Written by William S. Osler and Kay She

On April 5, 2018, the Canadian Securities Administrators (CSA) published CSA Staff Notice 51-354 Report on Climate change-related Disclosure Project, which reports the findings of their project to review disclosure by reporting issuers of risks and financial impacts associated with climate change.

The CSA report provides insight on CSA's plans for future work in this area, most notably the consideration of new disclosure requirements regarding corporate governance in relation to business risks, including climate change-related risks, and risk oversight and management.

Other initiatives described in the report include:

• developing guidance and educational initiatives for reporting issuers across a wide range of industries with respect to the business risks and potential financial impacts of climate change;
• monitoring the quality of issuers’ disclosure to assess whether further work needs to be done to ensure that disclosure continues to develop and improve; and
• monitoring developments in reporting frameworks, evolving disclosure practices and investors’ need for additional types of climate change-related disclosure to make investment and voting decisions, including whether disclosure requirements in relation to greenhouse gas (GHG) emissions are warranted in the future.

Background and Findings

The CSA announced their climate change review on March 21, 2017, and used the following methods to gather information on climate change-related disclosure in Canada:

• Disclosure reporting review: Review of mandatory and voluntary climate change-related disclosure of 78 large issuers from the S&P/TSX composite Index.
• Online survey: Review of 97 responses to a voluntary anonymous online survey sent to all TSX-listed issuers regarding current climate change-related disclosure practices.
• Consultations: 50 consultations with reporting issuers, investors, advisors and other users of disclosures.
• Research: Review of climate change-related disclosure requirements in selected jurisdictions outside of Canada, as well as prominent voluntary disclosure frameworks, such as the recommendations from the Financial Stability Board's Task Force on Climate-related Financial Disclosures.

The key findings of the CSA report are:

• Current disclosure practices: The 2017 review did not result in any re-filings, restatements or other corrective actions.
• Materiality: The assessment of the materiality threshold for climate change-related risk is diverse. Issuers generally acknowledged the materiality of some climate change-related information, such as risk factors and regulatory considerations, but noted that other climate change-related information may not be material, or may be so uncertain or remote that it cannot assess or quantify its ultimate materiality and financial impact.
• Issuer concerns: Issuers expressed concerns about the regulatory burden of mandatory disclosure requirements, and that mandatory reporting could result in a disproportionate emphasis on climate change-related risks relative to other risks that are equally or more significant. Issuers indicated a strong preference for the current disclosure requirements, where they must disclose information determined to be material for purposes of securities law in Canada in continuous disclosure filings, but can disclose additional non-material information on a voluntary basis.
• User concerns: Substantially all users consulted believe that issuers should provide disclosure regarding their governance and oversight of climate change-related risks. Users’ views differed on whether issuers should be required to disclose GHG emissions and/or scenario analyses in their regulatory filings.

New Disclosure Requirements

While most of the initiatives arising from the CSA report are centered on guidance, education and monitoring, reporting issuers should take note that CSA is considering new disclosure requirements in two areas:

1. issuers' governance practices in relation to material business risks and opportunities (including the board’s responsibility for oversight and the role played by management); and
2. issuers' processes for the identification, assessment and management of material risks.

These would likely involve amendments to Form 58-101F1, which sets out the disclosure requirements for TSX-listed and other non-venture Issuers regarding their corporate governance practices, and NP 58-201, which provides guidance on corporate governance practices.

Concluding Thoughts

Harmonization of Disclosure Standards

The CSA report indicated little consensus on whether the CSA should adopt a uniform set of metrics and qualitative disclosures on climate change impacts on reporting issuers. Some users point to the benefit of harmonization of disclosure standards to provide more consistent and comparable information between issuers and industries, and some issuers point to the benefit of a level playing field for the disclosure of climate change-related risks. However, others caution that uniformity may not actually result in comparability, and adopting international frameworks that were developed by representatives of large multi-national corporations may impose an unfairly high regulatory burden on Canadian issuers who generally have a smaller market capitalization.

Harmonization with Other Jurisdictions

It remains to be seen how closely Canada's climate change-related disclosure regulations will develop in tandem with U.S. securities regulations. The CSA report noted that the U.S. rules take a similar approach to securities laws in Canada, in that they do not prescribe specific disclosure requirements in relation to climate change-related information. In contrast, listed companies in the United Kingdom are required to disclose their GHG emissions (or where it is not practical to obtain any or all this information, to state what information is omitted and provide reasons why) and to report on environmental matters to the extent it is necessary for an understanding of the company’s business within their annual reports.

Bennett Jones continues to monitor the development of regulatory requirements and policies in this area.