What is the CSA Corporate Diversity Reporting Rule?
The goal of this rule is to influence management teams at Canadian corporations to advance Diversity, Equity, and Inclusion (DEI) in the workplace, as well as to promote greater disclosure on these topics.
The Corporate Diversity Reporting rules apply to federally incorporated public companies from January 1, 2020.
This rule requires that corporations report (at least annually) on the diversity of their board of directors and senior management, in particular around 4 designated groups:
Indigenous peoples (First Nations, Inuit, and Métis)
Persons with disabilities
Members of visible minority groups
Canada was one of the earliest countries in the world to adopt a diversity disclosure requirement for public companies that goes beyond just gender.
Management at publicly traded, Canadian companies must report on DEI metrics at the board and executive levels.
This regulation supports and advances the notion that more diverse leadership teams are better equipped to navigate today’s complex business challenges.
Management teams, the finance community, and external stakeholders are all impacted in various ways by this regulatory development.
Why is the CSA Corporate Corporate Diversity Reporting Rule Important?
Increasingly, many stakeholders strongly believe that companies with a diverse workforce and inclusive culture are more innovative, resilient, and effective in today’s global economy.
From a societal standpoint, many leaders strongly believe that focusing on DEI in the workplace can address issues around systemic inequalities and create the structure for upward mobility and opportunity.
That being said, corporations have been slow to change, partly due to a lack of regulations. This rule goes beyond the bare “minimum” of DEI disclosure (which is regarded as gender), and provides a regulatory “stick” to all management teams for increasing their focus on DEI throughout the company.
Major categories of improvement include:
Transparency and accountability
By requiring companies to disclose DEI-related information, the rule aims to increase transparency and accountability in corporate governance and encourage companies to take steps to improve their diversity and inclusion practices.
This ultimately benefits the business by increasing public trust in the company and reinforcing its social license to operate. These factors are important to a company’s competitiveness, HCM metrics, and long-term success.
Breaking down systemic barriers
This rule can help address systemic barriers and inequalities that have historically disadvantaged certain groups.
By shining a light on the lack of diversity in senior leadership positions, companies may be more motivated to take action to improve the representation of marginalized groups, such as women, visible minorities, and people with disabilities.
The rule was introduced in response to the recognition that diverse boards and management teams lead to better decision-making and improved company performance.
By requiring publicly traded companies to disclose information about the diversity of their boards and senior management, corporate performance is expected to improve, which should generally be better for the economy and for society as a whole.
Who Does the CSA Corporate Diversity Reporting Rule Impact (and Why)?
The rule most directly impacts three key stakeholder groups:
Publicly traded companies are directly affected by the rule, as management is required to disclose information about the diversity of its boards and senior management.
The finance community
In today’s global economy, DEI is considered a contributing factor to a company’s success. As such, the analyst community (both investors and creditors) are increasingly interested in and concerned about DEI, as well as other ESG factors, when making capital allocation decisions.
The information provided under this rule can help investors make more informed decisions and promote the allocation of capital towards more diverse and inclusive companies. This helps firms meet their own stakeholder expectations.
External stakeholders, like customers and business partners, can use DEI information to inform their own decision-making. Business partners, such as suppliers, for example, can use this information to manage their own supply chain risks as well as any reputational issues that may emerge (by association).
This information, for example, could be used to assess a potential partner’s DEI performance against the DEI requirements in a firm’s “Partner Code of Conduct” policy.
Enforcement Ambiguity and Other Issues
This rule was enacted at the federal level, but some of Canada’s biggest companies are incorporated at the provincial level. This has created certain loopholes around participation.
Regulators are working to garner widespread support across provincial bodies to strengthen regulation and to standardize participation for all relevant companies.
It’s also worth noting that this rule impacts public issuers traded on Canadian stock exchanges (like the TSX, CSE, etc.) that are not actually Canadian-incorporated companies.
Key Compliance Considerations
Whether a company must currently comply with these regulations (or might need to in the future), here are a few key compliance questions/considerations that should be assessed:
Does the company have the mechanisms in place required to collect relevant ESG data and report it in accordance with this regulation? If not, how can management make that happen quickly?
Does the company have an established approach to DEI? If not, this is the time to begin developing a plan to advance DEI objectives and maximize the reputational value that comes with these reporting requirements.
Has management conducted a materiality assessment to better understand the risks and opportunities of the business, particularly those associated with DEI?
If not, management should consider conducting one as it will provide better organizational context and relevance for addressing DEI objectives and reporting accordingly. This should enhance progress, accelerate adoption, and ensure all company employees understand the importance from a commercial and cultural perspective.
This rule is modeled in the doctrine of “comply or explain,” meaning that management teams must comply with the rule or provide a detailed explanation as to why they are not. For the most part, it incentivizes companies to comply with the regulations to avoid providing an explanation that may be significantly damaging to the company’s reputation.
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