Written by William Osler, Thomas McInerney, James Beeby, Andrew Disipio and Niall Fink
On October 17, 2021, the Canadian Securities Administrators (CSA) published proposed National Instrument 51-107: Disclosure of Climate-related Matters (NI 51-107) for comment. The proposed rules would expand on the CSA's prior guidance for disclosure of climate-related risks and greenhouse gas emissions by specifying mandatory information that must be disclosed by reporting issuers in their annual filings.
Under NI 51-107, all reporting issuers (other than investment funds, issuers of asset-backed securities and certain foreign issuers) would be required to disclose their governance practices around climate-related risks and opportunities. Climate-related governance information would be included in the issuer's management information circular (MIC). An issuer that does not send a MIC to its security holders would be required to include such governance disclosures in its annual information form (AIF), or in its annual MD&A if the issuer does not file an AIF.
In addition, reporting issuers would be required to disclose in their AIF (or in their MD&A if they do not file an AIF):
- actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning;
- how the organization identifies, assesses and manages climate-related risks; and
- metrics and targets used to assess and manage relevant climate-related risks.
The proposed rules in NI 51-107 respond to calls from investors to standardize climate-related disclosures, as well as a growing convergence among regulators and investors to align disclosure with recommendations made by the Taskforce on Climate-related Financial Disclosures (TCFD). While the rules do incorporate many of the TCFD recommendations, two modifications are noteworthy.
First, Canadian reporting issuers would not be required to submit a scenario analysis describing the resilience of the organization's strategies under different climate-related scenarios. The CSA acknowledges that scenario analysis may be costly and that methodologies may not yet be mature. This marks a significant departure from international guidelines (including the TCFD recommendations), which rely heavily on scenario analysis.
Second, NI 51-107 would allow reporting issuers to omit GHG emissions reporting. While the TCFD recommends disclosure of all GHG emissions that fall within Scope 1 (direct emissions from company-owned resources), Scope 2 (indirect emissions through purchased energy) and Scope 3 (emissions from activities not controlled by the organization), the proposed rules would allow an issuer to publish reasons for omitting emissions information in lieu of such information. The CSA is soliciting comments on whether the proposed rules should make disclosure of Scope 1 GHG emissions mandatory for all reporting issuers.
The proposed rules are not expected to come into force before December 31, 2022, followed by a one-year phase-in period for non-venture issuers and a three-year phase-in period for venture issuers, meaning the new rules would apply to non-venture issuers starting with their annual filings due in 2024, and to venture issuers in 2026.
The comment period for NI 51-107 closes on January 17, 2022. The Bennett Jones Climate Change and Capital Markets groups will continue to monitor legal developments in this area, and we would be pleased to provide assistance in crafting comments and feedback on the proposed rules.