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This article appears in the November issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.

Gender equality has improved in the nine years since Canadian securities regulators asked issuers to disclose the gender makeup of their boards of directors and executive suites. Now, other marginalized groups hope that expanding those disclosures will lead to their own gains.

The Canadian Securities Administrators (CSA) published proposals in April that would require issuers to disclose characteristics of their board members beyond gender, such as ethnicity, sexual orientation and disability.

The proposals featured two options: a principles-based approach to added disclosure, favoured by regulators in Alberta, British Columbia, Saskatchewan and the Northwest Territories (referred to by some commenters as the Western model); and a more prescriptive approach that would mandate disclosure on specific groups, advocated by the Ontario Securities Commission.

The CSA’s consultation closed Sept. 29, with issuers generally preferring the more flexible Western model, and investors opting for the OSC’s more rigid approach because it would provide more insight.

“We are concerned that allowing issuers to select what information to provide could result in vague, lower-quality and potentially misleading disclosure, and could lead to ‘diversity-washing,’” suggested the Portfolio Management Association of Canada’s submission to the CSA. “A single harmonized set of disclosure expectations and uniform presentation of the information will avoid this outcome. This approach is similar to the CSA’s approach to broader ESG and specific climate-related disclosures.”

However, issuers and investors weren’t entirely on opposite sides.

For example, the Canadian Coalition for Good Governance, which represents institutional investors with a combined $5.5 trillion in assets under management, said a “clear majority” of its members prefer the OSC’s proposed approach, but the view isn’t unanimous. CPP Investments said it prefers the more flexible Western model.

There was no such division among advocates for historically underrepresented groups, which all favoured the OSC model.

The First Nations Leadership Council — which includes executives from the B.C. Assembly of First Nations, First Nations Summit and the Union of B.C. Indian Chiefs — said it “strongly” prefers the OSC’s proposed approach and that mandating disclosure “will result in more First Nation individuals being on boards and in executive officer positions.”

This conviction is grounded in the results of gender disclosure, which began with the OSC and was ultimately adopted by most of the CSA (the exceptions being the B.C. Securities Commission and Prince Edward Island’s regulator).

According to the latest data from the CSA, 27% of board seats at non-venture issuers are held by women, up from just 11% when the disclosure initiative was launched in 2014. The share of companies with at least one woman in an executive role grew from 60% to 71% over the same period.

“We want that same outcome for First Nations,” the leadership council’s submission stated.

Furthermore, the OSC’s proposed disclosure model “advances reconciliation by creating a pathway for First Nations in B.C. to sit in decision-making roles in TSX businesses,” the council stated. The model also would be a “tangible commitment” to following the UN Declaration on the Rights of Indigenous People, which Canada legally endorsed in 2021.

Increasing representation will improve relations between corporate Canada and First Nations communities, the council said, which could reduce the risk of First Nations’ opposition to corporate activities and drive more sustainable operational decisions about land, water and resource use.

Conversely, the principles-based Western approach would simply preserve the status quo, the council stated.

These views were echoed by the First Nations Financial Management Board (FMB) — a Vancouver-based non-profit that serves First Nations communities — which highlighted the monumental challenge of reaching proportional representation.

Among companies subject to federal reporting requirements, 0.9% of directors identified as Indigenous, according to a report from Toronto-based law firm Osler, Hoskin & Harcourt LLP that was published in October. The same companies averaged 0.09 executives who identify as Indigenous.

“This level of representation is not acceptable from either a shareholder, investor or social perspective,” stated the FMB’s submission, which noted that 63% of non-venture issuers operate in industries that directly impact Indigenous populations, such as resource companies.

“Socially, Indigenous peoples in Canada have long been excluded from true participation in Canada’s capital markets because of unfair and discriminatory policies and legislation. In an era of reconciliation, where corporate Canada has been specifically called upon to reconcile with Indigenous peoples, the status quo cannot remain,” the FMB said.

The FMB favours the OSC approach but said it should go further and require issuers to set diversity targets, provide more detailed disclosure than the proposal imagines and report on their approach to diversity in their executive ranks.

Other commenters agreed.

The Responsible Investment Association reported that some of its members believe the CSA should require issuers to set targets, while others recommended that reporting requirements be extended to executives.

The OSC’s approach also is endorsed by Toronto-based proxy advisory firm Kingsdale Advisors, co-founder of the BlackNorth Initiative, an effort to combat anti-Black racism in corporate Canada.

One of the initiative’s goals is to reach 3.5% representation for Black directors and executives by 2025.

Kingsdale’s submission stated that the OSC model “offers significant advantages over [the Western model] and will contribute to enhancing transparency and comparability of diversity reporting.”

Diversity information is increasingly relevant to investors. Kingsdale noted that U.S. proxy advisory firm Institutional Shareholder Services Inc. will adopt a new voting policy, effective Feb. 1, 2024, that expects companies belonging to the S&P/TSX composite index to have at least one ethnically diverse director.

“Simply put, the train has left the station when it comes to society’s and investors’ expectations for diversity beyond gender,” Kingsdale said.

While many submissions stressed the need for regulatory harmonization, some suggested the OSC be prepared to go it alone if the CSA can’t reach consensus.

“While we are generally strongly supportive of regulatory harmonization, we believe the policy matters and concerns underlying this consultation override harmonization considerations,” the Canadian Advocacy Council of CFA Societies’ submission stated. “If the CSA are unable to agree on a policy position that materially advances diversity disclosures … we would strongly support the OSC in exercising its prerogative for leadership and proceeding unilaterally.”