Room for improvement in climate-change risk disclosures: CSA

Canadian issuers face various challenges in reporting risks and financial impacts related to climate change

Room for improvement in climate-change risk disclosures: CSA

The Canadian Securities Administrators (CSA) has released CSA Staff Notice 51-134: Report on Climate change-related Disclosure Project, which outlines its findings on how reporting TSX-listed issuers disclose risks and financial impacts associated with climate change.

“We now have a better understanding of the current state of climate change-related disclosure in Canada," said Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers.

According to the report, disclosures overwhelmingly focused on regulatory, policy, or legal risks, with 90% of issuers’ disclosures touching on that area. Physical risks, both acute and chronic, were a distant second, cited in 43% of cases. Other areas considered were market risk (33%), reputational risk (31%), and technology risks (18%).

 “56% of the issuers whose disclosure we reviewed provided specific climate change-related disclosure in their MD&A and/or AIF, with the remaining issuers either providing boilerplate disclosure, or no disclosure at all,” the report said. “More issuers provided climate change-related disclosure in their voluntary reports, with 85% of the issuers reviewed in our Disclosure Review.”

Issuers whose market cap exceeded $1 billion were more likely to provide climate change-related disclosures (53%) compared to those below $1 billion (34%). The survey also found that companies from the oil and gas industry were generally more likely to include climate change-related disclosures — especially with respect to regulatory risks — in their regulatory filings relative to those in other sectors.

Speaking with users, the CSA found that substantially all of them were dissatisfied with the current state of climate change-related risk disclosure. While the group of users consulted was not homogeneous, substantially all agreed that issuers in many industries will be affected by such risks, and should report on their governance and oversight on those areas.

Issuers who did not disclose climate change-related risks said it was because they determined their exposure to be immaterial from a securities law perspective, with some viewing changes in policy and regulatory frameworks as uncertain. Also cited were the lack of a common framework for measuring impacts of climate change, a lack of internal expertise in assessing such risks, and a supposed lack of interest on the part of stakeholders.

Issuers also expressed concerns about the additional costs and regulatory burden that would come with mandatory disclosure, which some suggested could dissuade issuers from entering or continuing to participate in the Canadian public markets.

The CSA said that in the near term, it would focus on developing guidance and educational initiatives for issuers with respect to business risks, opportunities, and potential financial impacts of climate change, as well as considering new disclosure requirements regarding corporate governance in relation to risks, risk oversight, and management.


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