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Canada’s Climate-Related Financial Mandatory Disclosures

Neil Rosenstech

U.S.’ northern neighbor Canada is making climate-related financial disclosures mandatory for federally regulated institutions, such as pension funds, government agencies, and financial institutions.

Canadian Prime Minister Justin Trudeau instructed two of its ministers, Deputy Prime Minister and Minister of Finance Chrystia Freeland and Minister of Environment and Climate Change Steven Guilbeault, via letters outlining a long list of climate-oriented measures to achieve Canada’s 2050 net-zero emissions goals.

Photo Courtesy Mwangi Gatheca

Among the tasks is: “Support the Deputy Prime Minister and Minister of Finance in working with provinces and territories to move toward mandatory climate-related financial disclosures based on the Task Force on Climate-related Financial Disclosures framework, and in requiring federally regulated institutions, including financial institutions, pension funds, and government agencies, to issue climate-related financial disclosures and net-zero plans.”

The Task Force on Climate-related Financial Disclosures (TCFD) is a 32-member global organization established in 2015 to develop voluntary and consistent climate-related risk disclosures for companies. The aim is to provide important information on how a changing climate impacts various firms to investors, lenders, insurers, and other company stakeholders. The Task Force released its final report on disclosure recommendations in 2017. Companies are encouraged to disclose climate-related risks and opportunities in annual public financial filings.  

Disclosure focuses on four main areas: corporate governance, strategy, risk management, and metrics and targets.

It invites companies to disclose those elements along with how they are assessing and addressing climate risks. Asset managers, for their part, should report this information to their clients and beneficiaries, no matter the level of the materiality of the information.

In addition to the impact of climate-related risks and opportunities, companies are also called to provide metrics and targets for these risks. This includes Scope 1, Scope 2, and, if applicable, Scope 3 greenhouse gas emissions, as well as their strategy’s resilience.

“One of the most significant, and perhaps most misunderstood, risks that organizations face today relates to climate change. While it is widely recognized that continued emission of greenhouse gases will cause further warming of the planet and this warming could lead to damaging economic and social consequences, the exact timing and severity of physical effects are difficult to estimate,” stated TCFD in its report. “The potential impacts of climate change on organizations, however, are not only physical and do not manifest only in the long term. … the risk-return profile of organizations exposed to climate-related risks may change significantly as such organizations may be more affected by physical impacts of climate change, climate policy, and new technologies.”

Photo Courtesy Derek Sutton

Canada has also set ambitious 2030 climate goals, including capping and cutting oil and gas sector emissions and mandating the sale of zero-emission vehicles. By 2035, the country aims to achieve a net-zero emissions electricity grid. Other goals include reaching zero plastic waste by 2030 and launching an annual program of green bond issuances.

“The science is clear. Canadians have been clear. We must not only continue taking real climate action, we must also move faster and go further,” wrote Trudeau.

“As Canadians are increasingly experiencing across the country, climate change is an existential threat. Building a cleaner, greener future will require a sustained and collaborative effort from all of us.”

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