Proposed Canadian climate-related disclosure requirements, or: keep the markets working!

Canadian securities regulators seek comment on climate-related disclosure requirements, announces a recent news release.

Here are some extracts:

  • The Canadian Securities Administrators (CSA) today published for comment proposed climate-related disclosure requirements. The proposed requirements address the need for more consistent and comparable information to help inform investment decisions. They also demonstrate the CSA’s commitment in favour of the growing international movement toward mandatory climate-related disclosure standards.
  • The requirements contemplate disclosure largely consistent with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. They will improve the comparability of the information issuers disclose and help investors make more informed investment decisions by enhancing climate-related disclosure. The requirements are also intended to address costs associated with reporting across multiple disclosure frameworks, improve access to global markets and facilitate an equal playing field for issuers.
  • “We recognize some issuers already share certain climate-related information,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. “Our proposed requirements will bring those disclosures into a harmonized framework benefitting investors and issuers alike and aligning Canadian capital markets with the global movement towards consistent and comparable standards.”
  • The proposed requirements contemplate disclosure by issuers related to the four core elements of the TCFD recommendations:
    • Governance – an issuer’s board’s oversight of and management’s role in assessing and managing climate-related risks and opportunities.
    • Strategy – the short-, medium- and long-term climate-related risks and opportunities the issuer has identified and the impact on its business, strategy and financial planning, where such information is material. As a modification from the TCFD recommendations, the proposed disclosure would not include the requirement to disclose “scenario analysis”, which is an issuer’s description of the resilience of its strategy within different climate-related scenarios, including a 2°C or lower scenario.
    • Risk management – how an issuer identifies, assesses and manages climate-related risks and how these processes are integrated into its overall risk management.
    • Metrics and targets – the metrics and targets used by an issuer to assess and manage climate-related risks and opportunities where the information is material.
  • Issuers would be required to disclose their Scope 1, Scope 2 and Scope 3 greenhouse gas (GHG) emissions and the related risks, or their reasons for not doing so. The CSA is also consulting on an alternative approach that would require issuers to disclose Scope 1 GHG emissions. Under this alternative, disclosure of Scope 2 and Scope 3 GHG emissions would not be mandatory…   

The summary above cites a couple of respects in which the proposals reflect the CSA’s “(sensitivity) to concerns related to the regulatory burden and additional cost of mandatory climate-related disclosure.” Another is that “the disclosure requirements will be phased-in over a one-year period for non-venture issuers and over a three-year period for venture issuers. It is not anticipated that the Proposed Instrument will come into force prior to December 31, 2022.” Inevitably, any such proposal reflects something of a balancing act.

In an article in ipolitics.ca, Kevin Thomas, CEO of the non-profit Shareholder Association for Research and Education, called the proposals a “recognition that our markets aren’t going to work at all, unless this kind of very material information is disclosed, and disclosed consistently.” At the risk of sounding like a broken record, this rather overlooks the fact that significant action on climate change probably requires that capital markets not go on working as they have been, driven by expectations of returns which virtually necessitate that companies behave unsustainably. For example:

  • Fossil fuel production planned by the world’s governments “vastly exceeds” the limit needed to keep the rise in global heating to 1.5C and avoid the worst impacts of the climate crisis, a UN report has found.
  • Despite increasing pledges of action from many nations, governments have not yet made plans to wind down fossil fuel production, the report said. The gap between planned extraction of coal, oil and gas and safe limits remains as large as in 2019, when the UN first reported on the issue. The UN secretary general, António Guterres, called the disparity “stark”.
  • The report, produced by the UN Environment Programme (Unep) and other researchers, found global production of oil and gas is on track to rise over the next two decades, with coal production projected to fall only slightly. This results in double the fossil fuel production in 2030 that is consistent with a 1.5C rise.

Against such a background, the CSA material’s observation that “improved climate risk disclosures should facilitate an orderly transition to a low carbon economy and help to maintain the stability of financial markets” seems optimistic indeed. Perhaps the disclosures will, as also claimed, facilitate a “lower cost of capital and increased access to global markets.” But that would likely only mean that the world is still turning, and burning. Anyway, the comment period, which should be lively indeed, expires on January 17, 2022.

The opinions expressed are solely those of the author

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