The CSA seeks comments on proposed National Instrument 51-107 - Disclosure of Climate-related Matters 

28.10.21 04:37 PM

On October 18, 2021, the Canadian Securities Administrators (CSA) proposed National Instrument 51-107 Disclosure of Climate-related Matters (the Proposed Instrument) and its companion policy (the Proposed Policy) for a 90-day comment period. The Proposed Instrument would introduce disclosure requirements regarding climate-related matters for reporting issuers (other than investment funds).

The CSA is soliciting comments on the Proposed Instrument by January 17, 2022.

Purpose of the Proposed Instrument

The focus on climate-related issues in Canada, and internationally, has grown rapidly in recent years with climate-related risks becoming a mainstream business issue. These concerns, particularly demanded by investors and other stakeholders, has contributed to a growing discussion on moving towards mandatory climate-related disclosures providing consistent, comparable, and decision-useful information to market participants.

The CSA note concerns about current climate-related disclosures, including the following:

  1. issuers’ climate-related disclosures may not be complete, consistent, and comparable;
  2. quantitative information is often limited and not necessarily consistent;
  3. issuers may “cherry pick” by reporting selectively against a particular voluntary standard and/or frameworks; and
  4. sustainability reporting can be siloed and is not necessarily integrated into companies’ periodic reporting structures.

The CSA believe that the climate-related disclosure requirements contained in the Proposed Instrument would provide clarity to issuers on the information required to be disclosed and also facilitate consistency and comparability among issuers. Specifically, the climate-related disclosure requirements are intended to:

·  improve issuer access to global capital markets by aligning Canadian disclosure standards with expectations of international investors;

·  assist investors in making more informed investment decisions by enhancing climate-related disclosures;

·  facilitate an “equal playing field” for all issuers through comparable and consistent disclosure; and

·  remove the costs associated with navigating and reporting to multiple disclosure frameworks as well as reducing market fragmentation.

Proposed Instrument

The Proposed Instrument 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.

It will require a reporting issuer in Canada to meet the climate-related governance disclosure requirements:

1.  The issuer must include in its management information circular the disclosure referred to in Form 51-107A.

2.  A reporting issuer that does not send a management information circular to its security holders must include the disclosure referred to in Form 51-107A in its AIF, or if it does not file an AIF, in its annual MD&A

These requirements align with the four main elements recommended by the TCFD.

 

The Task Force on Climate‑Related Financial Disclosures (TCFD)

In 2015, the Financial Stability Board (FSB) established the TCFD in order to develop recommendations for more effective climate-related disclosures that could promote more informed investment, credit, and insurance underwriting decisions. In June 2017, the TCFD released its final recommendations, providing a framework for companies and other organizations to develop more effective climate-related financial disclosures through existing reporting practices. The TCFD organized its recommendations of climate-related financial disclosures around four core elements: governance, strategy, risk management, and metrics and targets.

1.  Governance

Disclose the organization’s governance around climate-related risks and opportunities. 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

2.  Strategy

Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material. 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

3.  Risk Management

Disclose how the organization identifies, assesses, and manages climate-related risks. 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

4.  Metrics and Targets

Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material

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

Application of the Proposed Instrument

The Proposed Instrument 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.

Transition

To facilitate a proportionate approach, the Proposed Instrument will be implemented in a one-year transition phase for non-venture issuers, or a three-year transition phase for venture issuers. For non-venture issuers, disclosure requirements would apply to annual filings in respect of the financial year ending December 31, 2023. These annual filings would be due in March 2024. For venture Issuers, disclosure requirements would apply to annual filings in respect of the financial year ending December 31, 2025. These annual filings would be due in April 2026.

 

Further information can be found at:

https://www.osc.ca/sites/default/files/2021-10/csa_20211018_51-107_disclosure-update.pdf

 

 

 

 

  

 


  

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