Should Government Legislate that Companies Must Disclose Information Relating to CSR?

Recently the European Commission adopted a groundbreaking CSR directive. It applies to 6,000 large companies with over 500 employees. Effective 2017, it directs them to disclose information on policies, risks and outcomes related to environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and board director diversity. This is a bold and sensible move by the EU and should be applauded.  

Now…what will Canada do?

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Canada reviews the Canada Business Corporations Act – where does CSR belong?

Canada reviews the Canada Business Corporations Act – where does CSR belong?

Our own federal government is currently reviewing the Canada Business Corporations Act (CBCA) and should be applauded for that. The CBCA is a regulatory framework for nearly 235,000 federally incorporated corporations including almost half of Canada’s largest publicly traded companies.

To inform its review, earlier this year Industry Canada launched a consultation to seek input on possible amendments, including whether additional measures to promote CSR objectives are warranted in the Act.

No  submission spoke against the value of CSR

Seventy-seven individuals and organizations made submissions. Forty-four percent (34) of them, including me, commented on whether or not CSR should be included in the Act. (Link to all submissions). My submission, as summarized in my March blog, called for the Act to be amended to require large companies with over 500 employees to disclose and assure their CSR performance using a report or explain approach, consistent with global trends in this area.

Notably most of the CSR oriented submissions – whether institutional or retail investors and asset managers, lawyers, accountants, employers, and others – spoke favourably of CSR and how it has become a corporate governance concern and part of the corporate landscape. This is a strong finding. No one spoke against the value or merits of CSR.

CSR in or out of the CBCA?

Where the submissions differ is on whether the government should explicitly mandate CSR reporting or codify CSR objectives in the CBCA. Fifty-seven per cent (20) of the submissions that addressed CSR argued against including CSR provisions in the Act, believing that existing rules are adequate, flexibility is needed as CSR evolves, and CSR disclosure should remain the domain of provincial securities regulators.

Forty per cent (14 submissions) called for CSR disclosure requirements and/or the codification of CSR objectives within the CBCA. Codification is proposed to address the ambiguity regarding whether and how corporate directors should take stakeholder and corporate citizenship interests into account.

Supreme Court case cited regarding corporate citizenry and director obligation

A number of both pro and con submissions cited the watershed 2008 case of BCE Inc. v 1976 Debentureholders in which the Supreme Court of Canada (SCC) found that directors are required to “act in the best interest of the corporation, viewed as a good corporate citizen” and that they may look to “the interests of, inter alia, shareholders, employees, creditors, consumers, governments and the environment to inform their decisions.” Elsewhere in the case, the court implies that the consideration of stakeholder interests is a mandatory obligation for directors.

There are different views on the adequacies of this case law and therefore some ambiguity. Those arguing for codification of CSR objectives in the CBCA believe this would eliminate any uncertainty stemming from the BCE decision. One submission recommended the government clear up any confusion by enacting something similar to section 172 of the UK Companies Act, which clearly states that directors are required to consider the interests of employees, suppliers, customers, communities and the environment and the long-term consequences of decisions.

Over to Ottawa

Now it is over to the federal government to determine if amendments are warranted. This is the time to grapple with this question, given the wide acceptance of CSR as a legitimate business issue, the broadening CSR mandates of securities regulators, the open-endedness of the SCC’s corporate citizenship terminology and international developments in this area.

The article was orignially published on Coro Standberg’s Website
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Coro Strandberg is principal of Strandberg Consulting, a firm that helps companies and industry associations integrate sustainability into business models and strategy.