Securities regulators in Canada and the United States are developing climate-related disclosure requirements for reporting issuers and registrants. In the first of this two-part blog series, we’ll summarize some of the reporting requirements proposed in Canada, as well as the international developments that may impact Canada’s disclosure rules.
Investors are becoming increasingly aware of climate-related risks and more issuers are using ESG metrics to attract investment dollars. The Financial Stability Board established the Task Force on Climate-Related Financial Disclosures (“TCFD”) to develop recommendations for more effective climate-related disclosure. In June 2017, the TCFD released its final recommendation, which consists of four core elements:
- Governance – disclosing an organization’s governance around climate-related risks and opportunities
- Strategy – disclosing the actual and potential impacts of climate-related risks and opportunities on an organization’s businesses strategy and financial planning
- Risk management – disclosing how an organization identifies, assesses and manages climate-related risks
- Metrics and targets – disclosing the metrics and targets used to assess and manage material climate-related risks and opportunities
Without standardized disclosure requirements, issuers adopted various approaches to climate-related financial disclosure. This created concerns about the transparency, consistency and comparability of information investors rely on to make informed decisions.
Canada’s response
In October 2021, the Canadian Securities Administrators (“CSA”) proposed National Instrument 51-107 – Disclosure of Climate-Related Matters (the “Canadian Proposal”), which was intended to create a consistent and comparable climate-related disclosure system aligned with the core elements of the TCFD recommendations. The Canadian Proposal would require Canadian reporting issuers to disclose the following information under the TCFD’s four core elements:
Governance
- The board’s oversight of climate-related risks and opportunities
- Management’s role in assessing and managing climate-related risks and opportunities
Strategy
- Climate-related risks and opportunities over the short, medium and long term
- The impact of climate-related risks and opportunities on the issuer’s business, strategy and financial planning
Risk Management
- The issuer’s processes for identifying, assessing and managing climate-related risks
- How these processes are integrated into overall risk management
Metrics and Targets
- Disclosure of either (A) scope 1, 2 and 3 GHG emissions and the related risks of these emissions, or (B) the issuer’s reasons for not disclosing this information
- The metrics used to assess material climate-related risks and opportunities in line with the issuer’s strategy and risk management process
- The targets used to manage material climate-related risks and opportunities and performance against these targets
GHG emissions would be reported in accordance with standards established in the GHG Protocol or a comparable standard. The scopes of GHG emissions referenced above capture:
| Scope 1 | All direct GHG emissions |
| Scope 2 | All indirect GHG emissions arising from purchased electricity, heat or steam |
| Scope 3 | All other indirect GHG emissions (i.e., GHG emissions arising from the use of a reporting issuer’s products) |
Differences between the Canadian Proposal and the TCFD recommendations
The Canadian Proposal differs from the TCFD recommendations in three areas:
| TCFD Recommendations | Canadian Proposal | |||
| GHG Emissions Report | Scope 1, 2 and 3 GHG emissions
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Scope 1, 2 and 3 GHG emissions
OR Opt-out and explain the reasons for not reporting. |
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| Scenario Analysis | Include scenario analysis that describes how resilient an issuer’s strategies are, considering policy and other market changes in the transition to a low-carbon economy consistent with 2°C or lower scenarios. | No reporting requirement.
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| Method of Disclosure | Governance disclosure to be included in the reporting issuer’s management information circular or annual information form (AIF) if a circular is not sent or annual MD&A if an AIF is not prepared.
Strategy, Risk Management and Metrics & Targets disclosure to be included in a reporting issuer’s AIF or MD&A if an AIF is not prepared.
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Considerations for Canadian reporting issuers
As of this writing, NI 51-107 has not been implemented, but climate-related disclosure requirements are coming. If you’re looking to better understand your ongoing disclosure requirements and upcoming climate-related disclosure, the MLT Aikins Corporate Finance & Securities and ESG teams can help you manage risks and opportunities in the transition to a low-carbon economy.
Read part two.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.