On October 18, 2021, the Canadian Securities Administrators (CSA) published a CSA Notice and Request for Comment (Notice) on proposed National Instrument 51-107 Disclosure of Climate-related Matters (NI 51-107) and its proposed Companion Policy 51-107CP. The publication of the Notice follows an international trend toward mandatory climate-related disclosures in response to an increasing investment focus on climate-related risks.

Background

The CSA has previously issued three publications on climate-related disclosures—CSA Staff Notice 51-333 in October 2010, CSA Staff Notice 51-354 in April 2018, and CSA Staff Notice 51-358 in August 2019—which provided guidance to issuers on existing continuous disclosure requirements related to environmental and climate-related matters. When the CSA newly reviewed the state of climate-related disclosure by large Canadian issuers in the spring of 2021, the CSA noted an increase in climate-related risk disclosure since prior reviews and raised concerns about boilerplate, vague and incomplete risk disclosure. The CSA also noted that often climate-related disclosure is made in documents other than an annual information form (AIF) or management discussion and analysis (MD&A).

The new climate-related disclosure requirements proposed in the Notice are intended to provide consistent, comparable and decision-useful disclosure by issuers, allowing investors to make more informed decisions regarding climate-related risks and facilitating an equal playing field for issuers. The changes are also intended to align Canadian disclosure standards with international markets, which would improve access to global capital markets, remove the costs of navigating multiple disclosure frameworks and reduce market fragmentation.

Summary of proposed NI 51-107

NI 51-107 would require issuers to disclose certain climate-related information in compliance with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). In June 2017, the TCFD published final recommendations for climate-related financial disclosures organized around four core elements: (1) governance, (2) strategy, (3) risk management, and (4) metrics and targets. Since 2017, there has been increasing consensus internationally on aligning climate-related disclosure standards with the TCFD recommendations.

Application of NI 51-107

NI 51-107 would apply to all reporting issuers, other than investment funds, issuers of asset-backed securities, designated foreign issuers, SEC foreign issuers, certain exchangeable security issuers, and certain credit support issuers.

Climate-related governance disclosure

NI 51-107 would mandate certain climate-related governance disclosure as set out in Form 51-107A. Form 51-107A would require an issuer to describe its board of directors’ oversight of climate-related risks and opportunities and management’s role in assessing and managing climate-related risks and opportunities. This requirement would not be subject to a materiality assessment and would be mandatory in all cases. An issuer would be required to make this disclosure in its management information circular. If an issuer does not send a management information circular, an issuer would be required to make this disclosure in its AIF or, if the issuer does not file an AIF, in its annual MD&A.

Climate-related strategy, risk management, and metrics and targets disclosure

NI 51-107 would mandate climate-related strategy, risk management, and metrics and targets disclosure as set out in Form 51-107B. An issuer would be required to make this disclosure in its AIF or, if the issuer does not file an AIF, in its annual MD&A.

An issuer would be required to disclose the following under Form 51-107B:

• Strategy. An issuer would be required to describe any climate-related risks and opportunities identified over the short, medium and long term, and describe the impact of these risks and opportunities on its business, strategy, and financial planning. An issuer would not be required to disclose information that is not material.

• Risk management. An issuer would be required to describe its processes for identifying, assessing and managing climate-related risks, and how these processes are integrated into its overall risk management. This requirement would not be subject to a materiality assessment and would be mandatory in all cases.

• Metrics and targets. An issuer would be required to disclose its metrics used to assess climate-related risks and opportunities in line with its strategy and risk management process, and would also be required to describe its targets used to manage these risks and opportunities and its performance against these targets. An issuer would not be required to disclose information that is not material.

• GHG emissions. An issuer would be required to “comply or explain” with GHG emissions disclosure by disclosing Scope 1, Scope 2, and Scope 3 GHG emissions or providing an explanation if it chooses not to disclose that information. An issuer would also be required to disclose the reporting standard it uses to calculate GHG emissions. If an issuer does not use the GHG Protocol, an issuer would be required to disclose how the reporting standard it uses is comparable with the GHG Protocol. An issuer would be able to incorporate GHG emissions information by reference to another document that is clearly identified and filed on SEDAR. This is currently the only climate-related disclosure requirement that would be permitted to be incorporated by reference. The CSA is also consulting on an alternative disclosure requirement for GHG emissions that would make the disclosure of Scope 1 GHG emissions mandatory, either when that information is material or in all cases, but maintain a comply-or-explain approach for Scope 2 and Scope 3 GHG emissions.

Modifications from TCFD recommendations

While NI 51-107 generally aligns with the TCFD recommendations, the instrument would depart from the TCFD recommendations in two respects. First, NI 51-107 would not require an issuer to describe the resilience of its strategy, taking into consideration different climate related scenarios, including a 2°C or lower scenario. Second, NI 51-107 would not make GHG emissions disclosure mandatory and would instead adopt a comply-or-explain approach to GHG emissions disclosure. The CSA decided against adopting these two TCFD recommendations to minimize the regulatory burden and cost of disclosure for issuers.

Transition phase

The proposed climate-related disclosure requirements in NI 51-107 would be phased in over a one-year period for non-venture issuers and a three-year period for venture issuers. If NI 51-107 came into force on December 31, 2022, non-venture issuers would be required to make this disclosure in their annual filings for the financial year ending December 31, 2023 and venture issuers would be required to make this disclosure in their annual filings for the financial year ending December 31, 2025. It is not anticipated that the instrument would come into force before December 31, 2022.

Comment period

The CSA invites comments in writing on the proposed climate-related disclosure requirements. The CSA also provides a list of 18 questions in the Notice. All comments must be submitted on or before January 17, 2022.

For more information on the Notice, please contact the author Bill Gilliland or any member of our Securities and Corporate Finance team. 

*Ana Cherniak-Kennedy, an articling student in Dentons Canada’s Calgary office, assisted with the preparation of this insight.