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Canadian Securities Administrators Propose Mandatory TCFD-aligned Reporting Rules

October 20, 2021

Corporate leadership on climate has never been more vital. The Government of Canada endorsed the Task Force on Climate-related Financial Disclosures (TCFD) in 2019 and took steps to promote its adoption across the country. On October 18, the Canadian Securities Administrators (CSA) — the umbrella organization of Canada’s provincial and territorial securities regulators — published a proposal that would mandate climate-related disclosures for all companies that issue debt or equity to the public.

As Canada prepares to join the first wave of G20 nations to mandate TCFD-aligned disclosure of climate-related financial risks, Manifest Climate takes a closer look at the mandatory disclosure guidelines proposed by the CSA.

CSA Proposed Regulation 

The CSA proposal would require public companies to make climate-related disclosures informed by the TCFD starting in 2024. External stakeholders have until January 17, 2022, to have their say on the rules before they are finalized. Here’s what the CSA proposed:

  • All reporting issuers must disclose climate-related information in alignment with the TCFD’s four pillars: Governance, Risk Management, Strategy, and Metrics and Targets;
  • The location of disclosure varies:
    • For climate-related governance issues, disclosures are to be made in the management information circular; if the issuer does not produce a management information circular, the disclosure should be in the issuer’s annual information form (AIF) or its annual management’s discussion and analysis (MD&A) report;
    • For climate-related disclosures on strategy, risk management and metrics and targets, the disclosure should be in the reporting issuer’s AIF, or its annual MD&A.
  • The rules will come into effect on a phased basis. Non-venture issuers would have to report on the fiscal year ending December 31, 2023 with the first reporting due in March 2024.

While timely and largely consistent with emerging regulations in other major economies, the CSA’s proposal for TCFD-aligned reporting has gaps that could be improved during the consultation process. The proposal does not require companies to conduct climate scenario analysis — a vital tool for understanding the implications of climate change for your business and to realistically map longer-term strategic risks and opportunities. This omission is in response to a general concern among Canadian companies that scenario analysis is too expensive. This means companies still need support to better understand the cost-effectiveness of early action. The CSA proposal also floats two different approaches to emissions accounting. Under the first, companies would have to disclose scope 1, 2, or 3 GHG emissions on a comply-or-explain basis. Under the second, companies would simply have to disclose their scope 1 emissions.

In our experience, climate leaders tend to account for and report on the emissions from their direct operations (scopes 1 and 2). Increasingly, these climate leaders are leveling up and making use of scope 3 to close the GHG gap. This means businesses can now act on the full range of their corporate value chain and product emissions and will be better positioned in the marketplace when more onerous costs for carbon use are eventually imposed. It gives businesses and their investors’ full visibility of their carbon footprint. In turn, this information allows them to make informed choices when it comes to managing the low-carbon transition.

In its current form, the CSA’s proposal would mean companies address the four pillars of the TCFD framework across different public disclosures. For instance, governance would feature in management information circulars The proposal would allow, “issuers that do not send a management information circular to its security holders, [to disclose in their] annual information form (AIF) or its annual management’s discussion and analysis (MD&A), if the issuer does not file an AIF.” On the other hand, the climate-related disclosures related to strategy, risk management and metrics and targets that are specified “would be included in the reporting issuer’s AIF, or its annual MD&A, if the issuer does not file an AIF.”

The CSA’s proposal will bring Canada in line with the United States, its main trading partner, and provide much-needed impetus for businesses to do more as similar rules emerge globally. The most immediate challenge and opportunity is for Canadian businesses to get ahead of an uneven playing field across countries. If Canada adopts a weak version of TCFD requirements, particularly limited scenario analysis requirements, while other countries impose stronger versions, internationally active Canadian companies who do only what is required will have to adhere to multiple sets of disclosure rules, including stronger requirements. 

How Manifest Climate can help

In Manifest Climate’s view, mandatory reporting in alignment with the TCFD for publicly traded companies in Canada and the world’s largest markets is a matter of when not if. The power of the TCFD lies not just in its ability to improve transparency on climate-related risks and opportunities; it’s also a scaffold on which to build the business expertise required to move toward, and navigate in, a low-carbon world. That remains true whether or not a business decides, or is mandated by law, to disclose its climate risks and opportunities. Manifest Climate is already working with companies that do not have an obligation to make any public disclosures to develop their TCFD expertise, helping them deliver credible, comprehensive climate disclosures. 

Whether you are just starting your climate disclosure journey or looking to improve and enhance your current reporting, we can help you get the most out of the TCFD framework. Manifest Climate’s mission is to close the information and action gap on climate. We connect artificial intelligence with climate expertise to deliver solutions and empower organizations to rapidly identify climate risks and opportunities and improve climate-related financial disclosures. Contact us today.

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