initiative would like to see the OSC assume a greater role in advancing and promoting corporate governance and environmental disclosure,” the commission stated in a submission to the province’s finance minister. “However, most of them believe that this can best be achieved through providing more guidance to issuers and conducting more continuous disclosure reviews, rather than by expanding existing disclosure requirements.”

As part of its plan to enhance corporate governance and environmental disclosure, the OSC says it will conduct a follow-up compliance review on corporate governance disclosure, continue educational outreach to issuers, provide additional guidance for issuers on existing environmental disclosure requirements and improve training for OSC staff on environmental disclosure.

In 2010, the OSC says it will conduct a compliance review of corporate governance disclosure and develop guidance for issuers on compliance with existing environmental disclosure requirements. “The OSC intends to consult stakeholders in connection with the development of that guidance and to publish the guidance by December 2010, giving reporting issuers sufficient time to consider it when preparing their 2010 annual continuous disclosure documents.”

And the project could be expanded outside Ontario’s borders: the regulator will invite staff at other Canadian securities administrators to participate in the corporate governance compliance review and the development of guidance for environmental disclosures.

The issue of mandated ESG disclosure has been a long-standing public policy issue for the socially responsible investment industry, says Eugene Ellmen, executive director of the Social Investment Organization. “In a number of previous regulatory submissions, SIO has taken the position that there is significant investor demand for ESG information, and the current voluntary framework for ESG disclosure is not adequate to meet investor needs.”

Ellmen concedes that the rejection of regulatory change is a setback for the SRI industry. But he adds there are a number of positive developments in the commission’s report. “The OSC will be conducting a review on governance and will be issuing further guidance on environmental disclosure in 2010, which gives the investment community in general, and the SRI industry specifically, a further opportunity to make their views known.”

The OSC launched a corporate sustainability reporting initiative in response to a resolution passed by the Ontario legislature in April 2009 calling on the commission to undertake a broad consultation to consider best practice corporate social responsibility and environmental, social and governance disclosure standards.

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