Regulators awaiting international developments to harmonize Canada's approach
Climate reporting is coming for public companies in Canada, but regulators are waiting to see the direction other jurisdictions take before updating Canada’s approach, says Rima Ramchandani, co-head of the capital markets practice at Torys LLP.
The Canadian Securities Administrators released the proposed National Instrument 51-107 on disclosure of climate-related matters in October 2021. The US Securities and Exchange Commission (SEC) followed in March 2022 with its proposal, The Enhancement and Standardization of Climate-Related Disclosures for Investors. That same month the International Sustainability Standards Board (ISSB) released a draft proposal to set a global standard for climate-related disclosure.
Back in Canada on March 7 of this year, the Office of the Superintendent of Financial Institutions (OSFI) released climate-risk management guidelines to help federally regulated financial institutions to manage and disclose risks.
“Canada was first out the gate, showed some leadership in this area,” says Ramchandani. There is an understanding among regulators that Canada must “hit the brakes a little bit” and look at what other jurisdictions are doing, particularly the SEC because the Canadian and US markets are so intertwined, she says.
“When the Canadian securities regulators revisit their proposal, it's very likely that they may have to go a little bit further than they did initially. They may have to require a little bit more disclosure, be a little bit more prescriptive. But I think the jury's out right now.”
Ramchandani advises public companies on going public and raising capital, as well as their disclosure requirements, regulatory compliance matters, and corporate governance.
On climate, she says, the area that causes the most significant concern is greenhouse-gas emissions reporting and, specifically, scope-3 reporting, which deals with the emissions of other companies in the supply chain.
“That reporting is difficult because it relies on issuers to get that data from third parties,” says Ramchandani. “And they may not have access to that data. There's also concerns around the reliability and the integrity of that data.”
Canadian companies are at varying stages in their climate-reporting development, she says. Many major financial institutions and large-market-cap companies with net-zero-carbon-emissions targets aligned with the Paris Agreement have already been voluntarily submitting ESG sustainability or TCFD compliance reports. Those companies, which are “ahead of the curve” are digging deeper, looking outside of their “core documents” to test and refine their disclosure.
Some companies in the middle are internally tracking EGS-related information and “putting pen to paper” to determine what their disclosure will look like when the rules are in force. Ramchandani has been advising companies doing “dry-run” ESG reports and asking for their review to prepare them for the requirements.
There is also a category of companies who have yet to do ESG reporting, and for them, “it’s a heavier lift,” she says.
While there are nuances and differences in approach, there is a commonality in adopting the framework of the Taskforce on Climate-related Financial Disclosures (TCFD), says Ramchandani.
In June 2022, the Accounting Standards Oversight Council and the Auditing and Assurance Standards Oversight Council created the Canadian Sustainability Standards Board (CSSB). The CSSB will work with the ISSB to “support the uptake of ISSB standards in Canada, highlight key issues for the Canadian context, and facilitate interoperability between ISSB standards and any forthcoming CSSB standards,” said the ISSB.
“Even though I say they're hitting pause, I think there's still a sense of urgency on this particular topic,” says Ramchandani. “The regulators are motivated and focused on advancing these rules and moving forward on the disclosure requirements. But I think there's a recognition that we don't want to get ahead, particularly, of the global standards.”