Canada’s Disclosure of Climate-Related Matters (Proposed National Instrument 51-107)

Description of Characteristics:

• Canadian Regulatory Proposal: Though not yet fully implemented, National Instrument 51-107 is a proposed regulation by the Canadian Securities Administrators (CSA) aimed at enhancing climate-related disclosures by publicly traded companies.
• TCFD-Aligned: The proposed instrument is largely aligned with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), promoting a consistent and globally recognized approach to climate risk reporting.
• Materiality-Based: The proposal emphasizes the disclosure of material climate-related information that could reasonably be expected to affect an issuer’s business, financial condition, or prospects.
• “Comply or Explain” Approach: While the proposed requirements are prescriptive, the CSA adopts a “comply or explain” approach, allowing companies flexibility in their reporting while requiring them to explain any deviations.
• Evolving Landscape: The final requirements and implementation timeline are subject to change, as the CSA continues to consult with stakeholders and consider international developments, such as the ISSB standards.

Targeted Audience:

• Publicly Traded Companies in Canada: The proposed regulations will apply to reporting issuers in Canada, including companies listed on Canadian stock exchanges.
• Investors and Stakeholders: The regulations aim to provide investors and other stakeholders with the information they need to make informed decisions about the climate-related risks and opportunities faced by Canadian companies.

Specific Criteria (Proposed):

• Governance:
  • Board oversight of climate-related risks and opportunities
  • Management’s role in assessing and managing climate-related risks
• Strategy:
  • Impact of climate-related risks and opportunities on the company’s business, strategy, and financial planning
  • Resilience of the company’s strategy under different climate-related scenarios
• Risk Management:
  • Company’s processes for identifying, assessing, and managing climate-related risks
  • How these processes are integrated into the company’s overall risk management
• Metrics and Targets:
  • Metrics used to assess and manage climate-related risks and opportunities
  • Scope 1, 2, and 3 greenhouse gas (GHG) emissions
  • Progress towards any GHG emissions reduction targets

Reporting Principles:

• Materiality: Disclosures should focus on information that is material to investors’ decision-making.
• Completeness: Disclosures should be sufficiently complete to provide a clear understanding of the company’s approach to climate-related matters.
• Consistency and Comparability: Disclosures should be consistent over time and use recognized metrics to enable comparison across companies.
• Clarity and Conciseness: Disclosures should be clear, concise, and understandable to a wide range of stakeholders.

Reporting Process (Proposed):

1. Assess Climate-related Risks and Opportunities: Identify and assess material climate-related risks and opportunities.
2. Develop Climate-related Strategies: Develop strategies for managing climate-related risks and opportunities.
3. Implement Risk Management Processes: Integrate climate-related risks into the company’s overall risk management framework.
4. Set Metrics and Targets: Set metrics and targets to assess and manage climate-related risks and opportunities.
5. Prepare Disclosures: Prepare disclosures in accordance with the proposed requirements, addressing the four core elements and using relevant metrics and targets.
6. Include in Annual Filings: File the disclosures with the relevant securities regulatory authorities as part of the company’s annual filings.

Connections to Other Frameworks:

• Strongly Aligned with TCFD: The proposed requirements are based on the TCFD recommendations, promoting global consistency in climate-related disclosures.
• Complementary to other ESG frameworks: The proposed requirements can be integrated with other ESG frameworks, such as GRI and SASB, to provide a more holistic picture of a company’s sustainability performance.

Challenges:

• Evolving Regulations: The final requirements and implementation timeline are still subject to change, creating some uncertainty for companies.
• Data Availability and Quality: Gathering reliable data on climate-related risks and opportunities, especially for Scope 3 emissions, can be a challenge.
• Scenario Analysis: Conducting scenario analysis, as recommended by the TCFD and potentially required under the final regulations, can be complex and resource-intensive.

Compliance Guidance:

• Proposed National Instrument 51-107: The current proposal serves as the main source of information on the proposed requirements.
• CSA Staff Notice 51-333: Offers additional guidance on ENVIRONMENTAL REPORTING GUIDANCE under existing securities regulations.
• CSA Staff Notice 51-358: Provides guidance on climate-related disclosures in the interim period before the final regulations are adopted.
• Future Implementation Guidance: The CSA is expected to provide additional guidance and support once the final regulations are adopted.

Usability Evaluation:

• Level of Adoption: Not yet mandatory, but adoption is expected to be high once the regulations are finalized, particularly for publicly traded companies in Canada.
• Ease of Use: The ease of use will depend on the final regulations and the availability of implementation guidance.
• Focus Areas: Focuses specifically on climate-related risks and opportunities and their financial implications.
• Data Availability: Data availability can vary depending on the company’s industry and its existing ESG data management practices.

SyncFrame Compatibility:

• Strong Alignment: SyncFrame’s focus on impact measurement, data-driven insights, and climate action aligns well with the objectives of the proposed Canadian regulations.
• Data Integration: SyncFrame’s technology platform can facilitate the collection and analysis of climate-related data required for disclosures.
• Expert Guidance: SyncFrame advisors can provide support in navigating the evolving regulatory landscape and implementing the disclosure requirements.

SyncFrame’s alignment with the proposed Canadian regulations, coupled with its focus on data-driven insights and expert guidance, makes it a valuable resource for Canadian companies seeking to prepare for and comply with the upcoming disclosure requirements.

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