Canada’s Shift to Enhanced Climate Disclosures

Climate Disclosure | Feb 20, 2024

Embracing New Climate Disclosure Standards in Canada

With the Canadian Securities Administrators (CSA) proposing the National Instrument 51-107 Disclosure of Climate-related Matters (NI 51-107) and its Companion Policy 51-107CP, alongside the Office of the Superintendent of Financial Institutions (OSFI) introducing the B-15 Climate Risk Management guidelines, the governance implications for directors, boards, and public company governance are profound.

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This article sheds light on these regulatory shifts, offering insights and implications for Canadian fintechs and public companies, in alignment with the International Sustainability Standards Board’s (ISSB) global standards.

CSA’s Climate Disclosure Proposals

The CSA’s Climate Disclosure Proposals aim to enhance transparency and accountability in how Canadian public companies assess and disclose climate-related risks and opportunities. This initiative reflects a growing recognition of the importance of climate-related information for investors, both in Canada and globally. The proposals are designed to align with the Task Force on Climate-related Financial Disclosures (TCFD:  disbanded October 2023 with mandate picked up by IFRS) recommendations, covering governance, strategy, risk management, and metrics and targets for climate-related issues.

OSFI’s B-15 Climate Risk Management Guidelines

Simultaneously, OSFI has introduced the B-15 guidelines, marking a critical regulatory development for financial institutions in Canada. These guidelines mandate banks, insurance companies, and other financial entities to robustly assess, disclose, and manage the physical and transitional risks associated with climate change. The B-15 guidelines emphasize the need for financial institutions to integrate climate risk into their overall risk management frameworks and enhance transparency in their climate-related disclosures.  These guidelines are now in effect.  Yet, despite push back OSFI is still playing catch-up when evaluating international comparators such as climate change disclosure initiatives in the UK, climate risks and regulatory capital frameworks, and on integrity.

ISSB’s Global Standards

The ISSB has introduced proposed standards for climate-related disclosure and sustainability-related financial information, setting a new benchmark for global sustainability disclosures. These standards aim to serve as “the global baseline” upon their finalization, emphasizing the need for disclosures that provide consistent and comparable information for investors.

In 2024, the International Sustainability Standards Board (ISSB) has implemented the IFRS S1 and S2 standards as voluntary standards for organizations, focusing on disclosures about governance, strategy, risk management, and metrics and targets for material sustainability and climate-related risks and opportunities. These standards, which incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), aim to simplify the landscape of disclosure initiatives for companies and investors, ensuring consistent and comparable information.

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The ISSB has also updated the Sustainability Accounting Standards Board (SASB) standards and released resources to aid in applying IFRS S2, emphasizing the nature and social aspects of climate-related risks and opportunities.  Learn more about what to expect from the ISSB in 2024 here.

Implications for Governance

For directors and boards of Canadian public companies and financial institutions, these developments underscore the necessity of robust governance frameworks that explicitly address climate-related risks and opportunities. This includes establishing clear oversight mechanisms, delineating management’s responsibilities, and ensuring that board committees, particularly the audit committee, are equipped to assess and manage climate risks effectively.

• Boards must integrate climate-related risk oversight into their governance structures, updating charters and mandates to reflect this priority.
• Clearly defined responsibilities for assessing and managing climate-related risks are essential, necessitating robust disclosure controls and procedures.
• Boards are tasked with evaluating the materiality of climate-related risks and opportunities, potentially employing scenario analysis to assess the resilience of business strategies.

Opportunities for Fintechs

As Canada aligns its climate disclosure regulations with global standards, the collaborative efforts of regulatory bodies, public companies, and the fintech sector will be key to fostering a sustainable and transparent corporate ecosystem.

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The regulatory shift towards comprehensive climate disclosure presents a unique opportunity for the Canadian fintech sector.  Fintechs have an opportunity to lead innovation in climate risk assessment and disclosure solutions, offering tools and platforms that enable companies to meet these new standards efficiently. By developing solutions and integrating new technologies that facilitate data analysis, reporting, and scenario modeling, fintechs can enhance transparency and sustainability in the financial sector.

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• Source: https://ncfacanada.org/canadas-shift-to-enhanced-climate-disclosures/