Reporting issuers must improve their disclosure of known and contingent environmental liabilities in continuous disclosure documents. That is the message of the Ontario Securities Commission’s Staff Notice 51-716 on Environmental Reporting (the “Staff Notice”), released February 27, 2008.
The Staff Notice is based in part on a survey of 35 reporting issuers. The OSC found that the majority of these issuers had made insufficient disclosure of material environmental matters in their annual financial statements, management discussion and analysis (MD&A), and annual information forms (AIF), as applicable. The Staff Notice is critical of the use of boilerplate language to address environmental matters. Instead, it calls for disclosure of known and contingent environmental liabilities that is sufficiently detailed to allow investors to make informed decisions about buying, selling, or holding the securities of the issuer. To be sufficient, the disclosure must include not only a detailed discussion of the environmental liabilities, but also quantitative estimates of those liabilities, where quantitative information is “reasonably available.”
Environmental disclosure has been required for some time pursuant to National Instrument 51-102 Continuous Disclosure Obligations. However, this is the first time that the OSC has provided specific guidance on exactly what type of disclosure is required. Such Staff Notices are typically the OSC’s first volley when attempting to improve compliance with a particular aspect of securities regulations. Non-compliant reporting issuers can expect OSC enforcement actions, and the shareholder litigation they trigger, to follow.
A more detailed discussion of the Staff Notice is available in our Davis LLP online bulletin.