Focus continues to intensify on this December's climate change talks in Copenhagen. Regardless of what may transpire by year's end, climate-change considerations will remain a hot-button issue and will garner long-term political, legal and media attention. Towards Copenhagen and beyond, it seems safe to say that Canadian companies will continue to be faced with new legislative requirements enacted to address climate change issues. As an example, many Canadian companies are, or soon will be, required to report greenhouse-gas (GHG) emissions.

Against this backdrop, Canadian companies should consider whether they are adequately preparing themselves to report GHG emissions and/or to comply with other foreseeable climate change obligations. Additionally, Canadian reporting issuers should address whether they are giving adequate disclosure to investors about environmental matters that may have a material impact on them.

Canadian industrial emitters face deadline for emissions reporting

The Department of the Environment has given notice that Canadian industrial emitters of GHGs have until June 1, 2010 to report their 2009 GHG emissions. The reporting deadline, which was established by Environment Canada, applies to facilities that emit over 50,000 tons of carbon dioxide equivalent (CO2e) per year. Environment Minister Jim Prentice has indicated that more detailed regulations will be released prior to the Copenhagen talks.

The Western Climate Initiative releases essential requirements of mandatory reporting

The partners of the Western Climate Initiative (WCI) are comprised of seven U.S. states and four Canadian provinces, namely British Columbia (B.C.), Manitoba, Ontario and Quebec. Other U.S. states and Canadian provinces (Saskatchewan and Nova Scotia) are currently WCI observers.

The WCI has recently released its final version of the first group of Essential Requirements for Mandatory Reporting (ERMR). The ERMR requires owners and operators that are subject to the mandatory reporting requirements to submit annual GHG emission reports by April 1 of each year for emissions in the previous calendar year. The initial reporting requirements will apply to the owner or operator of a facility that emits 10,000 metric tons of CO2e or more per year in combined emissions, from one or more of the listed source categories, in any calendar year starting in 2010. Accordingly, companies subject to the ERMR that commenced operations prior to 2010 will be required to report their 2010 GHG emissions by April 1, 2011.

Subsequent to the year 2010, the ERMR contemplates that the reporting requirements will also apply to: (1) all importers of electricity (both retail providers and marketers) that import electricity into the WCI region, (2) any supplier that within the WCI region distributes transportation fuels in quantities that when combusted would emit 10,000 metric tons of CO2e per year or more, in any calendar year starting in 2010, and (3) any supplier that distributes within the WCI region residential, commercial and industrial fuels in quantities that when combusted would emit 10,000 metric tons of CO2e per year or more, in any calendar year starting in 2010.

The impact of the ERMR regime

In order to comply with the WCI-imposed obligations, the B.C., Manitoba, Ontario and Quebec provincial governments are each moving forward with legislation designed to implement the ERMR regime. For example, the B.C. government has announced its intention to introduce a mandatory GHG-emissions reporting regulation during the fall of 2009. The Ontario government has recently stated that its intention is to harmonize Ontario reporting requirements with those of the WCI (as well as with any U.S. federal trading system). Quebec has passed Bill 42 (An Act to amend the Environment Quality Act and other legislative provisions in relation to climate change), which establishes the reporting of GHG emissions by certain categories of emitters to be determined by regulation.

It should be noted that other Canadian provinces have also moved towards the adoption of legislation that will require companies to report GHG emissions. For example, in 2004, Alberta passed the Specified Gas Reporting Regulation, which continues to require industrial facilities that emit more than 100,000 tons of CO2e in a calendar year to submit annual emission reports. Additionally, on August 14, 2009, the government of Nova Scotia released the Greenhouse Gas Emission and Air Pollutant Regulation. This regulation requires facilities located in Nova Scotia that emit more than 10,000 metric tons of CO2e in a calendar year to submit annual emission reports.

Measuring and reporting GHG emissions is a labour-intensive process

In order to comply with the various provincial and/or federal legislation that may apply to them, companies will need to determine whether or not they emit the quantity of GHGs that triggers the various legislative reporting requirements. In order to do so, companies will need to measure their GHG emissions in accordance with the prescribed methods set out in the various legislation applicable to them. Measuring GHG emissions will be labour-intensive and will require that a detailed and mapped-out process be followed. Additionally, while governments have generally recognized the importance of standardized measuring methods (so as to help ensure the fair operation of multi-jurisdictional carbon cap-and-trade programs), there is no certainty that all legislation will contain common measuring techniques.

In the event a company is subject to GHG reporting requirements, the applicable legislation will also set out other obligations that the company will need to spend time considering. Typically, these obligations will include monitoring, record-keeping and retention requirements, as well as data-verification requirements. It can also be expected that GHG legislation will increasingly require emitters to reduce their GHG emissions towards established targets and/or to cover their GHG emissions with prescribed emission allowances, units or credits.

Canadian reporting issuers and the impact of climate change

As was stated by the Canadian Institute of Chartered Accountants (CICA) in a Management's Discussion and Analysis (MD&A) disclosure guide published in November 2008 (the Guide), investors are increasingly seeking more detailed and nuanced information about how reporting issuers view the impact of climate change, in order to assess its effect on a company's current and future financial conditions, results of operations and cash flows. The CICA noted that the business impact of climate change will require reporting issuers - even those that do not directly produce GHG - to implement strategies, both to adapt to the effects of climate change on the reporting issuer's business and, in other cases, to take action to mitigate the extent of their GHG emissions. The CICA Guide outlines five types of information in MD&A that should address climate-change issues:

Business strategy. MD&A should present investors with an overview of the climate-change factors that the reporting issuer has factored into its business strategy.

Risks. MD&A should describe the risks presented by climate change on the reporting issuer, including physical risks (e.g. changes to weather patterns), regulatory risks (e.g. heightened regulatory oversight and scrutiny), reputational risks (e.g. negative customer perceptions of reporting issuers failing to address climate-change issues), litigation risks (e.g. lawsuits against heavy GHG emitters) and any other material risks.

GHG emissions. To the extent that it is material to evaluating the performance and future prospects of a reporting issuer, a reporting issuer's direct and indirect GHG emissions and related intensity data should be discussed in MD&A.

Financial impacts. The impact of climate change on financial operations, cash flows and the financial condition of the reporting issuer should be discussed in MD&A, along with the future financial implications.

Governance processes. MD&A should describe the governance and organizational processes used by the reporting issuer in identifying and managing climate-change issues.

While Canadian securities regulators have not yet specifically mandated the disclosure of climate-change strategies in a reporting issuer's public disclosure record, the requirements of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), including the requirements applicable to a reporting issuer's MD&A, are sufficiently broad so as to capture such issues.

A reporting issuer's MD&A, for example, is required to discuss the effect of "known trends, demands, commitments, events or uncertainties" on the reporting issuer's "financial condition, results of operations and cash flows." Moreover, a reporting issuer's annual information form (AIF) is required to disclose such things as the "financial and operational effects of environmental protection requirements" on its financial position, including capital expenditures. An AIF is also required to detail risk factors, such as environmental risks, and "regulatory constraints.and any other matter that would be most likely to influence an investor's decision to purchase" the securities of the reporting issuer. As climate-change concerns continue to escalate and, as a result, increasingly stringent legislation is enacted , regulatory authorities may in the future require Canadian reporting issuers to provide more prominent and expansive disclosure with respect to the impact that climate change will have on their business.

In February 2008, the Ontario Securities Commission (OSC) issued Staff Notice 51-716 - Environmental Reporting, outlining the results of a targeted review by OSC staff of the degree to which Canadian reporting issuers were adequately disclosing information about so-called "environmental matters" in their annual financial statements, MD&A and AIFs. The OSC's written findings suggest that, at the time, the disclosure of certain Canadian reporting issuers with respect to potentially material environmental matters was inadequate and, in certain instances, consisted of insufficient, boilerplate disclosure.

Staff Notice 51-716 should continue to serve as a signal to Canadian reporting issuers that, regardless of whether or not they are subject to specific GHG-emission or other environmental reporting requirements, it is necessary for them to seriously consider the effect of environmental matters and climate change on their business and to ensure that such matters are adequately disclosed to investors.