Canadian Disclosure Regulation Proposal Aligned with TCFD

Author – Jessica Di Bartolomeo

Canadian regulatory bodies announced in the past year requirements for climate disclosures that will apply to public companies and federally regulated financial institutions. This change is in tandem with upcoming rules in the United States (U.S.).

The movement in mandating climate disclosures for the largest companies follows international efforts to limit global warming in line with the Paris Agreement. Regulatory requirements aim to provide comparable risk information for investors in a complex landscape of voluntary sustainability reporting schemes, which the new International Sustainability Standards Board is also seeking to consolidate to facilitate application in legislative contexts.

Both sets of upcoming legislated requirements in North America follow the recommendations of the Task force on Climate-related Financial Disclosures (TCFD) from 2017, which have become the basis for creating jurisdictional requirements aimed at investor decision-making.

Listed companies will be facing new reporting challenges as early as 2023 in both countries. In this blog post, we have broken down the requirements to help get Canadian companies and financial institutions up to speed on their mandatory climate reporting.

For many listed businesses and financial institutions, this is a new area of reporting with far-reaching implications for data gathering, calculation, audit and reporting. Ecometrica has been working in regulated markets helping public businesses comply with climate reporting regulations for over 10 years and can help you prepare for the accounting and forward-looking requirements of sustainability and climate risk disclosures.

Requirements for public companies

The Canadian Securities Administrators (CSA), which encompasses all provincial and territorial bodies that regulate Canadian markets, proposed national instrument 51-107 on the disclosure of climate-related matters on October 18th, 2021 with requirements under the themes of Governance, Strategy, Risk Management and Metrics and Targets. Following the consultation period on draft guidelines, which closed on January 17, 2022, the CSA is reviewing the 131 submitted comments in order to finalize the requirements.

The proposal largely replicates the TCFD disclosure guidelines. Several key questions were subject to public comment, including whether to limit the scope of greenhouse gas emissions disclosure at scope 1 and scope 2. This reach is notably less stringent than the U.S. SEC rule that was later proposed, which would require that companies report their material scope 3 emissions (with the exception of smaller reporting companies). The proposal also differs from the TCFD recommendations in excluding scenario analysis, which asks companies to assess transition and physical risks and opportunities within various possible climate futures. The CSA proposal contends that this would be an undue challenge for companies.

If the proposal comes into force on December 31, 2022, as intended, the requirements in their final form will apply to the financial filings of non-listed reporting companies as of 2023, and the financial filings of listed companies, as of 2025. The affected companies will need to submit their filings by March of the respective subsequent year, that is, 2024 for non-listed, and 2026 for listed companies.

The regulations would implicate approximately 3,400 reporting issuers (both non-listed and listed), including 2,972 issuers that are listed, for example, on the Toronto Stock Exchange.

Canadian Sustainability Standards Board

A Canadian Sustainability Standards Board was formed in an announcement on June 15, 2022 with the intention of facilitating the application of the proposed ISSB standards in Canada. Both the ISSB and the SEC requirements, which were proposed after the CSA instrument, are more stringent, and the new objective of aligning Canadian regulations to the ISSB baseline is likely to influence the final iteration of the CSA regulations for Canadian listed companies. The Canadian Sustainability Standards Board aims to be operational in Spring of 2023.

Requirements for financial institutions

The Office of the Superintendent of Financial Institutions (OSFI) released proposed climate disclosure requirements for federally-regulated financial institutions and regulated insurers, such as banks, in May. As with the requirements for public companies, the reports would follow the TCFD recommendations and the requirements would apply to annual reports and accounts for fiscal years ending as of October 1st, 2023. For a business with a March year, this would mean publication based on the period ending in March 2024, for instance. The comment period ended on September 30th of this year.

The guidelines follow four categories of Governance, Risk Management, Climate Scenario Analysis and Stress Testing, and Capital and Liquidity Adequacy. Reporting on scope 1, scope 2, and scope 3 emissions will be required, with a phase-in for scope 3 reporting in 2027 for category 2 and 3 banks and other federally-regulated insurers.

Requirements for scenario analysis state that the exercise must be completed on a regular basis, cover various time horizons, and consider both physical and transition risks. These will also allow an adaptation period until 2027. The guidelines will require that institutions report on ISSB Cross-industry metrics as of 2025, and Industry-specific metrics for Banks and Insurers as of 2026.

Ecometrica’s solutions for mandatory disclosure

While these standards are still being defined, they will be aligned with existing best practices and reporting requirements in other markets. Getting your reporting practices set up now will effectively prepare you for the fast-approaching mandatory disclosures.

Ecometrica can help you to get ready right away by providing easy-to-use solutions for robust Greenhouse Gas (GHG) accounting and TCFD aligned climate-related risk insights, which distill our expertise and years of experience.

As a software-as-a-service company specialized in metrics, Ecometrica has been working with clients in the UK and Europe for over a decade to meet mandatory GHG and climate disclosure requirements, as well as clients in Canada and the U.S. for voluntary reporting to initiatives such as the CDP. In addition to providing robust greenhouse gas inventories built on the best practices of the GHG Protocol for global public companies, we have the solutions for full portfolio accounting for financial institutions.

Our team of highly experienced subject matter experts closely monitor changes to regulated requirements.