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CSA Notice and Request for Comment – Proposed NI 51-107 – Disclosure of Climate-related Matters
Letter Summary:
The CSA is consulting on a proposed new National Instrument, NI 51-107 Disclosure of Climate-related Matters, which introduces new disclosure requirements for reporting issuers (other than investment funds and certain other issuers like designated foreign issuers). The disclosure requirements build on a number of CSA notices and existing disclosure requirements relating to material information on climate-related matters, as well as international work and the recommendations of the Ontario Capital Markets Modernization Task Force. The purpose of mandating certain disclosure is to provide clarity to issuers on expectations, and also ensure consistency and comparability among issuers. The climate-related disclosure requirements are also meant to align Canadian disclosure standards with the expectations of international investors and remove costs that would be associated with reporting to multiple disclosure frameworks. While the requirements are based on the four principles set out by the international Task Force on Climate-related Financial Disclosures (TCFD), being governance, strategy, risk management and metrics/targets, issuers will not be required to disclose a scenario analysis (i.e. how resilient an issuer’s strategies are to climate-related risks and opportunities given a lower-carbon economy). Issuers will also be given the choice to disclose their greenhouse gas emissions or explain why they have not done so. Information on governance would be added to an issuer’s management information circular (or AIF or MD&A if no circular is sent). The disclosures related to strategy, risk management, and metrics and targets would be included in an issuer’s AIF (or MD&A if an issuer does not have an AIF). The information specified to be included for an issuer’s governance and risk management of climate-related matters would not be subject to a materiality qualifier. It is proposed that there be a lengthy transition period to allow issuers time to prepare the necessary disclosure; a one-year period for non-venture issuers and a three-year period for venture issuers, and only once the instrument is expected to come into force on December 31, 2022 (i.e. for the 2024 and 2026 reporting periods).
Overview of the Council’s Comments:
The CAC is strongly supportive of setting consistent standards for the disclosure of climate-related matters for reporting issuers. Given the worldwide commitments to achieve net-zero portfolios by 2050, it is incumbent on issuers to provide comparable information on carbon emissions. Even absent regulatory intervention, there will be increasing pressure on issuers to provide the type of information discussed in the Proposed NI.
The CAC supports regulatory efforts to further develop issuer disclosure of climate-related matters in Canada. While it may be somewhat incrementally costly for issuers to be mandated to provide Scope 1 and Scope 2 emissions information, the global commitments that have been made by governments and coalitions of both issuers and investors will require such information to be provided in the near-term. It is important that any such information be provided using standardized methodologies and formats for comparability and consistency.
The disclosures as set out are consistent with the TCFD recommendations which have quickly become global best practice, together with requirements to calculate GHG emissions in accordance with the GHG Protocol. However, rather than allowing issuers wide discretion on the choice to implement scenario analysis, the CAC believes it is necessary to segment certain groups of issuers that should be required to provide scenario analysis in the near-term. The CAC suggested the exclusion of venture issuers from the requirements at this time, and segment industries to require scenario analysis in the near-term from those issuers in industries with either high carbon emission intensity or where the effects of climate change or transition will have material effects on the value of the company and/or the viability of its business(es). Scenario analysis is key for these industries to better understand their own risks, and to communicate this risk to investors.
The CAC strongly encourages the CSA to adopt a nimble policy footing relating to these matters, such as through the formation of a standing and dedicated CSA policy committee. The CAC reiterated the commitment to participating in future consultations involving other sustainability and ESG-related matters as disclosure on climate-related matters is but one piece of the puzzle.