CSA Proposes to Expand Scope of Required Diversity Disclosures
The quality of diversity disclosures by public companies continues to attract scrutiny by stakeholders and regulators globally. On April 13, 2023, the Canadian Securities Administrators (the “CSA”) published for comment proposed diversity disclosure rules to broadening existing diversity disclosure requirements in Regulation 58-101 – Disclosure of Corporate Governance Practices including Form 58-101F1 – Corporate Governance Disclosure and Policy Statement 58-201 – Corporate Governance Guidelines. In an unusual twist, the CSA has published two alternative proposed rules for comment indicating a divided approach to enhancing corporate diversity disclosure. These proposed amendments would, in both cases, expand existing board and executive-level positions diversity disclosure requirements for non-venture reporting issuers beyond women by broadening the concept of diversity to other groups of individuals sharing similar personal characteristics. Both proposals include enhanced disclosure and guidelines around board renewal and board nomination processes.
The first approach, which is endorsed by a group of securities regulators in Western Canada, namely British Columbia, Alberta, Saskatchewan and the Northwest Territories (“Western Group”), is built to give flexibility to the issuers by letting them determine how they will address diversity in their specific circumstances and not require reporting on any defined group other than women. The second approach, which is favoured by the Ontario Securities Commission (“OSC”), will require issuers to enhance their diversity disclosure around five defined groups (the “Designated Groups”), which are women, Indigenous peoples, LGBTQ2SI+ persons, racialized persons and persons with disabilities. This is similar to diversity disclosure requirements already in place for federally incorporated public companies with the addition of LGBTQ2SI+ persons. At the moment, securities regulators in the other provinces and territories have not yet taken an official position.
Female Representation Disclosure
The CSA first introduced diversity disclosure requirements in 2014 for the representation of women on boards and in executive positions using a “comply or explain” model. These requirements were adopted by all jurisdictions other than British Columbia and Prince Edward Island. Over the eight-year period during which this disclosure has been required, the CSA notes that the proportion of female representation on boards has increased from 11% to 24%.
Currently, non-venture reporting issuers must disclose annually the following information:
- policies on female representation on the board;
- consideration of female representation in the search for and selection of director candidates;
- consideration of female representation in the appointment of senior management;
- the issuer’s targets for female representation on the board and in senior management; and
- the number of women on the board and in senior management positions.
Under both approaches, the proposed amendments largely maintain mandatory disclosure around female representation. The “comply or explain” model is also preserved. The main enhancement is that issuers will have to describe their approach to achieving or maintaining female representation on board of directors, which is broader than just disclosing the details of any written policy. Issuers will be required to detail their objectives and the mechanisms they put in place to meet their objectives and measure their progress while continuing to disclose the terms of any written policy. The second approach favoured by the OSC goes further by introducing the concept of a written diversity strategy. In addition, under the second approach, issuers will be required to disclose targets and data in standardized format.
Other Designated Group Disclosure
Canada Business Corporations Act (the “CBCA”) amendments in 2020 introduced diversity disclosure requirements for CBCA governed reporting issuers for four “designated groups”: women, members of visible minorities, persons with disabilities and aboriginal people under the federal Employment Equity Act. As announced in the March 2023 federal budget, federal financial institutions which are not captured by the CBCA will be subject to the same diversity disclosure requirements as CBCA issuers. For a summary of the changes to the CBCA and the proposed amendments to the Bank Act, the Insurance Companies Act and the Trust and Loan Companies Act, we refer you to our blog posts which can be viewed here and here.
Identified Group Vs Designated Group Disclosure
Inspired by the designated groups disclosure trend, including recent CBCA amendments, the CSA now proposes two approaches that differ significantly on diversity disclosure requirements beyond women for non-venture reporting issuers:
1) First Approach
In its first approach favoured by the Western Group, the CSA would require issuers to disclose their practices and policies regarding diversity on the board and in executive roles, but would not mandate disclosure in respect of any specific group other than women. This approach provides flexibility to issuers as they may determine what information to disclose with respect to diversity under the concept of “identified group”. The regulation defines an “identified group” as being “a group of individuals with a shared personal characteristic, whose representation on the issuer’s board or in its executive positions has been identified by the issuer as being part of the issuer’s strategy respecting diversity, but does not include women”. The issuer can, however, choose who fits in this category of “identified group”. Issuers must only disclose information in regard to members of an identified group if they have collected relevant data.
Similar to female representation, issuers will have to describe their objectives regarding the representation of members of identified groups, the mechanisms put in place to achieve such objectives, how they measure achievement and their annual and cumulative achievement of such objectives. Issuers must also describe any written policy or process that the board has adopted in this respect. If the board has not adopted a policy or process, issuers must explain the reasons underlying their decision. Issuers must also set target numbers or percentages, or a range of numbers or percentages, regarding the representation of the members of such identified groups. If not, they must explain why they have not done so.
2) Second Approach
Under the second approach favoured by the OSC, the CSA broadens disclosure requirements to require reporting on the representation of members of the Designated Groups.
Under this approach, issuers must describe their written strategy regarding diversity on the board or in executive positions, including any written policy regarding the representation of members of Designated Groups in these positions. If the board has not adopted such a policy, issuers must explain why.
Issuers must also set target numbers or percentages, or a range of numbers or percentages, regarding the representation of members of the five Designated Groups. If issuers do not disclose such information, they must provide an explanation.
Finally, issuers will be required to provide information regarding their target (number or percentage), the timeframe for achieving such target and their annual and cumulative progress in achieving their target. Issuers must also provide information pertaining to the number of directors on their board who self-identify as a member of a Designated Group and the number of executive officers who self-identify as such, based on voluntary disclosure by the individuals. The metrics will have to be disclosed in standardized format designed to facilitate ease of comparison for investors, as well as collection of this data by the CSA.
Board Nomination And Renewal Disclosure
The disclosure around the term of office of directors and other mechanisms for the renewal of the board will also be amended by the proposed CSA changes. Under both approaches, issuers would have to describe how they identify and evaluate candidates for nomination to the board. If issuers do not have a nominating committee, or if this committee is not made of independent directors, issuers must explain how they encourage an objective nomination process. Issuers would also have to share any written policy respecting the nomination process or, if they do not have such a policy, describe how they carry out the nomination process. Under the second approach favoured by the OSC, these written policies must also include the nomination of individuals from Designated Groups.
Under both proposed approaches, issuers would need to describe term limits adopted for directors and other mechanisms to favour board renewal. If the board has not adopted term limits or other such mechanisms, issuers must explain why.
The proposed amendments would be applicable only to non-venture reporting issuers. Diversity disclosure for venture issuers will be analyzed in a second phase. The public consultation for the CSA’s proposed amendments will end on July 12, 2023.
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 Note: These requirements were adopted by Alberta in 2016.