On April 5, 2018, the Canadian Securities Administrators (CSA) published CSA Staff Notice 51-354 – Report on Climate change-related Disclosure Project, marking the end of the information gathering phase of what will be an ongoing effort by the CSA to reshape disclosure by issuers relating to climate-change related risks and financial impacts to meet the evolving expectations of investors.
As previously discussed, pursuant to this first phase, the CSA sought to:
- assess whether current securities legislation and guidance about climate-change related disclosure requirements provide sufficient direction for issuers;
- understand what climate-change related information investors expect and require in order to make informed investing and voting decisions; and
- evaluate the adequacy issuers’ current climate-change related disclosure.
To that end, the CSA undertook a comprehensive review of Canadian issuer climate-change related disclosures (both legislated and voluntary). The CSA also solicited input from a representative suite of issuers across industries as to their current practices, climate-change related disclosure challenges, the governance and risk-management processes for assessing materiality in the context of climate-change related disclosure and the anticipated financial and regulatory burdens associated with the preparation of such disclosure. The CSA solicited input from a number of stakeholders, including investors and investor advocates, NGOs, academics and ratings agencies as to their perspectives on existing climate-change related disclosures and what enhancements would address their reasonable expectations. Finally, the CSA considered existing and proposed approaches to similar disclosures in other jurisdictions and voluntary frameworks already in existence, including those published by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, the Integrated Reporting Council, the Global Reporting Initiative and the Sustainability Accounting Standards Board.
The CSA found that a significant number of issuers were concerned with a movement toward mandatory disclosure requirements relating to climate-change for reasons including:
- Increased costs and regulatory burden.
- Inapplicability of a one size fits all approach to multiple industries and businesses of varying sizes and complexities.
- Materiality considerations of existing legislation already dictate the presence and nature of climate-change related disclosures and mandatory reporting of non-material climate-change related matters would unduly elevate its significance relative to equally or more significant risks.
- Insufficiently consistent standards and frameworks.
- Insatiable demand for greater disclosure regardless of issuer response and the non-investment related purposes to which such information might be applied.
As such, issuers tended to take an understandably measured and deliberate approach to calls for a greater depth and breadth of disclosure, seeking assurances that materiality determinations will remain the trigger for compulsory versus voluntary disclosures regardless of any regulatory revisions.
Users (comprised of institutional investors, investor advocates, experts, academics, credit rating agencies and analysts), on the other hand, shared a broad consensus as to the insufficiency of climate change-related risk disclosures and the financial impacts flowing therefrom. In particular, users noted that much of the climate-change disclosure is of a boilerplate nature, vague or incomplete and inconsistent even as between issuers in similar industries, making comparison difficult. Despite this, the CSA found that users did not provide consistent viewpoints given differing investment strategies, commitments, and other considerations.
CSA Steps Forward
Given the disparity of views between issuers and users on both the sufficiency of current disclosure requirements and practices and the direction of future regulatory initiatives, the CSA has indicated that one of its principal areas of focus for climate-change related disclosure is the development of guidance and educational initiatives for issuers with respect to the business risks, opportunities and financial impacts associated with climate change. It is anticipated that this could take the form of additional guidance on entity–specific risk factor disclosure (including legal/regulatory, physical, transitional and reputational), trends, uncertainties, materiality assessments and governance and oversight, all as it relates to climate-change related disclosures.
In addition to the foregoing guidance, the CSA has also indicated that it will be considering new disclosure requirements in respect of issuers’ governance and oversight practices in relation to material business risks, opportunities and the financial impacts of climate-change related matters. While existing guidance already notes that issuers should provide disclosure in respect of such matters, and many issuers have the governance and oversight practices in place, the CSA noted a dearth of disclosures in this regard. As a result, enhancements will be focused on disclosure of governance processes related to material risks and opportunities (including the role of the board and management) and how issuers oversee the identification, assessment and management of material risks.
Any regulatory developments are anticipated to, at least initially, be restricted to non-venture issuers.