Avoiding duplication in sustainability disclosure
Shareholders are increasingly assertive in requesting sustainability related disclosure from North American mining companies, particularly related to climate change issues. Proxy advisory services such as ISS have adopted guidelines for 2016 to “…generally vote for resolutions requesting that a company disclose information on the risks related to climate change on its operations and investments.”
One of the leading proponents of climate change related disclosure is the Carbon Disclosure Project (CDP), an international not-for-profit/charity, with a mandate to reduce companies’ GHG emissions and mitigate climate change risks. In pursuit of this objective, CDP requests climate change information from publicly listed companies globally. CDP data is utilized by a large number of investors that utilize the information in investment and proxy voting decision making. CDP reports that these investors account for approximately $100 trillion in assets.
In terms of data collection, detailed questionnaires are sent from CDP to companies covering a variety of topics including, Climate Change, Water and Forests. Climate Change questions cover areas such as governance, incentives for management, strategy, tracking and quantifying emissions, setting targets and initiatives to reduce emissions and plans for emissions in future. External validation of data is not required by CDP but encouraged.
This type of disclosure and reporting is purely voluntary. A company can decide whether to disclose to CDP or not and there is no legal requirement to do so. However, failure to report after a request to do so could have reputational impacts on companies.
CDP can choose to estimate disclosures in the absence of actual data, and provide that information to their investor clients. So, companies may be driven towards reporting to ensure fair and accurate information is in the market place.
Legislative requirements are not irrelevant, however, emissions reporting requirements currently exist across Canada and are progressively increasing as the issue grows in important for policy makers. For example, changes to Ontario’s GHG emissions reporting regime took effect January 1, 2016, in order to facilitate the introduction of a “cap and trade” program for GHG emissions in Ontario. New regulations in the area of GHG reporting are possible in light of the recent COP21 agreements regarding climate change and an enhanced focus on this topic by the Federal Government.
Existing securities disclosure requirements also includes environmental reporting that could cover climate change issues. For example, CSA Staff Notice 51-333 on Environmental Reporting Guidance. This Guidance reporting on matters meeting materiality thresholds for environmental risks, risk oversight and management and forward looking information. Risks include litigation, physical, reputational and business model risks and liabilities.
Governance approaches include Board level committees and oversight, implementation of disclosure controls and procedures and data collection. This information can be disclosed in Management Discussion and Analysis and Annual Information Forms filed in compliance with securities regulations.
CDP reporting, focusing on climate change, may also overlap with other sustainability related reporting standards, like the Global Reporting Initiative (GRI), which is one of the leading reporting frameworks for environmental, social and governance issues. GRI reporting covers a broad range of topics including economic, environmental and societal impacts of business. The GRI provides detailed metrics for companies to measure and quantify impacts for disclosure. The GRI requirements, generally speaking, are broader than the CDP requirements. For instance, while GRI will ask about an organization’s plan to deal with economic, environmental, and social issues, the CDP requirements will ask a similar question, but with respect to climate change specifically. The GRI requirements typically give more choice in reporting metrics or standards, whereas CDP often asks for a specific metric or standard. In these cases, an organization could comply with both GRI and CDP by using the CDP metric, but they may have already chosen a different metric for their GRI report. Despite these differences, the GRI does overlap with the CDP and simultaneous compliance with both is possible and encouraged by the GRI and CDP. Companies can therefore utilize this to their advantage to avoid unnecessary duplication in sustainability reporting.
Michael Torrance is a lawyer in Norton Rose Fulbright’s Toronto office.