Are your savings held in companies that contribute excessively to global warming, operate in increasingly risky conditions, and have no long-term plan to transition to a zero-carbon future? Or is your money invested in companies that are already prepared for climate change?
Canadian securities regulators aim to answer these questions from investors by proposing a new set of disclosures for public companies. Disclosures will describe the risk – and in some cases the opportunities – that a public company faces in the face of climate change. In the future, companies can be expected to catalog their greenhouse gas emissions, as well as the impact of climate change on their current and future operations.
“Climate change is a systemic material risk to the Canadian economy and Canadian businesses,” said Janis Sarra, a law professor at the University of British Columbia.
“Investors want Canadian companies to relocate or move… their capital out of the country.
British Columbia felt the brunt of extreme weather in 2021, Sarra noted, pointing to “increasing acute events” such as the heat dome in June, wildfires throughout the summer and atmospheric flooding. rivers in November.
“All of this is disrupting businesses,” she said.
CANADIAN CLIMATE DISCLOSURES ‘GREATLY COMPLIANT’ WITH OTHER JURISDICTIONS
A corporate governance expert who has focused her work on researching the impact of climate change on financial markets, Sarra says governments need to come together with civil society and business to act collectively.
She describes the new securities law as “just a small corner of the whole platform that needs to move, both in Canada and globally.”
The idea of creating pan-Canadian disclosure requirements for public companies was first put forward in October 2021 by the Canadian Securities Administrators (CSA), a collective of provincial regulators like the BC Securities Commission.
The CSA said its proposal is “broadly consistent” with guidance from the International Task Force on Climate-Related Financial Disclosures, chaired by business magnate Michael Bloomberg.
The disclosure recommendations include four key elements: governance — having a board of directors to assess risks and opportunities; strategy — accounting for short-term and long-term scenarios involving different climate outcomes; risk management — identifying challenges posed to operations by climate-related events; and metrics and targets—using data to examine risks and opportunities.
“ESSENTIAL” SUPPORT FOR CANADIAN CLIMATE DISCLOSURES
Last month, Sarra, along with fellow Canadian Climate Law Initiative members Michael Irish and Jenaya Copithorne, reviewed submissions from a CSA public consultation process last January. According to their March 2022 report, the comments showed “overwhelming” support for climate disclosures.
The CSA heard from 27 investors with $21 trillion in assets under management. Together, they represent “the financial security of millions of Canadians through pension funds, mutual funds and other investments,” the research group said.
In a submission, Engineers and Geoscientists BC, which works closely with the province’s natural resource companies, criticized the CSA for not requiring a scenario analysis. Others wanted more requirements for venture companies.
Ultimately, the idea of making emissions reporting mandatory gained widespread acceptance, something CSA had not initially considered in its proposal.
WHY CLIMATE DISCLOSURES ARE IMPORTANT
Sarra says climate disclosures allow investors and regulators to look at companies and say, “Okay, do I think you have a plan to align with Canada’s international climate commitments? net zero emissions by 2050? »
Despite their usefulness, for Sarra, the CSA proposals do not go far enough to keep pace with US and international financial regulators.
Sarra said the ASC’s proposal is “a very good first start,” but does not require five-year transition plans to meet net-zero requirements.
Another major concern is the reporting of emissions.
Under the CSA proposal, public companies are not required to report emissions – either caused directly by their operations and production, or derived from relationships with third parties through processing, transportation, as well as use and the subsequent disposal of a product. But if a company chooses not to report these emissions, it must disclose the reasons.
MIXED REACTION ON THIRD-PARTY EMISSIONS
Environmental groups such as the David Suzuki Foundation have also supported full and mandatory emissions reporting for public companies.
However, the decline came mainly from the oil, gas and mining sectors.
The Mining Association of Canada called for more time to implement the proposal and, along with BC mining company Skeena Resources, opposed mandatory reporting of indirect emissions.
Skeena Resources, which supported direct emissions reporting, argued that many categories of indirect emissions are “difficult to calculate and often outside a company’s control and should not be disclosed”.
Overall, the reaction to CSA’s proposal from the Canadian oil and gas sector has been relatively positive.
“We recognize that expectations and requirements for climate-related disclosure are rapidly changing,” said Enbridge, one of Canada’s largest oil companies.
Enbridge called the proposal a “cautious and reasonable first step” and that climate information could be “refined over time”.
Ben Brunnen, of the Canadian Association of Petroleum Producers, said the organization supports CSA’s approach to climate disclosure. He added: “Reporting of scope 3 (indirect) emissions continues to be a challenge at this time and will prove difficult to provide in a timely manner, if at all.”
US SEE STIFFER OIL AND GAS RESISTANCE
When the U.S. Securities and Exchange Commission released its draft regulations last month, it received a much harsher rebuke from the fossil fuel industry.
According to an Associated Press report last month, the U.S. Chamber of Commerce and the American Petroleum Institute “argue that the SEC is overstepping its authority with mandatory reporting rules, which would impose substantial costs on companies.” “.
Democratic Sen. Joe Manchin said in a letter to SEC Chairman Gary Gensler this week that he is concerned about regulations weighing on companies.
“The most concerning element of the proposed rule is what appears to be the targeting of our nation’s fossil fuel companies,” wrote Manchin, who has long-term financial ties to West Virginia’s coal industry. .
The pushback comes after the SEC, unlike the CSA, proposed mandatory disclosures for all shows. The proposal exempts small businesses from indirect emissions reporting; not all companies are held responsible for their indirect emissions declarations.
Not everyone in the SEC agrees. On March 21, SEC Commissioner Hester Peirce released a statement outlining her concerns about the commission’s mandate and the practical application of such disclosures.
“While the existence of anthropogenic climate change itself is not particularly controversial, the best way to measure and address the problem remains controversial,” said Peirce, a Republican commissioner.
Describing the SEC as not being an expert on climate policy, the commissioner added: “This proposal could inspire future, more socially and politically controversial disclosures, which would harm the SEC’s reputation as an independent regulator. “.
Sarra said Canada would benefit from aligning its policies with those of the SEC.
Many companies, she said, trade in the markets of both countries. Without alignment, they may be required to file two sets of disclosures.
gwood@glaciermedia.ca
