CSA proposes to broaden diversity disclosure rules and related corporate governance guidelines

On April 13, 2023, the Canadian Securities Administrators (CSA) released a Notice and Request for Comment (the Notice) proposing amendments to current corporate governance disclosure requirements and best practice guidelines relating to diversity, board renewal and the director nomination process (the Amendments).

What you need to know

• The Amendments broaden existing diversity disclosure requirements under Canadian securities laws, currently limited to the representation of women on boards and in executive officer positions, to encompass other groups.
• The CSA has taken the unusual step of publishing two alternative proposals for comment which differ in their approach to diversity disclosure:
  • “Form A” is less prescriptive, removes regulators from the process of selecting and defining demographic groups and leaves it to issuers to determine which categories of “identified groups”, in addition to women, will be disclosed as part of an issuer’s diversity strategy.
  • “Form B” mandates disclosure in respect of historically underrepresented “designated groups”, namely Indigenous peoples, LGBTQ2SI+ persons, racialized persons, persons with disabilities and women.
• The Amendments also propose enhanced disclosures and best practice guidelines relating to the board nomination and renewal process.
• Consistent with existing disclosure requirements relating to the representation of women, the Amendments would not apply to venture issuers. The CSA is seeking feedback on whether these requirements should be extended to venture issuers at a later time.
• The Amendments will be open for public comment until July 12, 2023.

Governance disclosures are just one piece of the puzzle. For more on ESG reporting rules, read our Quarterly.

Purpose of the Amendments

The Amendments build on the existing disclosure requirements in Form 58-101F1 Corporate Governance Disclosure (Form 58-101F1) of National Instrument 58-101 Disclosure of Corporate Governance Practices regarding the representation of women on boards and in executive officer positions and board renewal, which were adopted by most CSA jurisdictions in 2014. The primary objectives of the Amendments are to:

• increase transparency about diversity, including diversity beyond women, on boards and in executive officer positions;
• provide investors with more meaningful information that enables them to better understand how diversity ties into an issuer’s strategic decisions and to make informed investment and voting decisions; and
• provide issuers with clearer and more streamlined disclosure requirements in respect of board nominations, board renewal and diversity.

Summary of the Amendments

Diversity disclosure

The CSA is seeking input on two alternative sets of proposed amendments to Form 58-101F1: Form A and Form B. Both Forms require enhanced disclosure of an issuer’s approach to diversity, including any written diversity policy, diversity targets and demographic data on the board and in executive officer positions. The key differences between the Forms are as follows:

• Form A requires disclosure regarding women and any identified groups, meaning each group of individuals with a shared personal characteristic that has been identified by the issuer as being part of its diversity strategy.
• Form B requires disclosure regarding designated groups, meaning persons who self-identify as one or more of the following: Indigenous peoples, LGBTQ2SI+ persons, racialized persons, persons with disabilities or women. Form B’s designated groups align with the disclosures currently required by corporate law for reporting issuers governed by the Canada Business Corporations Act—with the addition of LGBTQ2SI+ persons.
• While both Forms continue to require disclosure of the number and proportion of women on the board and in executive officer positions, disclosure of this data would only be required for the identified groups in Form A if the issuer collects this data. By contrast, Form B requires disclosure of demographic data for all designated groups.
• Form B requires that the required targets and demographic data be disclosed in a standardized tabular format, which would facilitate ease of comparison for investors and collection of this data by securities regulators.
• While both Forms require disclosure of an issuer’s approach to achieving or maintaining diversity on the board, only Form A requires disclosure of an issuer’s approach to achieving or maintaining diversity at the executive officer level. In the Form B proposal, this disclosure at the executive officer level is not required on the basis that it is too granular and may increase regulatory burden without a corresponding benefit for investors.

Securities regulators in British Columbia, Alberta, Saskatchewan and the Northwest Territories have stated a preference for the less prescriptive Form A approach, while the Ontario Securities Commission has stated a preference for the Form B approach. Regulators in all other Canadian jurisdictions have not articulated a preference. We expect that the CSA will be assessing stakeholder feedback received during the comment period with the goal of arriving at a single harmonized approach to diversity disclosure.

Board renewal

The Amendments related to board nominations and board renewal are substantially the same in both Forms and require disclosure that goes beyond the current rules in respect of the following matters:

• how the board identifies and evaluates new candidates for nomination to the board;
• whether the board has a written policy in respect of the nomination process, and if not, an explanation of how the board carries out the nomination process. Form B also requires disclosure of whether such written policy addresses the nomination of persons from designated groups;
• how any conflicts of interest that arise or could arise during the nomination process are managed;
• whether the board has a composition matrix setting out the mix of skills, knowledge, experience, competencies and attributes that the board currently has or is seeking;
• the skills, knowledge, experience, competencies and attributes of candidates that are considered when evaluating a candidate; and
• a broader description of how the board addresses board renewal, including a description of how any board renewal mechanisms (other than term limits) contribute to effective board renewal.

Corporate governance guidelines

The Amendments also include proposed changes to National Policy 58-201 Corporate Governance Guidelines that articulate recommended best practices (not mandatory) relating to (i) the responsibilities of nominating committees; (ii) practices to promote board renewal and diversity, including the use of a skills matrix, term limits and director evaluations; and (iii) target-setting. Many of the proposed guidelines reflect governance practices already commonly adopted by issuers.