'There's a tremendous investor focus on ESG:' Stikeman Elliott's Jeff Hershenfield
The Ontario Securities Commission recently released its draft statement of priorities for the 2023/2024 fiscal year, which includes process modernization, considering a broader range of board and executive diversity, and advancing work on ESG disclosure.
The highlights for clients of Jeff Hershenfield, co-head of the capital markets group at Stikeman Elliott, include upgrading delivery options and streamlining disclosure requirements. He says they also focus on the OSC’s attention to quality ESG disclosure and its alignment with international standards.
“Overall, the OSC has raised a number of key issues and priorities and has set out some goals,” says Hershenfield. “The challenge is going to be walking that tightrope between balancing investor protection, reducing regulatory burden, and having some flexibility in applying the rules to a multitude of market participants of various scope and sophistication.
“The OSC has demonstrated that it has its finger on the pulse of Ontario capital markets because its priorities show that it’s aware of the issues that are facing capital market participants and the public at large.”
The statement of priorities outlines several of the regulator’s key initiatives, seeking stakeholder feedback that it will incorporate into its annual business plan. The OSC said it has four goals this year: building trust and fairness in the capital markets, strengthening investor safeguards, adapting regulation to align with innovation and evolving markets, and enabling the delivery of effective regulation.
To adapt its regulation to align with innovation and evolving markets, the OSC said it is working with the Canadian Securities Administrators (CSA) to “streamline and clarify” certain disclosure requirements for management’s discussion and analysis (MD&A) and the annual information form (AIF). This collaboration includes combining the financial statements, MD&A, and AIF in one reporting document. This will allow investors to find “critical information about issuers” in one place, and issuers will not need to repeat certain information in more than one document, says Hershenfield.
He adds that there have been several changes to disclosure requirements in recent years, including enhanced non-GAAP measures disclosures and changes to the significant acquisition test.
“When those changes come into force, issuers are going to need to roll up their sleeves to adjust. But once people get used to the changes, it’ll be well received by issuers and investors.”
The OSC is “taking a grassroots approach” to enhance investor protection, says Hershenfield. The regulator is using social media and other traditional channels to educate investors and target vulnerable demographics, such as seniors, who will comprise more of the population and will be looking to the capital markets to fund their retirement.
“The OSC is also strengthening an ombudsman program and redress for those who have issues with registered firms. It’s also monitoring compliance with other regulations that it has put into place.”
The OSC examines diversity on boards and executive roles at reporting issuers to build trust and fairness in the capital markets. When it first turned its mind to diversity, the OSC was initially most concerned with getting women on boards but has now turned its mind to other forms of diversity, says Hershenfield. “Diversity is getting more diverse.”
The current regime is a “comply or explain” rule, where companies have a certain representation of women or must explain why they cannot.
“The OSC is hinting that those rules are going to be expanded to other areas of diversity,” he says. “This would be consistent with the requirements that are applicable to federally incorporated companies where disclosure on other diversity metrics is required.”
Advancing work on ESG disclosures for reporting issuers is also a key priority for the OSC in achieving the goal of building trust and fairness in Ontario’s capital markets. Ontario’s 2021 budget committed to public consultation and considering the recommendations of the Capital Markets Modernization Taskforce, which had recommended mandated ESG disclosure from all public companies in a manner compliant with the Task Force on Climate-Related Financial Disclosure. The Capital Markets Modernization Taskforce’s final report indicated increased investor interest in ESG reporting and in creating a “uniform standard of disclosure to level the playing field for all issuers,” said the statement of priorities.
The CSA published proposed National Instrument 51-107 Disclosure of Climate-related Matters for comment in October 2021 and CSA Staff Notice 81-334 on investment fund disclosure related to ESG considerations in January 2022. In 2023/2024, the OSC said it plans to ensure investors can access the ESG information necessary to inform their investment and voting decisions and provide clarity on ESG disclosure for reporting issuers.
“There’s a tremendous investor focus on ESG,” says Hershenfield.
He says market participants are looking for consistency, and some would like these rules to come out faster and for Canada to be a leader in this area.
“Rather than guessing at what is the best way to report, issuers would like to have some clarity and certainty. I suspect we’re going to see further developments in this area. But we are in a little bit of a wait-and-see while the OSC and other regulators are assessing what’s happening across jurisdictions.”
