5 things you need to know about the CSA’s new climate-related disclosures instrument
The CSA is proposing a new instrument (NI 51-107) and policy that will require climate-related disclosures to be included in regulatory filings for publicly traded companies in Canada. They have made the draft publicly available and are seeking feedback from investors, issuers and other practitioners in the space, before they make climate disclosures mandatory. Here’s what you need to know, including when you can expect the instrument to come into force.
1 - Through this new instrument, climate-related disclosures MUST be included in regulatory filings (either in the Information Circular, the AIF, or the MD&A).
Climate-related information has already been creeping into regulatory filings, so this is no surprise. In fact, since its inception, the TCFD has stated its intention for climate-related disclosures to be included in financial filings, so I’m sure they are thrilled to see the CSA moving in this direction.
2) Don’t panic, scenarios aren’t included in the draft . NI 51-107 has the same format and content as the TCFD framework, except a) scenarios are not required (at least not in the proposed instrument), and b) GHG emissions disclosures may be different.
Although the CSA follows the TCFD format closely (Governance, Strategy, Risk Management, Metrics and Targets), take heart, weary reporters, the onerous and costly task of scenario analysis is not required by the CSA, according to the draft. That said, they are seeking specific feedback about whether excluding scenarios is appropriate, and whether scenarios should be required, at least on a “disclose or explain” basis. If you have a strong opinion, you will want to weigh in through the consultation process. (Note: TCFD is still calling for both the analysis and a discussion of a business’s resilience in light of the scenarios, but at this point the CSA would require neither). For a high-level review of mandatory TCFD reporting around the globe, see our September 13 blog post. As for the GHG emissions, read on...
3) GHG emissions must be addressed in one form or another.
Two disclosure alternatives are being considered. The two options (on which the CSA would like feedback) are:
a. Scope 1, 2, and 3 are “disclose or explain”
b. Scope 1 is mandatory; Scope 2 and 3 are “disclose or explain”
If you have an opinion, speak now, or forever hold your peace.
4) The GHG Protocol is the “preferred” standard for GHG accounting.
The GHG Protocol is the de facto standard for most companies, so this “preference” is unsurprising. What is surprising is that the CSA will allow other options – especially given that the proposed regulation is a response to inconsistent and non-comparable disclosures in existing reporting. If they are considering allowing other standards, they would be wise to specify standards by industry (for example, PCAF for the financial industry) to facilitate reporting alignment.
5) Assuming it goes into effect December 31, 2022 as anticipated, NI 51-107 will be mandatory on the following dates:
a. For non-venture issuers: disclosures are due March 2024 for the year ending Dec. 31, 2023.
b. For venture issuers: disclosures are due April 2026 for the year ending Dec. 31, 2025.
Thoughtfully, the CSA allows smaller companies more time to transition to the new reporting requirements. The biggest hurdle for climate reporting has been scenario analysis and given that this is not going to be required, companies should have no trouble responding to the new requirements in the time allowed.
The consultation document, and instructions on how to provide feedback, can be found here. You must provide feedback by January 17, 2022.