Modern slavery - an umbrella term used to describe exploitive labour practices such as slavery, forced labour, bonded labour and human trafficking - has been the subject of international regulatory developments and increasing investor interest. Now the securities regulator in Québec (the Autorité des marchés financiers, or the AMF) has published a notice that provides guidance to public companies on disclosure requirements relating to modern slavery.
Gowling WLG Focus
The purpose of the AMF's notice is to provide guidance to issuers on existing disclosure requirements as they pertain to modern slavery issues, as well as to share the expectations of staff of the AMF regarding that disclosure. The notice makes it clear that no new legal disclosure requirements are being created, nor are existing disclosure requirements being modified. However, this guidance is a positive first step from a Canadian securities regulator and should assist Canadian issuers in enhancing their disclosure.
Regulatory and Investment Landscape
The steps being taken to enhance transparency on modern slavery issues have been expanding over the past years (e.g. the State of California, the EU, the UK, France, etc.) and more jurisdictions are considering modern slavery reporting legislation (e.g. Australia).
In 2016, Canada's largest investor, the Canada Pension Plan Investment Board (CPPIB), added human rights as one of its focus areas for engaging with the companies in which it invests. "We believe that strong human rights practices contribute to long-term value and engaging with companies in our portfolio on this topic is therefore an important part of our strategy to maximize long-term returns". For CPPIB, human rights issues can include forced, slave or child labour and CPPIB seeks enhanced reporting on identifying, managing and mitigating human rights related risks, and seeks improved human rights practices, including those related to supply chain management.
Earlier this year, a group of Canadian and international investors with C$2.3 trillion in assets under management sent a statement to the federal Minister of Labour urging the Canadian federal government to enact modern slavery reporting legislation. These institutional investors noted that "the relative lack of transparency in the Canadian market makes it difficult for investors to conduct the same analysis of Canadian companies as they do of their international competitors". The legislation that they were recommending would require businesses operating in Canada to report annually on their due diligence efforts to prevent and to mitigate the risk of modern slavery and child labour in their supply chains. This is similar to the legislation in California and the UK.
For clarity, the AMF notice does not tackle modern slavery reporting legislation. Rather, the AMF's notice focuses on which current continuous disclosure requirements may be related to modern slavery issues. In particular, the notice highlights disclosure requirements relating to:
- risk factors and social policies, in each case in preparing an Annual Information Form (AIF); and
- the adoption of a code of conduct and ethics for directors, officers and employees and the steps taken by the board of directors to encourage and promote a culture of ethical business conduct, in each case in providing annual corporate governance disclosure.
The notice directs boards of directors, audit committees and certifying officers to ensure that the disclosure provided in the documents filed under securities regulation is consistent with management's assessment of the materiality of modern slavery-related issues.
In addition, the notice reports on the findings of a review of the current disclosure practices of a select group of 20 TSX-listed issuers with a market cap of C$1 billion or more, across a broad range of industries. Most notably, the review focusses on risks and poses a number of questions that issuers should ask themselves in order to define the material risks to which their businesses may be exposed in respect of modern slavery:
- Is the issuer a party to litigation involving issues of modern slavery? What is the probability that the plaintiffs will win?
- What are the real and expected consequences of regulations relating to modern slavery on the issuer's business and strategy?
- How does the issuer handle issues related to modern slavery? The manner in which these are handled can have a positive or negative impact on fundamental intangible assets such as brand value, consumer confidence, employee loyalty and the ability to raise funds.
- What impact will the issuer's relationship with local communities and other parties affected by its activities as regards its workforce have on its performance and operation? The relationship between an issuer and local communities can impact its ability to operate and its operating costs.
Finally, the AMF notes that some issuers voluntarily disclose information regarding modern slavery in social responsibility reports. Various Canadian companies (private and public) also file reports under the California Transparency in Supply Chains Act of 2010 and under the UK Modern Slavery Act, both of which require businesses to which this legislation applies to disclose what efforts they are making to address modern slavery in their operations and supply chains. The AMF's guidance reminds issuers that provide voluntary disclosure about their initiatives with respect to modern slavery to incorporate it into their continuous disclosure documents if the information is material and likewise to ensure consistency between information that is disclosed voluntarily and that which is included in continuous disclosure documents.