Canadian securities regulators issue new corporate climate reporting guidelines

New guidance from the Canadian Securities Administrators umbrella body

Canadian securities regulators have urged corporates to adhere to their climate reporting responsibilities in new disclosure guidelines – a bid to quell institutional investor concern over lagging environmental disclosure.

The guidance from the Canadian Securities Administrators (CSA), the umbrella group of 13 provincial and territorial securities regulators, draws heavily from the TCFD [Task Force on Climate-related Financial Disclsoures] recommendations, outlining the physical risk, transition risk and opportunities that corporates should be actively assessing.

“Boards and management should take appropriate steps to understand the materiality of these risks”

The TCFD was set up at the initiative of Bank of England Governor Mark Carney, the former head of the Canadian central bank.

In April last year, another CSA report found that many investors, particularly institutional investors, had become increasingly focused on climate change-related risks and have expressed concern that they are receiving insufficient disclosure of these risks from issuers.

Securities legislation in Canada requires issuers to disclose the material risks affecting their business – and, where practicable, the financial impacts of such risks – in their regulatory filings.

While the new guidance does not create any new legal requirements or modify existing ones, it clarifies that boards and management are responsible for including material climate risks in these filings.

It reads: “Despite the potential uncertainties and longer time horizon associated with climate change-related risks, boards and management should take appropriate steps to understand and assess the materiality of these risks to their business.“This assessment should extend to a broad spectrum of potential climate change-related risks over the short-, medium- and long-term.”

The guidance outlines relevant factors to consider in assessing materiality, and explains: “Information is likely material [in the context of regulatory filings] if a reasonable investor’s decision whether to buy, sell or hold securities in an issuer would likely be influenced or changed if the information in question was omitted or misstated.”

Also included are model questions that board and management should consider in a climate change context, including: “What is the issuer’s exposure to supply chain disruption from climate change-related risks?” and “Is management aware of current climate change-related litigation which may pose a litigation threat to the issuer now or in the future?”

The news comes two months after the country’s Expert Panel on Sustainable Finance called for regulatory bodies to harmonise regulatory expectations in line with the TCFD as one of a slew of recommended policy interventions and supervisory updates to help the country keep up with the growing need to tackle climate change through financial markets.

The panel, set up by the federal government last year, also proposed that the existing Canada Business Corporations Act should be updated to require companies to include climate-related disclosure in their annual reports; and, at provincial level, training requirements should be updated to include aspects of the TCFD.

The CSA is to continue to monitor disclosure of climate change-related matters as part of its continuous disclosure review program.