The CSA released a consultation paper on October 18, proposing a new National Instrument NI 51-107 Disclosure of Climate-related Matters (“NI 51-107”) and its companion policy, which would introduce new disclosure requirements for reporting issuers. NI 51-107 would not apply to investment funds or certain other issuers such as designated foreign issuers and issuers of asset backed securities. The new disclosure requirements are based on four elements set out by the international Task Force on Climate-related Financial Disclosures (TCFD), being governance, strategy, risk management and metrics/targets.

The proposed requirements build on a number of prior CSA notices and existing disclosure requirements relating to material information on climate-related matters, as well as international work and the recommendations of the Ontario Capital Markets Modernization Taskforce. The Taskforce has recommended that public companies be required to disclose material ESG information, and in particular, climate-related disclosure that is compliant with the final TCFD recommendations. The CSA noted in the request for comments that investors are increasingly focused on climate-related risks and are seeking more disclosure on governance processes and material risks, opportunities and the financial impacts of climate change. Our registrant clients who make decisions on the purchase and sale of securities may be interested in providing input to the CSA on the utility of the new disclosure information and how it would be used in their investment decision-making (and/or whether additional or different information should be disclosed).

With respect to governance, reporting issuers would be required to disclose the board’s oversight of climate-related risks and opportunities and management’s role in assessing the same. For the TCFD’s element related to strategy, issuers would disclose the climate-related risks and opportunities the issuer has identified over the short, medium and long term and the impact on the issuer’s businesses, strategy and financial planning. On risk management, the disclosure would focus on an issuer’s processes for identifying, assessing and managing climate-related risks and how they are integrated into overall risk management. Finally, reporting issuers would need to disclose the metrics used to assess climate-related risks and opportunities in line with its strategy and risk management process where such information is material, as well as Scope 1, Scope 2 and Scope 3 GHG emissions and related risks or the issuer’s reasons for not disclosing the information. An alternative approach being considered would be to require issuers to disclose Scope 1 GHG emissions. The issuer would need to describe the targets used to manage risks and opportunities, and its performance against those targets where such information is material.

In response to concerns raised about the cost of the new requirements, it is proposed that issuers would not be required to disclose a scenario analysis including a 2°C or lower scenario (i.e. how resilient an issuer’s strategies are to climate related risks and opportunities given a lower-carbon economy consistent with a 2°C or lower scenario and, where relevant to the issuer, scenarios consistent with increased physical climate-related risks). Information on governance would be added to an issuer’s management information circular (or AIF or MD&A if no circular is sent). The disclosures related to strategy, risk management, and metrics and targets would be included in an issuer’s AIF (or MD&A if an issuer does not have an AIF). It is proposed that there be lengthy transition periods (three years for venture issuers and one year for non-venture issuers) to allow issuers time to prepare the necessary disclosure.

The CSA does not anticipate NI 51-107 would come into force prior to December 31, 2022. The CSA noted that by mandating specific disclosure on climate-related matters, it will provide clarity to issuers on expectations, and also ensure consistency and comparability among issuers. The climate-related disclosure requirements are also meant to align Canadian disclosure standards with the expectations of international investors and remove costs that would be associated with reporting to multiple disclosure frameworks. Comments on the proposal will be accepted until January 17, 2022.

October 29, 2021