On October 18, 2021, the Canadian Securities Administrators (CSA) published, for comment, a notice (Notice) regarding proposed National Instrument 51-107 Disclosure of Climate-related Matters (Proposed Instrument). The Proposed Instrument would introduce disclosure requirements regarding climate-related matters for reporting issuers (other than investment funds). According to the Notice, the Proposed Instrument:
- addresses the need for more consistent and comparable information to help inform investment decisions;
- improves the comparability of the information issuers disclose and helps investors make more informed investment decisions by enhancing climate-related disclosure, and
- addresses costs associated with reporting across multiple disclosure frameworks, improves access to global markets, and facilitates an equal playing field for issuers.
The CSA believes 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 facilitates 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.
According to the Notice, the requirements in the Proposed Instrument contemplate disclosure consistent with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD was established in 2015, by the international Financial Stability Board (FSB), to develop recommendations for:
- more effective climate-related disclosures to promote more informed investment, credit, and insurance underwriting decisions, and
- enable stakeholders to better understand the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks.
In June 2017, the TCFD released its final recommendations, which provided a framework for companies and other organizations to develop more effective climate-related financial disclosures through existing reporting practices. The TCFD organized its climate-related financial disclosures recommendations around four core elements: governance, strategy, risk management, and metrics and targets.
- Governance– an issuer’s board’s oversight of and management’s role in assessing and managing climate-related risks and opportunities.
- Strategy– the short-, medium- and long-term climate-related risks and opportunities the issuer has identified and the impact on its business, strategy and financial planning, where such information is material.
- Risk management– how an issuer identifies, assesses and manages climate-related risks and how these processes are integrated into its overall risk management.
- Metrics and targets – the metrics and targets used by an issuer to assess and manage climate-related risks and opportunities where the information is material.
According to the Notice, the disclosure requirements in the Proposed Instrument will be phased-in over a one-year period for non-venture issuers and over a three-year period for venture issuers. It is not anticipated that the Proposed Instrument will come into force prior to December 31, 2022.
The climate-related disclosure requirements relating to governance in the Proposed Instrument would be included in a reporting issuer’s management information circular. For issuers that do not send a management information circular to its security holders, the disclosure would be provided in the issuer’s annual information form (AIF) or its annual management’s discussion and analysis (MD&A), if the issuer does not file an AIF. The climate-related disclosures related to strategy, risk management and metrics and targets specified by the Proposed Instrument would be included in the reporting issuer’s AIF, or its annual MD&A, if the issuer does not file an AIF.
The Notice also refers to the following publications issued by the CSA regarding climate-related disclosures:
- CSA Staff Notice 51-333 Environmental Reporting Guidance (October 2010) (CSA Staff Notice 51-333) – CSA Staff Notice 51-333, issued in 2010, provided guidance to issuers on existing continuous disclosure requirements relating to environmental matters under securities legislation.
- CSA Staff Notice 51-354 (April 2018) – CSA Staff Notice 51-358 reinforced and expanded on the guidance provided in 2010. The intent was to provide issuers, particularly smaller issuers, with guidance on how they might approach preparing disclosures of material climate-related risks. The notice did not create any new legal requirements or modify existing ones.
- CSA Staff Notice 51-358 – CSA Staff Notice 51-358 followed the work conducted by the CSA to gather information on the state of climate change-related disclosure in Canada, which was reported in CSA Staff Notice 51-354. The work included a disclosure review, online survey, consultations and research.
According to the Notice, the Proposed Instrument follows from the 2020 Ontario government appointed Capital Markets Modernization Taskforce (Modernization Taskforce). The Modernization Taskforce, which reviewed and made recommendations with respect to modernizing the capital markets regulatory framework in Ontario, recommended mandating disclosure by public companies of material ESG information, specifically climate-related disclosure that is compliant with the final TCFD recommendation for issuers through regulatory filing requirements of the OSC
The CSA is publishing proposed National Instrument for a 90-day comment period that ends on January 17, 2022.
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
