Disclosure of climate-related matters: CSA proposal and request for comment

Meaningful, consistently applied disclosure of climate-related matters took one step closer to becoming a reality in Canada on October 18 with the publication by the Canadian Securities Administrators of proposed National Instrument 51-107 – Disclosure of Climate-related Matters (the Climate Disclosure Rules). 

Based in large part on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD recommendations), the Climate Disclosure Rules focus issuer’s climate-related disclosure on four areas: governance, strategy, risk management, and metrics and targets (including metrics and targets relating to greenhouse gas emissions). 

The Climate Disclosure Rules, which are included with the CSA’s climate-related disclosure update and notice and request for comment, can be found here and are open for a public comment period expiring on January 17, 2022.

When will the Climate Disclosure Rules come into effect?

The CSA is proposing that the Climate Disclosure Rules would apply within one year of coming into force for non-venture issuers and within three years of coming into force for venture issuers. For example, assuming that the Climate Disclosure Rules came into effect on December 31, 2022, for non-venture issuers (with a December 31 year end) they would apply to annual filings for the financial year ending December 31, 2023, and would be due in March 2024. For venture issuers (using the same assumptions), the Climate Disclosure Rules would apply to annual filings for the financial year ending December 31, 2025, and would be due in April 2026.

Who must make disclosure under the Climate Disclosure Rules?

The Climate Disclosure Rules will 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.

What must the disclosure cover?

As noted, the Climate Disclosure Rules are focussed on four key areas, each of which will be discussed in greater detail in future instalments. The specific disclosure requirements as set out in the Climate Disclosure Rules for those areas are set out below. 

Although nearly identical to the disclosure requirements set out in the TCFD recommendations, the CSA is recommending two significant departures from the TCFD. The first of these departures relates to the “scenario analysis” recommended by the TCFD under the strategy category. This scenario analysis would have described “how resilient an issuer’s strategies are to climate-related risks and opportunities, taking into consideration a transition to a lower-carbon economy consistent with a 2°C or lower scenario and, where relevant to the issuer, scenarios consistent with increased physical climate-related risks.” Based on stakeholder concerns with the costs and benefits of a scenario analysis, the CSA has decided not to require this under the Climate Disclosure Rules.

The second of these departures relates to disclosure of greenhouse gasses under metrics and targets. Under the TCFD recommendations it is recommended that issuers disclose their Scope 1 and 2 and, if appropriate, their Scope 3 greenhouse gas (GHG) emissions and related risks. The Climate Disclosure Rules will not require mandatory GHG disclosure but will follow a “comply or explain" model where issuers can either disclose their emissions or give reasons for not making such disclosure. However, as part of its consultation process the CSA is seeking input on whether it would be more appropriate to make Scope 1 emissions disclosure mandatory (either when material or in all cases) while making Scope 2 and 3 emissions subject to “comply or explain.” 

Under the Climate Disclosure Rules the default methodology for calculating GHG emissions will be the Greenhouse Gas Protocol (GHG Protocol), an accounting and reporting standard prepared by the World Business Council for Sustainable Development and the World Resources Institute. However, issuers may use a comparable emissions reporting standard so long as they disclose how it is comparable.

Where must disclosure be filed?

Governance disclosure must be included in the issuer’s management information circular unless it does not send one, in which case such disclosure must be included in the issuer’s AIF (or annual MD&A, if the issuer does not file an AIF). Disclosure related to strategy, risk management, and metrics and targets must be included in the issuer’s AIF (or annual MD&A, if the issuer does not file an AIF).

Forward looking information

Some disclosure provided under the Climate Disclosure Rules will likely constitute forward looking information. As such issuers must ensure any such disclosure complies with rules related to FLI.