Canada’s biggest companies need to beef up their existing disclosures on forced and child labour to meet the expectations of a new federal law, according to a study by law firm Fasken Martineau DuMoulin LLP.
The conclusion is part of the firm’s wide-ranging 2024 ESG Disclosure study, released Tuesday. The firm reviewed the environmental, social and governance disclosure practices of 81 large Canadian public companies, examining securities filings and other shareholder communications for the members of the S&P/TSX 60 Index of large companies, plus 21 additional corporations on the Climate Engagement Canada (CEC) Focus List of large carbon emitters.
While climate disclosure has been top of mind for many Canadian companies in recent years, Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act, which took effect Jan. 1, puts a new ESG disclosure mandate on companies’ plates. It applies to public companies listed on any stock exchange in Canada, not just the largest corporations.
The new law is the first major step for the Trudeau government in attempting to eradicate modern slavery and child labour from Canadian supply chains. It’s based on provisions of the United States-Mexico-Canada trade agreement, or USMCA, that prohibit forced labour and includes amendments to Canada’s customs tariff to explicitly ban the importation of goods made in whole or in part by forced labour or child labour.
The companies must file a report by May 31 of each year with information on their structure, supply chains and the actions they’ve taken to prevent or correct modern slavery and child labour. They must also include how they gauge the efficacy of its policies and procedures to guard against modern slavery.
Fasken’s review found that 67 per cent of TSX 60 and 49 per cent of CEC companies are only reporting on the policies or processes they have in place, “generally stating zero tolerance in their supply chains.”
They’re falling short in other areas. Only 20 per cent of TSX 60 and 10 per cent of CEC companies Fasken studied are reporting on the parts of their business or supply chains that carry a risk of forced and/or child labour.
“I think most companies don’t tend to be proactive on new disclosure requirements unless there’s some clarity on what those disclosure requirements are,” says Gordon Raman, who chairs Fasken’s ESG & Sustainability Practice.
“There are some guidelines that just came out before the holidays, and they’re a little bit helpful, but not perfect,” he said. “If you read the guidelines, I think the government inasmuch acknowledges that the first year is going to be a learning experience, probably even for the government.”
The act requires companies to post the reports on their websites. Only those governed by federal legislation, including the Canada Business Corporations Act, must provide a copy of the report to investors.
That might create a divergence in disclosures. A majority of companies in Canada are provincially incorporated and need not send out a report, so they may rely on their proxy circulars for shareholder disclosure. Companies that must send the separate forced labour report directly to shareholders may feel that obviates the need to beef up disclosure in securities filings, which are covered by a separate set of laws.
“This year in our disclosure study, we found that most large companies have separate sustainability reports and more and more of some of the ESG disclosure is moving into the sustainability reports and not contained in the proxy circular. Unless something is specifically required under the securities legislation, there may be a move to make sure that it’s addressed in other reports,” Mr. Raman said.
Between sustainability reports and ordinary securities filings, more companies are including more ESG disclosures.
The report found that more companies are noting specific ESG metrics that are applicable to short-term executive compensation decisions. Additionally, it found an increased number are obtaining some form of assurance – an audit or outside expert consultant evaluation – with respect to certain aspects of their ESG disclosures. The study also noted more companies say they have directors with ESG-related expertise.