The Proposed National Instrument NI 51-107 Disclosure of Climate-related Matters 

10.11.21 05:58 AM

The Proposed National Instrument NI 51-107 Disclosure of Climate-related Matters


On October 18, 2021, the Canadian Securities Administrators (CSA) proposed National Instrument 51-107 Disclosure of Climate-related Matters (the “Regulation”) to introduce disclosure requirements regarding climate-related matters for reporting issuers. Along this instrument, is the policy statement to regulation 51-107 respecting disclosure of climate-related matters (the “Policy Statement”) providing information regarding the interpretation and application of the Regulation.

There are two forms required for the disclose requirements of the Regulation: Form 51-107A and Form 51-107B, which are consistent with the recommendations (the “TCFD recommendations”). The CSA is soliciting comments on both the Proposed Instrument and the Policy Statement by January 17, 2022.

Background

In recent years, climate-related matters have become increasingly relevant to multiple actors in Canada and in the world. This issue concerns citizens, businesses, organizations, and several different groups, which all are operating in a highly interconnected world. Therefore, it is important that climate-related information is available for investors in Canada and internationally.

For this reason, the Regulation will require reporting issuers to disclose certain climate-related information in their continuous disclosure documents. This information is becoming an increasingly important element to investing and voting decisions, associated with financial risks, decision making and growth opportunities. Since 2010, the CSA has been providing guidance and reinterring the importance of climate-related risk disclosure in Canada with several regulations and instruments such as the CSA Staff Notice 51-333Environmental Reporting Guidance and CSA Staff Notice 51-358Reporting of Climate Change-related Risks.

TCFD Recommendations

The Financial Stability Board created the Task Force on Climate Change-related Financial Disclosures (TCFD) to improve and increase the reporting of climate-related financial information. The TCFD has developed a framework to help public companies and other organizations to effectively disclose climate-related risks and opportunities through their existing reporting processes.

On June 2017, the TCFD published in its report entitled Recommendations of the Task Force on Climate-related Financial Disclosures (the “TCFD Final Report”) four recommended disclosures that describe the resilience of an issuer’s strategy, taking into consideration different climate-related scenarios.

 

 

 

TCFD Recommendations and disclosure required by the Regulation

Governance

-  Mandatory

-  Form 51-107A

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

Strategy

-  Only required when information is material

-  Form 51-107B

-  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.

Risk management

-  Only required when information is material

-  Form 51-107B

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

 

Metrics and targets

-  Comply or explain

-  Form 51-107B

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

 

Disclosure under the headings “Strategy” and “Metrics and targets” is only required where such information is material. Information is likely material if a reasonable investor’s decision whether to buy, sell or hold securities in an issuer would likely be influenced or changed if the information in question was omitted or misstated.

 

Greenhouse Gas Emissions Disclosure

Item 4(a) of Form 51-107B requires an issuer to disclose each of its Scope 1, Scope 2 and Scope 3 GHG emissions or explain why it has not done so. Accordingly, where an issuer has disclosed its Scope 1 and Scope 2 GHG emissions but has elected to not disclose its Scope 3 GHG emissions, the issuer would be required to disclose its reasons for not providing its Scope 3 GHG emissions. Where an issuer has elected to not disclose any GHG emissions, the issuer may provide its reasons for not doing so in respect of GHG emissions as a whole, as opposed to a separate explanation for each scope. Certain issuers are already required to disclose GHG emissions under existing reporting programs, including for example, on a per facility basis under the federal Greenhouse Gas Reporting Program.

Exceptions

Once implemented, all reporting issuers are expected to follow the requirements of Regulation 51-107. However, certain issuers are exempt from these requirements:

-  investment funds

-  issuers of asset-backed securities

-  designated foreign issuers

-  SEC foreign issuers

-  certain exchangeable security issuers and certain credit support issuers

Transitional periods

The Regulation will apply to issuers on a phased-in transition:

-  It will begin with issuers other than venture issuers (“non-venture issuers”) followed by venture issuers.

-  Non-venture issuers must include the disclosure required by the Regulation in the applicable continuous disclosure document in respect of each financial year that begins on or after January 1 of the first year after the Regulation is made effective.

-  As an example, for a non-venture issuer that has a financial year that begins on January 1 and ends on December 31, if the Regulation becomes effective in 2022, a non- venture issuer would be required to include the disclosure required by Form 51-107B in its AIF for its financial year ended December 31, 2023, and for every financial year thereafter.

-  For venture issuers, the Regulation will apply in respect of each financial year that begins on or after January 1 of the third year after the Regulation is made effective. Using the same example as above (except where the issuer is a venture issuer), the issuer would be required to include the disclosure required by Form 51-107B for its financial year ended December 31, 2025, and for every financial year thereafter.

-  If a venture issuer becomes a non-venture issuer during the period when the Regulation only applies to non-venture issuers, the disclosure required by the Regulation will not be required in the applicable continuous disclosure document for the financial years in which the issuer was a venture issuer.

GHG Protocol

To measure GHG emissions, the CSA suggests the use of the GHG Protocol Corporate Standard. Subsection 4(2) of the Regulation requires an issuer to use a GHG emissions reporting standard to calculate and report its GHG emissions. A GHG emissions reporting standard is the GHG Protocol, or a reporting standard for calculating and reporting GHG emissions if it is comparable with the GHG Protocol. Accordingly, pursuant to item 4(c) of Form 51-107B, issuers who disclose GHG emissions using a reporting standard that is not the GHG Protocol must disclose how such standard is comparable with the GHG Protocol.

Therefore, the issuer will be required to explain how the standard used can be compared to the GHG Protocol. As well, form 51-107B permits an issuer to incorporate GHG disclosure by reference to another document that clearly identifies the reference document.

The GHG Protocol classifies a company’s emission into three scopes:

 

  • Scope 1: Direct emissions from owned or controlled sources
  • Scope 2: Indirect emissions from the generation of purchased of energy by the issuer,
  • Scope 3: All indirect emissions (excluding those in Scope 2) occurring in the value chain of the reporting company  (including both upstream and downstream emissions)

As an alternative, the CSA is also consulting on required issuers to disclose Scope 1 GHG emissions either a) when that information is material, or b) in all cases. Under this alternative, disclosure of Scope 2 and Scope 3 GHG emissions would not be mandatory. Issuers would have to disclose either their Scope 2 and 3 GHG emissions and the related risks, or the issuer´s reasons for not disclosing this information. If necessary, the final form of the Policy Statemen will be modified to reflect the alternative chose.

 

Final remarks

Unlike the Issuers will not require to undertake scenario analysis using a Paris-aligned scenario because the CSA is aiming to implement standard and comparable measures. The expectation of the Proposed National Instrument NI 51-107 Disclosure of Climate-related Matters is to create a standard and better comparability of the climate related risks. This will benefit investing and voting decisions, as well as financial risks, decision making and growth opportunities for Canadians.

 

Again, the CSA is soliciting comments on both the Proposed Instrument and the Policy Statement by January 17, 2022.  More information can be found at:

 

-  https://lautorite.qc.ca/fileadmin/lautorite/reglementation/valeurs-mobilieres/51-107/2021-10-18/2021oct18-51-107-ig-cons-en.pdf

 

-  https://www.fsb-tcfd.org

 

-  https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf

 

 

       

              

       


              

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