Canadian Securities Administrators seeks comment on proposed diversity disclosure rules beyond women

Two versions of proposals reflect different approaches to diversity disclosure

Canadian Securities Administrators seeks comment on proposed diversity disclosure rules beyond women

The Canadian Securities Administrators is looking for public comment on proposed amendments that would require more disclosure on diversity beyond the representation of women.

They also want to change disclosure rules and policies relating to the director nomination process and “board renewal.”

“The CSA is seeking comment on two approaches that build upon the current disclosure requirements regarding the representation of women on boards and in executive officer positions, the director nomination process and board renewal,” said Stan Magidson, CSA Chair and Chair and CEO of the Alberta Securities Commission.

“The proposed changes recognize the importance of providing investors with transparency on issuers’ practices with respect to board and executive-level diversity and reflect the CSA’s commitment to providing investors with the information they need to make informed investment and voting decisions.”

The proposals are contained in a Notice and Request for Comment on amendments to Form 58-101F1 Corporate Governance Disclosure of National Instrument 58-101 Disclosure of Corporate Governance Practices and proposed changes to National Policy 58-201 Corporate Governance Guidelines pertaining to director nomination process, board renewal and diversity.

The main objectives of the proposals are to:

  • Increase transparency about diversity, including diversity beyond women, on boards and in executive officer positions;
  • Provide investors with decision-useful information that enables them to understand better how diversity ties into an issuer’s strategic decisions; and,
  • Guide issuers on corporate governance practices related to board nominations, renewal, and diversity.

In 2014, the CSA adopted requirements that non-venture issuers on exchanges provide disclosure on an annual basis on director term limits and other mechanisms of board renewal; policies regarding the representation of women on the board; consideration of the representation of women in the director identification and selection process; consideration given to the representation of women in executive officer appointments; issuer’s targets regarding the representation of women on the board and in executive officer positions; and number of women on the board and in executive officer positions.

The objective of the 2014 requirements was to “increase transparency for investors regarding the representation of women on boards and in executive officer positions, and the approach that issuers take in respect of such representation, to inform investment and voting decisions.”

Since then, several developments have heightened the importance of considering diversity on boards and in executive officer positions. These include requirements, starting Jan. 1, 2020, for those firms governed by the Canada Business Corporations Act (CBCA) to provide diversity disclosure concerning women, Indigenous peoples (First Nation, Inuit and Métis), persons with disabilities and members of visible minorities in connection with their annual meeting of shareholders held on or after such date. 

In February 2020, the Ontario Government established the Capital Markets Modernization Taskforce to review and modernize the Ontario capital markets. The Taskforce published a final report in January 2021, including corporate board diversity recommendations.

In addition, on Oct. 1, 2020, institutional investors managing more than $2.3 trillion in assets signed the Canadian Investor Statement on Diversity & Inclusion, an initiative to combat systemic inequities and advance diversity and inclusion efforts. 

In light of this heightened focus, the CSA says staff undertook consultations, research and reviews related to diversity. The feedback confirmed that diversity is an essential consideration in investment and voting decisions and that there is strong investor support for expanding the existing disclosure regime to consider diversity beyond women while maintaining specific disclosure requirements regarding women. 

The CSA says that many stakeholders support diversity guidelines that also give issuers the flexibility to adapt them to their circumstances. However, some stakeholders supported a consistent, standardized framework for diversity disclosure.

The CSA is presenting two versions of proposals – Form A and Form B, reflecting different approaches to diversity disclosure while being generally aligned to disclosure requirements related to board nominations and renewal.

Form A would require an issuer to disclose its approach to diversity regarding the board and executive officers but would not mandate disclosure of any specific groups other than women. 

An issuer would be required to describe its chosen diversity objectives and how it would measure progress and explain what mechanisms it has determined are appropriate for the issuer to achieve its diversity objectives. If an issuer chooses to collect data concerning specific groups it identifies as being relevant for the issuer’s approach to diversity, this data must be disclosed in a manner determined by the issuer. 

The CSA says the approach taken in Form A provides each issuer with the flexibility to design practices and policies respecting how it will address diversity in its specific circumstances and not requiring it to report data on any particular group. This approach also removes securities regulators from defining to whom an issuer’s approach to diversity must apply other than women.

On the other hand, Form B contemplates mandatory reporting on the representation of five designated groups, including women, Indigenous peoples, racialized persons, persons with disabilities and LGBTQ2SI+ persons, on boards and in executive officer positions. 

An issuer may also choose to voluntarily provide disclosure in respect of other groups beyond the designated groups. All such data must be reported in a standardized tabular format to promote consistency and comparability of such disclosure. The information reported must be based on voluntary self-disclosure by directors and executive officers. In addition, Form B would require disclosure regarding any written strategy, written policies and measurable objectives relating to diversity on an issuer’s board.

The CSA says that both Form A and Form B are designed to increase diversity transparency, but “the key difference between Form A and Form B is that the latter mandates disclosure on historically underrepresented groups.” In doing so, it conforms to the approach taken in the CBCA and is intended to provide statistical data comparable amongst issuers in connection with these groups.

Form A’s approach is based on a view that securities regulators should not select categories of diversity other than women, preferring to leave that to the issuer’s determination as to what aspects of diversity are most beneficial to that issuer in advancing its business and strategy. “In other words, a less prescriptive approach. It may also avoid limitations on the completeness of disclosure arising from the use of information resulting from voluntary self-identification in relation to the specified categories.”

While all participating jurisdictions are consulting on both Form A and Form B, the CSA says certain jurisdictions have expressed their preference for one proposal over the other.

Specifically, the British Columbia Securities Commission, the Alberta Securities Commission, the Financial and Consumer Affairs Authority of Saskatchewan and the Office of the Superintendent of Securities Northwest Territories support Form A, and the Ontario Securities Commission supports Form B. 

The Autorité des marchés financiers, the Financial and Consumer Services Commission of New Brunswick, the Manitoba Securities Commission, the Nova Scotia Securities Commission, the Office of the Superintendent of Securities Newfoundland and Labrador, the Office of the Superintendent of Securities Nunavut, the Office of the Yukon Superintendent of Securities and the Superintendent of Securities Department of Justice and Public Safety Prince Edward Island have not expressed a preference at this time.

As for proposed changes for enhanced guidelines related to board nominations and would introduce policies on board renewal and board diversity, the CSA says, “Although these guidelines are not intended to be prescriptive, we would encourage issuers to consider them in developing their own corporate governance practices and to apply and adapt these guidelines based on their individual circumstances as they evolve.”

The proposed guidelines would address the following: 

  • the responsibilities of the nominating committee;
  • the written policy respecting the director nomination process;
  • the use of a composition matrix;
  • effective succession planning and the mechanisms of board renewal, including term limits;
  • the written diversity policy; and 
  • targets for achieving diversity on the board and in executive officer positions. 

The suggestions for board nominations and renewal are outlined in the request for comment as Policy A, which is compatible with the diversity approach suggested in Form A, and Policy B, which is more suited to the diversity disclosure approach outlined in Form B.

There is a 90-day comment period, and stakeholders are invited to provide written comments on or before July 12, 2023. During the comment period, there will be local outreach to various stakeholders to solicit feedback on the proposals and encourage written comments. The CSA has also committed to broadening its engagement with Indigenous Peoples and organizations.

The CSA Notice and Request for Comment are on CSA members’ websites.

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