New public company guidance on material climate change-related risk disclosure

Canada’s securities regulators have published guidance for public companies on preparing disclosure about material climate change-related risks. Staff Notice 51-358 highlights global developments in this area and states that climate change-related risks and their potential financial impacts are now mainstream business issues. The regulators describe the staff notice as an educational tool (expanding on the 2010 staff notice “Environmental Reporting Guidance”) that is meant to assist public companies in identifying and disclosing material climate change-related risks for the benefit of investors and other stakeholders.


The guidance is directed specifically at annual information forms and management’s discussion and analysis and reminds public companies that:

  • information is likely material, and therefore disclosable, if a reasonable investor’s decision whether to buy, sell or hold a company’s securities would likely be influenced or changed if the information was omitted or misstated; and
  • the materiality of a known trend, demand, commitment, event or uncertainty turns on an analysis of the probability that the trend, demand, commitment, event or uncertainty will occur, and the anticipated magnitude of its effect.

The regulators acknowledge that assessing the materiality of climate change-related risks may be more difficult than for other risks. Nonetheless, a thoughtful assessment of the risks should be conducted and, to the extent possible, the risks quantified, even if the company is not in a carbon-intensive industry and even if the risks are subject to greater uncertainty and longer time horizons compared to other business risks.

Key suggestions to enhance disclosure

A number of suggestions for conducting risk assessments and determining disclosure obligations relating to climate change are contained in the staff notice. Highlights include the following:

  • As published in the 2017 final recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD), some of the climate change-related risks that may affect a company’s financial position and performance are:
    • physical risks, such as severe weather events and sea level changes, which may cause damage to assets, operational disruptions, unavailability of water, and increased costs of insurance or financing; and
    • reputational, regulatory and technology-related risks.
  • As part of a risk assessment, management should consider:
    • the resilience of the company’s networks and services in cases of severe weather events;
    • exposure of the company’s property to fires, floods and other disasters and reliability of its access to water;
    • the potential impact of emissions-limiting regulations and their impact on the company’s asset valuations;
    • how climate risks are taken into account in the company’s capital expenditure strategy; and
    • how the company manages energy consumption and related pricing and supply risks.

Reminder of securities law requirements

The guidance reminds companies that if they disclose material forward-looking information, such as a target to reduce GHG emissions or a scenario analysis of climate change-related business impacts, they must identify the information as being forward-looking; provide cautionary language indicating that actual results may differ from projections; disclose the material factors and assumptions underlying the forward-looking information; and in some cases, provide updates over time of material projections.

The guidance also reminds companies that they may choose to disclose climate change-related information under a voluntary international framework, such as the TCFD’s framework. However, all material information prescribed under Canadian securities laws must appear in a company’s regulatory filings; disclosure only in voluntary reports is not sufficient. Furthermore, voluntary disclosures should be prepared with the same rigor as, and be consistent with, the information in a company’s regulatory filings.

Self-assessments by boards of directors and management

Boards of directors and management are encouraged to conduct climate risk management self-assessments. Securities regulators drew the following suggested questions from the Sustainability Accounting Standards Board publication Engagement Guide for Asset Owners and Asset Managers and from the Chartered Professional Accountants of Canada publication Climate Change Briefing: Questions for Directors to Ask.

  • Are oversight and management of climate change-related risks and opportunities integrated into the company’s strategic plan?
  • Does management have, or have access to, the appropriate expertise to understand and manage material climate change-related risks?
  • Has management implemented effective systems, procedures and controls to gather reliable and timely climate change-related information for purposes of management analysis, decision-making and disclosure to investors, regulators and other stakeholders?
  • Is the board provided with appropriate orientation and information, including management’s materiality assessments, to help the board understand sector-specific climate change-related issues and appropriately oversee management’s assessment of climate change-related risks?
  • Has the board considered the effectiveness of the company’s disclosure controls and procedures in relation to climate change-related risks?
  • Is the board aware of how the company’s investors are factoring climate change-related risks into their investment and voting decisions?

Continuous disclosure

As part of their ongoing review program, Canada’s securities regulators will continue monitoring companies’ disclosure of climate change-related information.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

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