When must organizations evaluate and disclose how climate change will affect their operations?
The Canadian Securities Administrators (CSA) provides a cooperative forum for Canada’s provincial and territorial securities regulators, including the development of model regulations and associated guidance. Last October, CSA took its latest step toward climate-related disclosure requirements, by proposing “National Instrument 51-107 – Disclosure of Climate-related Matters;” public comments were due by January 17, 2022. Assuming CSA moves ahead and finalizes this National instrument (NI), then securities regulators throughout Canada will enact equivalent requirements and establish compliance deadlines for companies they regulate.
CSA and the securities regulators oversee comprehensive reporting requirements, which include specific provisions – such as financial reporting consistent with Generally Accepted Accounting Practices (GAAP). But they also include placeholder requirements to report “material” information, which investors may be expected to find important in decisions to buy, hold, or sell particular securities. As examples, current securities requirements that can call for disclosure of material climate-related information appear in the following rules:
Continuous Disclosure Obligations (NI 51-102);
Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109);
Audit Committees (NI 52-110); and
Disclosure of Corporate Governance Practices (NI 58-101).
What are CSA’s objectives?
CSA notes that there are global discussions on “moving toward mandatory climate-related disclosures that provide consistent, comparable and decision-useful information to market participants.” These discussions react to growing attention to climate change, and associated attention to the limitations of presently-available information. In particular “… CSA notes concerns about current climate-related disclosures, which are subject to companies’ assessments of “materiality” and to market and business concerns, include the following:
issuers’ climate-related disclosures may not be complete, consistent, and comparable;
quantitative information is often limited and not necessarily consistent;
issuers may “cherry pick” by reporting selectively against a particular voluntary standard and/or frameworks; and
sustainability reporting can be siloed and is not necessarily integrated into companies’ periodic reporting structures.”
CSA seeks to improve this situation by ensuring the availability of “decision-useful information for investors.” In August 2019, CSA issued “CSA Staff Notice 51-358 – Reporting of climate-Related risks” to provide guidance to reporting issuers (public companies) on how to disclose material climate-related risks. The new proposed NI refines and amplifies that guidance, converting it into regulatory requirements. CSA asserts that standardized disclosure requirements will also assist issuers, by facilitating consistency and comparability among issuers. Specifically, CSA intends these climate-related disclosure requirements to:
improve issuer access to global capital markets by aligning Canadian disclosure standards with expectations of international investors;
assist investors in making more informed investment decisions by enhancing climate-related disclosures;
facilitate an “equal playing field” for all issuers through comparable and consistent disclosure; and
remove the costs associated with navigating and reporting to multiple disclosure frameworks as well as reducing market fragmentation.
The Proposed Instrument is broadly consistent with recommendations made in 2017 by the Task Force on
Climate-related Financial Disclosures (TCFD), which is sponsored by the international organization Financial Stability Board.
What is CSA proposing?
CSA’s proposal includes the following:
Application: The Proposed Instrument would apply to all reporting issuers, other than investment funds, issuers of asset-backed securities, designated foreign issuers, SEC foreign issuers, certain exchangeable security issuers and certain credit support issuers
Core elements: The Proposed Instrument is built around four core elements to be disclosed:
Governance –the organization’s governance around climate-related risks and opportunities, particularly board oversight and management’s role in assessing risks and opportunities.
Strategy – the actual and potential material impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning, including short-, medium- and long-term.
Risk management – the organization’s processes for identifying, assessing, and managing climate-related risks; and how these are integrated into the organization’s general risk management systems.
Metrics and targets - metrics (including Scope 1, 2 and 3 greenhouse gas (GHG) emissions) and targets used to assess and manage relevant and material climate-related risks and opportunities.
Reporting Forms: These requirements are captured in a set of proposed reporting forms:
Form 51-107A (Climate-Related Governance Disclosure)
Form 51-107B (Climate-Related Strategy, Risk Management and Metrics and Targets Disclosure)
CSA also presents a Proposed Companion Policy 51-107CP (Disclosure of Climate-Related matters). It also presents a number of Annexes, which provide additional summaries of applicable securities regulations, and local, national, and international developments in reporting of climate-related information.
What happens now?
CSA’s proposal set January 17, 2022 as the deadline for comments. The proposal sought comments on the specifics of the proposal, and also invited comments on 18 specific related questions. The questions dealt with commenters’ experience with TFCD and other disclosure regimes, and with the costs and other issues involved in disclosures. The proposal also offers a hypothetical that the final NI is used before the end of 2022, in which case compliance would begin during 2024 – 2026. North American readers should note that the US Securities and Exchange Commission (SEC) has also issued proposed reporting requirements, which I have discussed HERE.
Is the organization a “reporting issuer” subject to reporting requirements under provincial and/or territorial securities reporting requirements?
Whether or not a reporting issuer, does the organization provide formal disclosures to shareholders, regulators, market or non-profit reporting organizations, or other stakeholders?
Has the organization assessed potential impacts of climate change on its activities and investments?
– If so, has the organization quantified any of these impacts, and assessed whether they are, or would be, material to its operations and results?
– If so, is the organization undertaking efforts to adapt to these impacts by reducing negative impacts and enhancing positive impacts?
Has the organization identified which of these activities and investments are presently or potentially insured for climate-related impacts?
Where can I go for more information?
About the Author
Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years.
Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).
Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).
You may contact Mr. Elliott directly at: firstname.lastname@example.org