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20 October 20215 minute read

Canadian Securities Administrators seek comment on proposed National Instrument 51-107 - ‎Disclosure of Climate-related Matters

On October 18, the Canadian Securities Administrators (“CSA”) proposed National Instrument 51-107 Disclosure of Climate-related Matters (“Instrument”) and its companion policy (“Policy”) that would introduce new climate-related disclosure obligations for reporting issuers in Canada (other than investment funds and certain specified issuers). The CSA has provided a 90-day comment period for stakeholders to address the proposed Instrument and Policy. The proposed Instrument would come into force on December 31, 2022.

The disclosure mandated by the proposed Instrument comprises a modified version of the 2017 recommendations of the Task Force on Climate-related Financial Disclosure (“TCFD”). The TCFD was established by the Financial Stability Board in 2015, to develop recommendations for more effective climate-related disclosures to better inform the investment, credit and insurance industries as to their exposure to climate-related risks. The move by the CSA to adopt disclosure rules in line with the TFCD recommendations, follows similar moves by the UK’s Financial Conduct Authority and Prudential Regulation Authority. Notably, the proposed Instrument does not require “scenario analysis” as per TCFD recommendations.

Following the CSA’s 2017 review of disclosure by public companies, culminating in their 2017 Staff Notice 51-354 Report on Climate Change-related Disclosures Project, and the August 2019 Staff Notice 51-358 Reporting of Climate Change-related Risks, in spring 2021, the CSA conducted an issue-oriented review of climate-related disclosure by Canadian reporting issuers (the “Disclosure Review”). The Disclosure Review found that, compared with the results of the 2017 review, issuers are providing more climate-related information in their continuous disclosure filings and voluntary reports, including risk disclosure and specifically the financial impact of climate-related risks. However, in many cases these risk disclosures are boilerplate, vague, or incomplete, or fail to address the financial impacts of the identified climate risks. Moreover, none of the issuers reviewed quantified the financial impact of the identified risks. Finally, the vast majority of the issuers provided voluntary reports containing climate-related disclosures, often in the form of a sustainability report or an ESG report. These reports frequently referenced two or more third-party frameworks, most commonly the TCFD recommendations, the Global Reporting Initiative, or the Sustainability Accounting Standards Board.

The proposed Instrument extends the work of the CSA by introducing new climate-related disclosure requirements. The stated purposes of the Instrument and the Policy are (1) to align Canadian disclosure standards with expectations of international investors, (2) to enhance climate-related disclosures, (3) to level the playing field among issuers by enhancing consistency of disclosure, and (4) to remove the costs to issuers associated with navigating and reporting to multiple disclosure frameworks. The mandated disclosure corresponds to the four core elements in the TFCD recommendations, and is as follows:

  1. Governance. Issuers must describe the board’s oversight of climate-related risks and opportunities, and management’s role in assessing and managing such risks and opportunities.

  2. Strategy. Issuers must describe, to the extent material, the climate-related risks and opportunities the issuer has identified over the short, medium and long term, and the impact of such risks on the issuer’s business, strategy and financial planning.

  3. Risk Management. Issuers must describe their processes for identifying, assessing and managing climate-related risks, and how such processes are integrated in their overall risk management.

  4. Metrics and Targets. Where such information is material, issuers must disclose the metrics the issuer uses to assess climate related risks and opportunities and targets used to measure its performance. Issuers must also either disclose their Scope 1, Scope 2 and Scope 3 greenhouse gas (“GHG”) emissions and the related risks, or explain the issuer’s reasons for not disclosing emissions. The CSA is also considering an alternative approach, which would require all issuers to disclose Scope 1 GHG emissions.

The proposed Instrument does not require issuers to disclose scenario analysis, which is a TCFD recommended disclosure.

The proposed Instrument and Policy would apply to all reporting issuers, other than investment funds, issuers of asset-backed securities, designated foreign issuers, SEC foreign issuers, certain exchangeable security issuers and certain credit support issuers. New disclosures required by the Instrument would be provided in the issuer’s management information circular, or in the absence of a management information circular, the issuer’s annual information form, or in the absence of an AIF, the issuer’s annual management’s discussion and analysis.

The new disclosure requirements will be phased in over a one-year period for non-venture issuers, or a three-year period for venture issuers. Assuming the proposed Instrument comes into force on December 31, 2022, for non-venture issuers, the disclosure requirements would apply to annual filings in respect of the financial year ending December 31, 2023, or in the case of Venture issuers, the financial year ending December 31, 2025.

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