The evolution of securities regulators towards ‘material’ climate disclosure

Canada’s provincial securities regulators have taken an ‘important’ step in forcing publicly traded companies to disclose environmental risks to investors, perhaps paving the way for climate change to take a more prominent place in decisions financial, according to experts.

On October 18, the Canadian Securities Administrators (CSA) released a document containing two ways public companies could disclose climate risks.

The first scenario would require them to disclose: the programs they create directly; those of power they buy; and the emissions created when their products are used.

In the second scenario, they would only have to disclose the shows they create.

“It’s about establishing a disclosure framework (for) something that everyone agrees to disclose,” said Ryan Riordan, professor of finance at Queen’s University.

It is a “recognition that our markets will not work at all, unless this type of very important information is disclosed and disclosed in a consistent manner,” said Kevin Thomas, CEO of the nonprofit association of shareholders for research and education.

Canada does not have a federal securities regulator. Instead, the provinces and territories are taking the lead. The CSA is a coordinating body made up of the various provincial regulators, but “the rules they make are adopted by all the regulators,” said Thomas.

Some weather risk disclosure requirements already exist, but they are generally only required if the information is “important (to a reasonable investor’s decision)” to buy, sell or hold a security, in accordance with the rules. existing. Companies can also voluntarily disclose risks.

The CSA is seeking comments for 90 days and says the new rules are unlikely to come into effect until the end of 2022.

Instead, “what he is saying is that at some point in the foreseeable future, environmental disclosures and financial risks associated with the environment, (and) the impact of corporate activities on environment, are relevant, ”said Riordan. “And these must be disclosed by companies in their quarterly and annual reports.”

The UK recently took a similar step.

“We want sustainability to be a key part of investment decisions, and our plans will provide investors with the right information to make more environmentally friendly decisions,” Chancellor of the Exchequer Rishi Sunak said on Monday.

The Ontario government also said in the 2021 Budget that its provincial securities regulator, the Ontario Securities Commission, will work on the weather disclosure rules.

Canadian regulators have made the decision to “address the need for more consistent and comparable information to help inform investment decisions,” according to a CSA statement.

Additionally, some companies are nervous about disclosing climate risks when their competitors are not, Riordan said.

“IIf you have mandatory disclosure and we know what it is, then the playing field is level, and we don’t have the tragedy of the commons ”affecting decisions, he said.

In addition to clarifying the financial risks companies are taking in light of climate change, the move could also produce better environmental data, further clarifying the risks, said Riordan and Thomas.

The mandatory reporting “will push public and private information providers to actually generate a lot of this information that we don’t have,” Riordan said.

Canada does not have a record of its greenhouse gas emissions after 2019, and what it has is not “granular” enough, he added.

“All kinds of other location-level environmental data (is needed before companies can) do a good job of disclosing their environmental risks,” said Riordan.

“A bank might be concerned about its mortgages if it knows about some of the homes it is lending in a flood plain,” Thomas said.

Flood mapping in Canada is woefully inadequate, given that global warming will lead to more flooding, according to a recent report by the Canadian Institute for Climate Choices.

The move could also prompt the federal government to step in and require the disclosure of certain private companies, as the proposed regulations only apply to state-owned companies, Thomas said.

“The federal government could require disclosure of federally regulated companies under the Canada Business Corporations Act and the Bank Act,” he said.

“He did so in the recent past to demand disclosure (of) the diversity of the board and management. These requirements would affect any company incorporated under these laws, whether publicly traded or private. “

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