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Climate Change Requirements a Feature of new COVID-19 Federal Loan Program

The federal government will require large companies that receive emergency loans to publish annual climate-related disclosure: Here’s what you need to know

On May 11, 2020, the federal Government announced the Large Employer Emergency Financing Facility (“LEEFF”), which will provide bridge financing for large Canadian employers impacted by the COVID-19 pandemic. Loans will be made available to Canadian businesses with annual revenues generally greater than $300 million. The objective is to help companies keep their operations going, maintain solvency, and to avoid job losses (for more information on the LEEFF generally, click here).

At the same time, the federal Government is building in certain requirements to move forward its longer term commitment to address climate change. In particular, among other conditions, the Government is requiring LEEFF recipient businesses to publish annual climate-related disclosure reports. Generally speaking, the goal of requiring such reports is to enable investors and other stakeholders to evaluate the company’s approach to climate change and its exposure to climate-related risks, and thereby incentivize companies to develop appropriate climate strategies.

What are the new climate-related requirements?

So far, details are scant. A news release from the Prime Minister’s Office includes a general outline of what will be required:

“…recipient companies would be required to commit to publish annual climate-related disclosure reports consistent with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, including how their future operations will support environmental sustainability and national climate goals.”

Both Prime Minister Trudeau and Finance Minister Bill Morneau offered some additional hints during interviews on May 11 and 12. The Prime Minister noted that the Government expects loan recipients to show that they are “thinking about the challenges that climate change will pose to their company and ... to their future, and have a response for it.” Minister Morneau said that “organizations will need to demonstrate that they are disclosing their climate footprint, and the challenges that they might face in that regard.”

Although much remains uncertain about what specific disclosures will be required under the LEEFF, companies can get a head start by understanding the standards and reports referenced by the Government.

What are the TCFD-recommended disclosures?

The news release from the Prime Minister’s Office explicitly references the “Financial Stability Board’s Task Force on Climate-related Financial Disclosures”, commonly referred to as the TCFD. Established in 2015, the TCFD serves as an international benchmark for climate-related disclosures. The TCFD encourages disclosure in four key categories of governance, strategy, risk management, and metrics & targets. Each category is further broken down into subcategories, of which there are 11 in total. Specific recommended disclosures range from information about how corporate boards are overseeing climate risk and opportunity, to a description of a company’s greenhouse gas emission targets, to climate-related scenario analyses.

The TCFD recommendations are supported by over 1,000 companies and financial sector organizations, and are directly informing legislative and regulatory requirements in a number of jurisdictions, including the UK.[1] According to the TCFD 2019 Status Report, which includes data collected from over 1,100 companies worldwide, climate disclosure is steadily increasing, particularly with respect to the identification of risks and opportunities.

A 2017 country-specific review of the TCFD’s recommendations for Canada prepared by the Principles for Responsible Investing (PRI) organization concluded that company disclosure requirements are “progressing relatively slowly” in Canada, but climate reporting is already starting to become common practice. A recent survey of 40 TSX-listed companies found that 98 per cent of companies included climate-related disclosure in at least one of the TCFD-recommended categories. In its review, PRI noted that Canada has limited corporate disclosure covering environmental, social and governance factors. In addition, climate change tends to be grouped under the umbrella of environmental requirements, and is not addressed as a stand-alone concern. PRI said that the next steps should be for the federal government, as well as federal and provincial securities regulators, to endorse the TCFD’s recommendations, and that the Toronto Stock Exchange and TSX Venture Exchange should reference them in their reporting guidance.

What are the current climate-related disclosure requirements in Canada?

Currently, reporting issuers in Canada are required to disclose material risks associated with climate change in their periodic disclosure. Guidance in respect of these disclosure requirements is set out in Staff Notice 51-333 (Environmental Reporting Guidance), which is issued by the Canadian Securities Administrators (CSA) and provides the primary guidance to issuers on disclosure requirements relating to a broad range of environmental matters, including climate change. In March 2017, CSA had launched a project to review the disclosure by reporting issuers of risks and financial impacts associated with climate change. The project was aimed at assessing whether current securities legislation and guidance are sufficient for issuers to determine what climate change-related disclosures should be made. Subsequently, CSA issued CSA Staff Notice 51-358 (Reporting of Climate Change-related Risks) in August 2019 to assist companies in identifying and improving their disclosure of material risks posed by climate change. The notice clarifies existing legal requirements and does not create any new ones. Rather, the notice reinforces and expands upon the guidance provided in CSA Staff Notice 51-333 and should be read in conjunction with that notice.  

What is the Expert Panel on Sustainable Finance?

In addition to the TCFD, Minister Morneau cited the Expert Panel on Sustainable Finance as the “inspiration” for the climate disclosure requirements under the LEEFF. The Panel was established by the federal Government and released a report in June 2019 (the “Expert Panel Report”). 

The Expert Panel Report recommends that the Government “[d]efine and pursue a Canadian approach to implementing the recommendations” of the TCFD. According to the Panel, this should include:

  • Endorse a phased ‘comply-or-explain’ approach to adoption of the TCFD framework in Canada;
  • Provide clarity to issuers on the recommended scope and pace of TCFD implementation; and
  • Work with federal, provincial and industry partners to clarify the materiality of climate-related financial disclosures.

From a legal standpoint, the Panel also recognized that the federal Government has limited jurisdiction to implement wholesale disclosure requirements across the board, given provincial jurisdiction over securities regulation. As a result, full implementation of climate reporting requirements will require close cooperation between federal and provincial governments.

What does this mean for your business?

Climate-related financial disclosure is a rapidly evolving field which, if not carefully monitored, can substantially increase your company’s risk of being offside its regulatory requirements. On the other hand, staying on top of these trends as they evolve – and staying ahead of the curve – may reap significant rewards, including increased investment and improved operational resiliency. Our team is available to provide detailed advice and build tailored solutions with respect to existing and prospective climate reporting requirements. For more information, please consult our Environmental, Regulatory & Aboriginal (ERA) Group.





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