Disclosure requirements
i) Security commissions (materiality)
Canadian public companies must disclose material risks to their business as required by provincial securities legislation. This means companies must consider how the “reasonable investor” would perceive the information.
BHR issues that would be material to the reasonable investor must also be disclosed. However, unlike other areas of securities disclosure, there is no concrete requirement that public companies disclose BHR or modern slavery risks. So far, the Quebec securities regulator is the only securities regulator in Canada that has commented on BHR and modern slavery disclosure. In Ontario, the Capital Markets Modernization Taskforce’s report from January 2021 recommends "mandating disclosure of material ESG information."
The Quebec regulator’s guidance outlines that an issuer may face litigation risks, regulatory risks, reputational risks and operational risks. It recommends that issuers consider social policies and a code of conduct and ethics to help address these risks. The Quebec regulator indicates in its notice that two factors influenced its publication: “international regulatory developments and growing investor interest in the social responsibility of issuers, including modern slavery.”
Some Canadian companies are already subject to disclosure requirements due to their operations in jurisdictions with regulations requiring disclosure of BHR or modern slavery risks. Canadian companies operating in the UK, France, California or Australia must comply with and disclose information relating to BHR issues.
In addition to government regulation, investors are increasingly evaluating companies based on BHR rankings, voluntary disclosure and benchmarking tools, which have been developed to incorporate the UNGPs, in addition to traditional financial metrics. Performing well in these benchmarking rankings can help companies gain access to capital.
In some cases, investment may be predicated on businesses meeting certain environmental and social standards including abiding by the UNGPs.
Equator Principles
110 financial institutions and export development agencies, like EDC, are signatories to the Equator Principles and will only finance projects that comply with the Equator Principles. The Equator Principles is the main framework for managing environmental and social risk in projects financed by financial institutions. They are based on, and aligned with, the International Finance Corporation (IFC) Performance Standards. The latest update of the Equator Principles (effective October 1, 2020) includes a renewed focus on human rights and climate change and requires human rights impact assessments consistent with the definition of human rights in the UNGPs. The assessment of social impact must include risks and impacts on workers (including employees and contractors) and affected communities.
Even if companies choose not to disclose this type of information immediately, building up internal capacity and frameworks will assist them when legislation is introduced. It will also allow them to meet the demands of the investment community and demonstrate a proactive and forward-thinking approach to BHR.