Focus on climate change disclosure continues with LEEFF

Key takeaways

• Companies that receive LEEFF funding will be required to complete annual climate change reporting and should consider utilizing the TCFD standards to inform reporting strategies.
• Including climate change reporting in the LEEFF program accords with Canada’s policies on climate change and continues the trend seen in previous guidance from the Canadian Securities Administrators (CSA) and Bank of Canada for increased climate change disclosure and scenario planning.
• Even companies who do not anticipate accessing the LEEFF funds should consider the continued Canadian and global focus on climate change risks and opportunities and related disclosure requirements, and consider how corporate climate change strategies and reporting practices may (or may not) already align with stakeholder expectations.

LEEFF applications and obligations

The recently announced Large Employer Emergency Financing Facility (LEEFF) provides “bridge financing” for large companies across all sectors of the Canadian economy, excluding the financial sector (see previous Norton Rose Fulbright commentary for additional details and requirements of the program here). 

The federal government’s initial announcement on May 11, 2020, indicated that companies wishing to access the funds would be required to publish annual climate-related disclosure reports in accordance with the reporting standards developed by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). 

However, when the federal government later released the LEEFF fact sheet, the reference to the TCFD standards was no longer included. Rather, the fact sheet indicates that companies wishing to access the funds must commit to releasing an annual climate-related financial disclosure report, highlighting how corporate governance, strategies, policies and practices will help manage climate-related risks and opportunities, and indicate how the company will contribute to achieving Canada’s commitments under the Paris Agreement and goal of net zero by 2050.

While it may be the case that large enterprises who qualify for LEEFF financing already prepare climate-related disclosure, or are in a better position to implement such measures, the extent to which large companies will take advantage of this program is yet to be seen. Some initial reactions indicate the LEEFF program is seen as a “lender of last resort” due to the impacts of higher interest rates and the potential for government ownership or oversight in the company, but not because of onerous climate reporting obligations.  

TCFD basics

While the explicit reference to TCFD was removed from the federal government fact sheet, companies considering accessing the LEEFF funds would be wise to look to the TCFD standards for reporting guidance. TCFD aims to develop voluntary, consistent climate-related financial risk disclosures dealing with physical, liability and transition risks. The TCFD framework has also developed a set of recommendations regarding a company’s governance, strategy, risk management, and metrics and targets in relation to disclosing climate-related information. 

The TCFD standards have been gaining popularity since initial standards were released in 2017, with a recent Chartered Professional Accountants Canada study indicating that 98% of all companies currently include climate-related disclosure in at least one of the four TCFD-recommended categories. Given the increasing use of and respect for the TCFD framework, and previous endorsements by Canadian regulators and banks, companies should consider using the framework to guide their climate change disclosure. In addition, as there is increasing pressure from institutional investors to consider climate risks and standardize disclosure, the LEEFF reference to TCFD may assist with the standardization of climate reporting obligations in Canada.

LEEFF climate reporting requirement builds on previous guidance

Including a climate reporting obligation in the LEEFF program and the reference to the TCFD standards indicates continued interest in standardized climate change disclosure. In the past year, the CSA has released CSA Staff Notice 51-333 Environmental Reporting Guidance and CSA Staff Notice 51-354 Report on Climate change-related Disclosure Project, which focus on the importance of disclosing material climate risks (see previous Norton Rose Fulbright commentary here).

The recent CSA guidance along with recent Bank of Canada commentary in its Financial System Review (see also Norton Rose Fulbright commentary) and Staff Discussion Paper and Canada’s Expert Panel on Sustainable Finance confirm that LEEFF climate reporting obligations are not a one-off climate concern. The Staff Discussion Paper released last month notes central banks are stepping up efforts to assess climate-related risks and outlines the value in climate-related scenario analysis to forecast potential outcomes. 

Of note for the climate reporting obligations required for LEEFF funding – companies will need to disclose what they are doing to meet Canada’s specific 2050 targets set by the federal government. While the TCFD standards do include reference to the Paris Goals, the Canadian government’s goal to be “net zero” by 2050 has not been previously included in CSA guidance. As such, companies should take note of the expanded requirements as this may signal future policy trends in Canada.

The extent to which further climate-related policy initiatives will be rolled out during or after the pandemic is yet to be seen, but there are certainly indications that this type of reporting is here to stay. Even if companies are not accessing the LEEFF funds, they should prepare for the implications of both the physical and transitional risks associated with climate change and be able to report on identified climate risks including the internal governance, strategies, policies and practices designed to mitigate these risks and take advantage of opportunities. 

Stakeholder, including investor, interest as well as guidance on the issue is growing, and consideration and diligence now can help companies develop strategic plans and promote resilience moving out of the COVID-19 pandemic.  Those that do take a LEEFF loan can also take advantage of the required climate reporting to develop or enhance climate-related strategies.