Are You Ready for Environmentally Responsible Disclosure?

August 27, 2019 | Bruno Caron

On August 1, 2019, staff of the Canadian Securities Administrators (CSA) issued a public notice on the principles and rules governing the disclosure of information concerning climate change-related risks (CSA Staff Notice 51-358 – Reporting of Climate Change-related Risks) (Notice 51-358).

Much like the general population, more and more Canadian investors are taking an interest in the effects of climate change on their investments. This is of particular concern to institutional investors, who often have longer investment time horizons.

Notice 51-358 does not create any new legal requirements or modify existing ones. Rather, it reinforces and expands upon the guidance provided in CSA Staff Notice 51-333 – Environmental Reporting Guidance published in 2010.

Notice 51-358 specifies that climate change-related risks differ from many other business risks because their impacts may be uncertain and are expected to develop over time. The CSA believes that, despite the potential uncertainties and longer time horizon associated with these risks, a reporting issuer’s board and management should take appropriate steps to understand and assess the materiality of these risks to their business.

Notice 51-358 provides examples of relevant questions boards and managements should ask about climate change-related risks. It lists specific considerations for boards and managements when determining the materiality of climate change-related risk, which involves several adjustments such as considering the longer time horizon associated with these types of risks, effectively determining risks and quantifying them. For instance, a climate change-related matter that is likely to influence an investor’s decision and that may only materialize over the medium or long term should still be disclosed.

The issuer must also disclose the financial and operational impacts of new environmental protection requirements, such as the effect of the carbon tax, in the current fiscal year and the expected impacts in future years.

Notice 51-358 informs us that climate change-related risks can be grouped into two categories: physical and transition risks. Acute physical risks include risks resulting from extreme weather events, such as cyclones, hurricanes, floods. Chronic physical risks include longer-term shifts in climate patterns, such as sustained higher temperatures that may cause sea level rise. Transition risks are divided into six sub-categories: reputational, market, regulatory, policy, legal and technology risks.

Notice 51-358 also recalls that issuers’ efforts to mitigate climate change, such as resource efficiency and cost savings, the adoption of low-emission energy sources and the development of new products and services, must also be disclosed.

The CSA reminds us that issuers must disclose material information concerning climate change-related risks in their regulatory filings (primarily in their annual information form and annual and interim MD&A). Issuers wishing to voluntarily disclose information on climate change in their sustainability reports, on their website or through social media, must ensure that there are no misrepresentations. Notice 51-358 recommends that boards and managements have a robust process for reviewing this information prior to its public release to ensure that it is reliable and accurate.

Issuers must also consider the forward-looking nature of some information in their disclosure of climate change-related risks (for instance, disclosing a target to reduce GHG emissions or the projected use of proceeds in the establishment of a green bond program) and comply with the requirements set out in National Instrument 51-102 – Continuous Disclosure Obligations.

Scientists worldwide have been sounding the alarm on climate change for more than a decade. Climate change carries very real risks for issuers. Many investors now have an environmentally responsible investment approach and assess issuers’ sustainable development practices to quantify the risks of investing in them. Notice 51-358 helps issuers meet investors’ demand for environmental information.

Miller Thomson’s Green and Sustainable Financing experts can help you reach the next level in your climate change risk disclosure.  Give us a call!


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