Introduction

Since the United Nations Guiding Principles on Business and Human Rights (UNGPs)  recognized a stand-alone responsibility for businesses to respect human rights, global implementation of mandatory human rights due diligence has been mixed (a trend observed in this blog post).  A recent court case from Canada’s apex court has repeated this pattern of mixed success by showing the necessity of clear human rights legislative framing to expand corporate disclosures of human rights impacts. 

In Lundin Mining Corp v Markowich (“Lundin Mining”), the Supreme Court of Canada (“SCC”) clarifies that timely disclosure is required for material changes in business contexts even if the change is localized or the risk is expected within a specific business context. In principle, this decision could require greater disclosure of corporate activities’ impact on human rights. However, the SCC’s endorsement of a more expansive version of transparency requirements does not specifically address disclosures related to environmental or social impacts.

Through comparing Lundin Mining’s impact on Canada’s disclosure laws with the UNGPs and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD Guidelines), this article concludes that the SCC’s analysis misses an opportunity to enhance awareness of human rights disclosures.  While the Court’s analysis clarifies Canada’s broad understanding of disclosure obligations, the legislative framing’s focus on investors continues to prevent Canada’s disclosure obligations from reaching international expectations for business accountability.

Lundin Mining: Background of the case

Lundin Mining Corporation is a Canadian business with operations in Canada and abroad. The case before the SCC focuses on the Candelaria copper ore mining complex, located in the Atacama region, in northern Chile (paras 9-10).

In October 2017, Lundin detected instability in a wall of its open pit mine. A few days later, there was a rockslide that affected production, forcing the company to temporarily shut down the affected area. According to official records, no one was harmed and no equipment was damaged. The company only disclosed this information to investors in late November 2017, during a pre-scheduled debrief. In this briefing, the company estimated that copper ore production in La Candelaria would decrease by 20% for the following year. The day after the briefing, the company’s share price decreased by 16%. (paras  3, 11-15)

Once the case reached the SCC, one of the questions the Court addressed was whether, under the applicable securities legislation, Lundin was required to immediately disclose the information about the rockslide to investors.

Lundin Mining’s Clarification of Material Change Disclosures

Disclosure obligations are the cornerstone of Canada’s securities legislation (Cornish at para 38). But the goal of these disclosures is not to facilitate information sharing at large, instead these disclosures are designed to compensate for the asymmetry of information between businesses who issue securities and their investors (Theratechnologies at para 25). Despite this restrained purpose, securities disclosures have often proven useful for informing communities and individuals located near businesses of environmental or social impacts they may face. 

Canadian securities legislation distinguishes between periodic disclosures, detailing all material facts, and timely disclosures, summarizing material changes (Kerr at para 38). Material facts can include a broad discussion of political or environmental contexts, such as commitments, events, risks, or uncertainties that the company reasonably believes will materially affect the company’s future performance (Kerr at para 38; Form 51-102F1). On the other hand, material changes refer to events in the issuer’s business, operations or capital that would reasonably be expected to have a significant effect on the market price or value of a business (Ontario Securities Act, s 1(1)). 

While both types of disclosures serve to inform investors, timely disclosure of material changes is especially important to assist impacted individuals in pursuing remedies against imminent threats from corporate impacts. Prior to Lundin Mining, Canadian courts disagreed on the significance that an event must have on an issuer’s business, operations or capital to require timely disclosure.  This meant that the business was not always expected to assess each change for materiality and instead examined only “important” or “substantial” changes to determine if they would have an impact on investors’ confidence (Re Rex Diamond (2008) at para 196).

The SCC’s decision in Lundin Mining clarified that assessing whether there was a material change relied on a two-step analysis, examining all changes to the business, operation or capital and then determining their materiality, regardless of whether the question arose in a preliminary hearing or a proceeding on the merits (Lundin at paras 44, 80, 118-119).

Within the first step of the analysis, Lundin Mining affirmed that businesses must examine a wide range of changes to determine which were material changes. Importantly, a change does not have to be an overarching change to the business or have a high-level impact on operations to trigger disclosure obligations, such as changes deriving from senior management decisions (Lundin at para 80). However, this wide range of changes still has significant parameters.

Relying both on the wording of the legislation and on previous case law, the Court determined that a “change” must not be routine or expected, like the next step in a regulatory approval process (para 61; Theratechnologies at para 51). Additionally, a change that would trigger disclosure obligations is not external to the business, such as unseasonable weather or general political upheaval (Lundin at para 52; Kerr at para 45). It is also something more than an internal deliberation on subjects like a potential merger or opportunity (Lundin at para 60). 

The SCC further increased the range of changes a business must consider for disclosure requirements by defining the business, operations, and capital as broad and flexible categories (Lundin at para 93). The Court noted that these terms were left undefined in the legislation and should be interpreted to uphold the legislative purpose of informing investors of information exclusively in the hands of businesses (Lundin at paras 89, 94).

Regarding the second step of the analysis, the SCC emphasized that materiality is assessed objectively based on the perspective of the reasonable investor (Lundin at para 77). In previous cases, this type of analysis focused on the market impact of a disclosure (Theratechnologies at para 40; Peters at para 73).

Considering Lundin Mining’s broad and purposive approach to material changes that require timely disclosure, Canadian disclosure obligations may require businesses to include a wider range of environmental and human rights implications. Still, the legislative context in which the SCC made its decision prevented a fulsome analysis of the environmental and social impacts that may trigger a business’s disclosure obligations. Additionally, despite this case’s international implications due to the global operations of many of the businesses subject to this legislation, it is worth noting that the SCC did not use any international law in its judgement. 

Lessons from International Disclosure Expectations

The UNGPs and the OECD Guidelines are the preeminent international instruments seeking to set internationally acceptable standards for responsible business conduct and the respect for human rights. While their context differs from Canadian securities regulations, these guidelines are helpful high-water marks for responsible business disclosures that can be implemented practically.

The UNGPs provide that states should require companies to disclose information where appropriate. For example, Principle 21 establishes that businesses should be prepared to externally communicate their human rights impact, especially when these impacts are raised by stakeholders. The broad language of this principle has been interpreted to require companies to make disclosures where the nature of the business operation poses significant risks to human rights.

Canadian securities disclosures may capture some of the impacts referenced in the UNGPs as material facts and disclose them periodically. Nevertheless, the parameters Lundin Mining uses to define a “change” to a business still pose a significant hurdle to timely disclosure of environmental, social, and human rights impacts. For instance, a company’s exacerbation of political unrest may not be captured as it could continue to be considered as a generalized or external risk, instead of particularly affecting the business. Likewise, a company’s failure to complete a regulatory step may continue to be considered part of a routine process and thus avoid timely disclosure.

Like the UNGPs, the OECD Guidelines feature a renewed focus on corporate transparency regarding human rights and environmental concerns since its most recent amendment in 2023. In accordance with this amendment, the 2023 G20/OECD Principles of Corporate Governance has a specific section on disclosure and transparency.  It provides that corporate frameworks should ensure “timely and accurate disclosure” of “all material matters regarding the corporation”. 

By implementing the Principles of Corporate Governance, the OECD Guidelines seek to establish a benchmark for corporate transparency that is timely, accurate, and comprehensive through disclosures of material information. Accordingly, the Guidelines define “materiality” to include a wider variety of subjects than merely market values.  For example, disclosure of material information explicitly includes sustainability-related information, the extent of compliance with national corporate governance codes or policies, and the process the company may be undertaking to comply with these policies.

Like Canada’s securities legislation, transparency in the OECD Guidelines is designed to increase shareholder confidence, but its purpose is also to encourage regulatory compliance and ethical business practices. It is likely due to this comparatively limited regulatory purpose that Lundin Mining’s definition of materiality is much narrower than the OECD Guidelines and stops short of encouraging disclosures for the benefit of those who are not investors but nonetheless have an interest in a business’s impacts. While Canada’s disclosure obligations focus on the objective investor, the OECD Guidelines encourage companies to disclose events even where they do not have any imminent impact on the business’s valuation. 

Interestingly, despite this broad definition of potentially material events, neither the UNGPs nor the Guidelines foresee over-disclosure as detrimental to encouraging transparency.  In comparison, both the majority and the dissent in Lundin Mining are cautious about over-expanding disclosure obligations. The dissent warns that a possible flood of information may misinform investors or overburden businesses (Lundin at para 134). While less explicit, the majority also limits its definition through the parameters its sets out for “changes” (Lundin at paras 51, 59, 84). Unfortunately, the SCC does not consider these international documents or the field of business and human rights as a lens to examine the notion of material changes. These documents have relevance for Canadian businesses conducting their operations abroad and could prove useful in future cases within Canadian courts.

Conclusions

Comparing Canadian securities disclosures to these international guidelines reveals that Lundin Mining makes incremental progress on bringing Canadian disclosure requirements in line with international standards related to responsible business conduct. Yet Canadian disclosure obligations still fall short by allowing businesses to exclude significant environmental and social impacts from timely disclosure. Incorporating increased consideration for these guidelines in statutory frameworks and legal analyses can help both investors and a wide variety of stakeholders to obtain a more fulsome picture of Canadian business activities.

The goal of these international standards is not to overburden businesses with excessive disclosures. Rather, it is to increase communication and transparency with those affected by business operations. These goals are not necessarily opposed. Indeed, there is some support for the approach taken by these international guidelines that suggest business transparency of social or environmental issues is correlated with positive financial outcomes. Consequently, increasing the scope of business disclosures may help businesses address environmental or social issues before they escalate and empower those affected by business operations to understand the impact of business activities.