The NP 51-201 – Disclosure Standards: National Policy in Canada was established in order to provide guidance on what information needs to be disclosed, when it should be disclosed and how it should be disclosed.
The NP 51-201 was promulgated by the Canadian Securities Administrators (CSA), which are comprised of 13 provincial securities commissions that have adopted common administrative, enforcement and licensing policies throughout Canada. The intent of the NP 51-201 is to provide guidance for companies to follow when preparing material news releases and certain required financial disclosures, but is separate from the Canadian Index of Wellbeing which measures quality of life in Canada.
What does this mean for Canadian Companies?
Preamble of NP 51-201: “The Panel is aware that the evolution of sustainable development issues is associated with increasing investor interest in companies’ environmental, social and corporate governance (ESG) activities. The Panel believes that this trend reflects growing public awareness about environmental concerns and changing expectations regarding public policy and industry practices. It also believes that financially motivated factors are important elements of the motivation behind socially responsible investment.”
One of the items covered by the NP 51-201 is Social Responsibility, which includes environmental matters such as climate change, pollution control, resource conservation and sustainable development. The goal of including social responsibility information in a company’s financial disclosures is to provide investors with a better idea of how companies make decisions and what risks they might be taking. The requirements for timely disclosure and prohibitions against selective disclosure are substantially similar throughout Canada, but vary significantly by province and region. But you can get started here with how to write an ESG report.
The NP 51-201 disclaimer
It is important to keep in mind that the disclosure of ESG information can have various implications. These are related both to how consumers will perceive a company’s transparency and also its reputation, which could affect shareholder values. The NP51-201 provides guidance on what should be disclosed by public enterprises, but it does not provide specific examples of matters to disclose. It is up to each enterprise to determine whether or not they want to disclose such matters as human rights, labour standards, environment conservation guidelines, animal rights and religion. However, some stakeholders may believe that this information should be made publicly available no matter what the consequences might be for the enterprise.
What does the NP 51-201 require of public enterprises?
The NP 51-201 establishes that publicly accountable enterprises are expected to promote transparent and comprehensive information disclosure practices. The NP provides examples of issues that are found under this topic, including but not limited to human rights, labour standards, environment conservation guidelines, animal rights, religion, political contributions, bribery and corruption.
The NP 51-201 Standard is a requirement for all publicly accountable enterprises in Canada. There are both costs and benefits associated with disclosure practices and it is up to each enterprise to decide whether the costs outweigh the benefits. While some enterprises may opt for public disclosure, others might prefer not to disclose such matters as human rights, labour standards, environment conservation guidelines, animal rights and religion because of potential negative consequences.
The costs and benefits of disclosure practices
On one hand, there are benefits that can be attributed to disclosure practices. One of these includes highlighting the commitment that an organization has made to transparency and accountability for its stakeholders. In addition to this benefit, disclosing environmental data can also provide evidence of a company’s efforts to reduce their impacts on the environment. This can be especially useful in situations where a company may have been blamed for continuing to emit high levels of pollutants, even though they have already made an effort to reduce them.
On the other hand, disclosure can also come with some risks and costs. For example, if a company publicly discloses information regarding their efforts towards environmental conservation, this could lead competitors to adopt those same standards or even exceed them. In addition to this, disclosure could lead to a loss of confidentiality for sensitive information and there is also a risk that disclosure may damage the reputation of a company. For example, if an organization publicly states they have not implemented any ethical practices or policies within their organization, this can lead to negative consequences such as decreased sales and profits.
Disclose or not to disclose, that is the question
There is no clear answer as to whether disclosure practices should be used by all enterprises or not, because it depends on a number of factors unique to each organization. Some stakeholders believe that all organizations should publicly disclose such matters as human rights, labour standards, environment conservation guidelines, animal rights and religion; while others might prefer not to disclose such information because of potential negative consequences.
What is ESG in Canada?
The Environment and Social and Governance (ESG) Glossary is a guide to aid those looking for information regarding ESG. It is an initiative of the Green Bond Initiative. The glossary provides definitions for key terms such as “climate change,” “environmental sustainability” and “social responsibility.”
The glossary defines environmental sustainability as “the capacity of the environment to sustain ecological, physical, economic and social processes.” This definition falls in line with the idea of an ever-evolving system that needs continuous adaptation to survive. The glossary also defines social responsibility as “a company’s commitment to fulfilling their moral and ethical responsibilities towards employees and stakeholders.”
A breakdown of the ESG factors of the NP 51-201
The NP 51-201 Standard includes standards for human rights, labour standards, environment conservation guidelines, animal rights, religion, political contributions, bribery and corruption.
Some of the factors that fall under these standards include:
- Human Rights – this includes whether an organization has policies on protecting the rights of employees from discrimination on a protected ground, harassment and violence in the workplace.
- Labour Standards – this includes both whether an organization provides its employees with a safe and healthy work environment as well as ensuring they are free from child and forced labour and slavery.
- Environment Conservation – this includes whether an organization’s policies and practices ensures measures are taken to reduce the environmental impact of direct and indirect operations as well as reducing energy consumption.
- Animal Rights – this includes ensuring animals used by the company are treated humanely, that they do not suffer from cruel or harmful treatment, nor any other forms of neglect or abuse.
- Religion – this could include whether an organization promotes religious tolerance and freedom of religious beliefs, ensuring they do not discriminate based on a person’s religion. In addition to this, an organization should ensure that any accommodations made for the practice of religion are appropriate in nature (e.g., allowing observance of dietary restrictions or transportation to work for observant Jewish employees).
- Political Contributions – this includes reviewing annual election donation policies, ensuring they are transparent and that the organization does not support any political parties or candidates with questionable reputations.
- Bribery and Corruption – this deals with whether an organization has policies governing their dealings with foreign governments or international business partners, and whether they ensure compliance with bribery and corruption laws and regulations.
How you can get started with ESG Disclosure Standards in Canada
The National Policy provides a framework for disclosure practices. Publicly accountable enterprises are expected by the NP to promote comprehensive and transparent disclosure practices. You can incorporate ESG into its own category in the company’s annual report, or you could have a separate section that contains all of your esg-related information. You can also have a separate website that contains your esg-related information.
The NP acknowledges that companies have different policies and standards for reporting on ESG issues (16 Reasons Why You Should Make One) within their overall reporting framework. They also recognize that there is no standardization of voluntary approaches to ESG disclosure for mid-size and small companies, but they hope that this will be transparent across all publicly accountable enterprises.
Requirements of disclosure of the Policy
Full, fair, accurate and timely disclosure of information: The NP 51-201 requires all publicly accountable enterprises to disclose material information. This should be done in a full, fair, accurate and timely manner. The guideline states that stakeholders should have access to key indicators and disclosures at the same time as senior officers of the organization. If this is not possible, disclosures should be made within a reasonable period of time.
How does the NP 51-201 compare to other countries policies?
NP 51-201 provides some insight into the disclosure standards of Canada. It discusses mandatory reports on environmental sustainability, which are expected to be issued every two years by publicly accountable enterprises. These reports need to include both positive and negative impacts on natural resources, as well as how these effects will be mitigated in the future. The NP establishes that publicly accountable enterprises are expected to promote transparent and comprehensive information disclosure practices.
The NP 51-201 compares favorably to other countries’ policies. For example, China requires publicly accountable enterprises to report on an annual basis on social responsibility issues such as human rights, labour standards and environmental conservation guidelines. The US requires companies to disclose payments made for political purposes or bribes or other corrupt payments paid to government officials. This is helpful for stakeholders to know of any unethical or illegal activities that are taking place at the company.
When companies do not follow these standards
In the past, some countries have been criticized for not following Disclosure Standards. In 2013, a Reuters article called Nigeria a “scandal-ridden country,” pointing to a lack of transparency in that country’s mining sector and, more specifically, bad blood between oil companies and authorities in that area. The article goes on to describe the “joke” that is Nigeria’s petroleum industry, noting that exploration companies are not allowed access to information because it was kept confidential for national security reasons.
In 2015, a report by the United Kingdom-based think tank Chatham House addressed risks associated with commercial involvement in African agriculture and noted that major food and agribusiness companies had yet to implement human rights policies that were consistent with their broader corporate values or embrace independent systems for reporting on how land deals were being carried out.
The NP 51-201 Disclosure Standards are intended to promote transparency within the Canada’s corporate culture. Although companies that own Canadian subsidiaries do not have to adhere to these standards, they are encouraged to follow them so as not to show bias or act unethically with regard to their affiliated foreign countries.
How the NP 51-201 affect the oil and gas industry
The NP 51-201 has resulted in many changes since it was published. One example is that companies are required to disclose the evidence they have collected that justifies their stand on an issue, if it diverges from what other organizations or society support. It includes not just the organization’s social responsibility activities, but also the environmental and governance matters. This is important because even if an organization does not engage in social responsibility activities, it should still be able to demonstrate that its business strategy and practices support long term success and sustainability of their operations.
Another requirement under NP 51-201 is that there should be a clear distinction between personal and professional information. The NP requires that employees keep their personal life separate from business issues, especially if they involve a conflict of interest or potential for a conflict of interest.
The NP 51-201 also expects organizations to provide clear reporting. In other words, when they have completed what is required under this NP, the organization should clearly state the scope of what they have done.
The NP 51-201 also demands that organizations should provide disclosure in regard to any future expectation or plan, which is reasonably likely to influence or change an organization’s activities.
As a result of NP 51-201, it is now expected that the oil and gas industry will have clear reporting.
How often to report?
At least once every three months, the NP requires information on material transactions to be disclosed in an accurate and timely manner (note: this is different than ‘within a reasonable period’). Material transactions are purchases or sales of items that qualify as business acquisitions or disposals according to the NP 5100 Material Acquisitions and Disposals. Material transactions are not required to be disclosed every quarter; they may be done according to the discretion of the enterprise.
The disclosure regime also requires that material non-financial and financial information must be disclosed in a timely manner (i.e., within annual reporting periods). The disclosure regime specifies that financial information must be disclosed in annual financial statements, quarterly management discussion and analysis (MD&A) reports, current reports (which must include the most recent interim financial report), and news releases.
How do we measure performance?
The NP 51-201 requires enterprises to develop targets and publicly announce measurable objectives for each of the disclosure requirements regardless of materiality. Enterprises should also address how results were achieved by using appropriate performance measurements.
What do we measure?
Enterprises should measure their performance against the following disclosure requirements:
§ Strategic environmental analysis (NP 51-201, section 12.0)
§ Internal reporting (section 13.2)
§ Directors, executives and senior officers’ contribution to sustainable development (section 14.4)
§ Material non-financial and financial information (sections 15.1, 15.2)
§ Material changes (section 16.0)
§ Board committees (section 20.0)
§ Human rights violations report (section 10.3)
§ Labour standards report (section 11.3)
§ Environment conservation guidelines report (section 12.5)
§ Animal rights policies and practices report (section 12.6)
§ Political contributions and bribery and corruption policies and practices report (sections 13.1, 13.4).
The NP requires enterprises to address each of these disclosure requirements in an accurate manner so that stakeholders can measure performance over time.
Canadian securities administrators
In British Columbia there is the BCSC , the BCSC is ” an independent organization created by the provincial government to help protect investors and promote healthy capital markets in British Columbia.”
Representing Alberta securities is the ASC , ” an independent, self-funded organization established by provincial legislation. The ASC regulates trading in Alberta’s capital markets to protect investors .”
There is also, like most other provinces, a securities commission in Manitoba – Manitoba Securities Commission (MSC) .
Ontario has the Ontario Securities Commission (OSC) , this group was established in 1934 and is ” a Crown corporation reporting to the Ontario legislature through the Minister of Finance (OSC Act, R.S.O. 1990, Chapter P.5). The OSC administers and enforces securities law in the province of Ontario .”
Newfoundland and Labrador has an organization as well – Newfoundland and Labrador Securities Commission (NLSC) , it is ” an independent quasi-judicial regulatory agency. The NLSC is responsible for the administration of the securities act and regulations made under that act (Securities Act (NL), 1996). It is also responsible for administering Parts XXII.1, XXII.2 and XXIII of the Companies Act (1996).”
There is also a security commission in New Brunswick – NB Securities Commission (NBCS) , it provides ” investor protection through the fair and efficient regulation of capital markets in New Brunswick.”
There is the Northwest Territories Superintendent of Securities, who is ” an independent officer of the Legislative Assembly. The Superintendent supervises and regulates the capital markets in Northwest Territories, ensures that disclosure documents are filed with the Registrar promptly and authorizes companies to issue securities.”
The Nova Scotia Securities Commission (NSCC) was established in 2007 to oversee Nova Scotia’s capital market activity. The NSCC implements and enforces securities legislation that “protects investors and promotes fair, efficient and transparent capital markets in Nova Scotia.”
Over in Nunavut they have the Registrar of Securities , the Registrar was established pursuant to the Securities Act (Nu) . The role of the Registrar is to provide assistance in implementing and enforcing Nunavut’s securities legislation.
The Prince Edward Island Office of the Superintendent of Securities (PEIOS) is an agency of the Government of Prince Edward Island. They are responsible for administering the Securities Act (PE) and Regulations .
The Financial and Consumer Affairs Authority of Saskatchewan (FCAA) enforces provincial legislation regarding consumer credit, financial institutions, insurance and securities. The Superintendent, who is appointed by cabinet , regulates capital markets in Saskatchewan to protect investors .
The Superintendent of Securities for the Government of Yukon is responsible for supervising and regulating capital markets in Yukon to protect investors .
In Quebec there is the L’Autorité des marchés financiers (Quebec) (AMF) . The AMF “is an independent body that contributes to ensure that markets are fair, efficient and transparent. It also administers various provisions of financial sector legislation in Quebec. The work carried out by the AMF is complementary to that of other regulators.”
What is the IIROC?
The Investment Industry Regulatory Organization of Canada (IIROC) is a quasi-judicial body. The IIROC oversees securities trading and the regulation of investor protection within Canada. The IIROC promotes fair and efficient capital markets, and confidence in capital markets. The IIROC was created to protect investors and to ensure regulatory compliance by the Canadian investment industry.
Material fact vs material change?
Material fact is something that should be disclosed in a company’s financial statements. A material change is when a particular item changes its reader’s understanding of the financial statements. For example, if a gold mine is expected to produce 15,000 ounces in 2014 and they report 18,000 in their quarterly statement it would be considered a material change because there was an increase of 3,000 ounces not previously disclosed.
The NP 51-201 Disclosure Standards include the following examples of what should be treated as material fact:
Environmental matters; Human rights; Labour standards; Guideline on environment conservation; Animal rights; Guidelines on political contributions and bribery and corruption.
Material change: A change in facts, figures or expectations of an event that could impact the way a reader views statistics.
Generally disclosed in conclusion
In conclusion, the NP 51-201 Disclosure Standards are in place in order to protect shareholders by promoting transparent and comprehensive information disclosure in Canada’s capital markets. Transparency is achieved when all material facts known to a company are reported with their financial statements for investors to read and interpret. The listed examples of what should be treated as material fact includes but not limited to environmental, human rights, labour standards, environment conservation guidelines, animal rights, political contributions and bribery & corruption.
Website or social media disclosure
One thing that helps achieve transparency is putting the disclosure on your website or social media sites like Twitter and Facebook. Share your company’s values with your followers so they know what you stand for as an organization. Transparency through social media is a great way to show how you handle different situations. Social media users want to know what is going on in the companies they follow, and when they can see transparency in action it will help build trust between them and your organization.
Caveats, disclaimers & annual financial statements
We have covered many topics in this article and want to be clear that any reference to, or mention of the standards, securities administrators, social media, annual financial statements, generally disclosed, corporate policy, securities laws, audit committee review of charter, web site posting, businesss, social media platforms, selective, analyst reports, potentially material information, model, public companies, other market professionals, standards, continuous, institutional investors, securities regulators, certain, statutory prohibitions, sole means, industry conferences, market price, material information, sufficiently widespread, public, news release, certains, company spokespersons, press release, board members, investors access, exaggerated reports, investment decisions, overly promotional, standards, message boards, significant effect, forward looking information, national policy, material changes, bulletin boards, financial results, posting information, blackout periods, effectively reach, same time, post information, social media activities, standards, investors, business, disclosed, marketing, example, respect, dissemination, misleading, law, guidance, reports, publication, procedures, rules, issuer, noted, confidentiality, authorized, companies, financial, company, marketplace, earnings in the context of this article is purely for informational purposes and not to be misconstrued with investment advice or personal opinion. Thank you for reading, we hope that you found this article useful in your quest to understand ESG.