Investor demand for climate-related disclosure, as well as information provided by public companies, has grown dramatically in recent years. This has resulted in incomplete or inconsistent climate-related disclosure.
In light of this, on October 18, 2021 the Canadian Securities Administrators (“CSA“) published the proposed National Instrument 51-107 Disclosure of Climate-related Matters (the “Proposed Instrument“) and its companion policy for a 90-day comment period. The Proposed Instrument would introduce disclosure requirements regarding climate-related matters for reporting issuers. This article summarizes the main components of the Proposed Instrument.
Key Highlights
- The Proposed Instrument covers four climate-related areas: governance; strategy, risk management, and metrics and targets.
- Proposed disclosure requirements will apply to a company’s management information circular for governance disclosure, and a company’s Annual Information Form (“AIF“) or Management’s Discussion & Analysis (“MD&A“) for disclosure related to strategy, risk management, and metrics and targets.
- The disclosure requirements will be phased-in over a one-year period for non-venture issuers and over a three-year period for venture issuers. It is not anticipated that the Proposed Instrument will come into force prior to December 31, 2022.
- The Proposed Instrument is based on international climate-related disclosure standards.
- Comment period ends on January 17, 2022.
Description
In the spring of 2021, the CSA conducted a review of current public disclosure practices. In its review, the CSA noted specific concerns, including, among others, incompleteness, inconsistency, and limited quantitative information provided in the disclosure. As such, the goal of the Proposed Instrument is to provide clarity to issuers, bring Canadian disclosure standards in line with the expectations of international investors, and generally assist investors in making more informed decisions.
The Proposed Instrument is generally (with some modification) based on disclosure standards set out by the Task Force on Climate-related Financial Disclosure (“TCFD”) in its final report of June 2017. The TCFD was established in 2015 by the Financial Stability Board, an international organization based in Switzerland. The CSA felt that the TCFD framework is appropriate since it provides a prevalent framework with global support, with several international jurisdictions working to adopt TCFD recommendations.
The Proposed Instrument contemplates disclosure related to four core elements of the TCFD recommendations: governance; strategy; risk management; and metrics and targets. The disclosure relating to governance would be included in the reporting issuer’s management information circular (or the AIF or MD&A, for issuers that do not send a circular). The disclosure related to strategy, risk management, and metrics and targets, would be included in the reporting issuer’s AIF, or the MD&A if the issuer does not file an AIF.
The Proposed Instrument contemplates a phased-in transition over one and three-year periods. Non-venture issuers would be required to comply beginning with annual filings in respect of the first financial year beginning after the effective date of the Proposed Instrument. For example, if the Proposed Instrument comes into effect on December 31, 2022, the requirements would apply to annual filings in respect of the financial year ending December 31, 2023. For venture issuers, disclosure requirements would apply beginning with annual filings in respect of the third financial year beginning after the effective date of the Proposed Instrument.
Proposed Disclosure Requirements
The following chart summarizes the disclosure requirements of the Proposed Instrument:
| Area | Related Disclosure Requirement | Applicable Documents |
|---|---|---|
| Governance | Reporting issuers would be required to describe the following: • The board’s oversight of climate-related risks and opportunities. • Management’s role in assessing and managing climate-related risks and opportunities. | Management Information Circular |
| Strategy | Reporting issuers would be required to describe the following, where such information is material: • The climate-related risks and opportunities the issuer has identified over the short, medium, and long term. • The impact of climate-related risks and opportunities on the issuer’s businesses, strategy, and financial planning. | AIF (or MD&A where the issuer does not file an AIF) |
| Risk Management | Reporting issuers would be required to describe the following: • The issuer’s processes for identifying and assessing climate-related risks. • The issuer’s processes for managing climate-related risks. • How processes for identifying, assessing, and managing climate-related risks are integrated into the issuer’s overall risk management. | AIF (or MD&A where the issuer does not file an AIF) |
| Metrics and Targets | Reporting issuers would be required to disclose: • The metrics used by the issuer to assess climate-related risks and opportunities in line with its strategy and risk management process where such information is material. • Scope 1, Scope 2, and Scope 3 GHG emissions, and the related risks or the issuer’s reasons for not disclosing this information. The CSA is also consulting on an alternative approach, which would require issuers to disclose Scope 1 GHG emissions. • The targets used by the issuer to manage climate-related risks and opportunities and performance against targets where such information is material. | AIF (or MD&A where the issuer does not file an AIF) |