Ottawa’s aid package a climate-change signal to big corporations

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Many big Canadian companies, notably those involved in resource extraction, will have to adopt much more detailed disclosure of climate risks to their businesses if they intend to take advantage of Ottawa’s newest package of emergency credit support.

The federal government’s Large Employer Emergency Financing Facility (LEEFF), announced on Monday, is aimed at large companies that are at risk of financial failure because of the impact of COVID-19.

Prime Minister Justin Trudeau said on Tuesday that the condition had been added because not all big companies have embraced the move to disclose climate risks.

“There are many companies in the energy sector that are already taking seriously the need to plan for the longer term, to plan for reducing emissions and fighting climate change. But not all of them,” Mr. Trudeau said.

“And that’s why we needed to make sure that as we moved forward on support for large employers across all sectors, that they are also – in all sectors, not just in the energy sector – thinking about the challenge that climate change will pose to their company and to their future and have a response for it.”

The still un-costed loan program comes with a long list of restrictions. Applicants must agree to “strict” limits on dividends, share buybacks and executive pay. Companies will also have to publish annual climate-related disclosure reports consistent with the international Financial Stability Board’s Task Force on Climate-related Financial Disclosures. They will also have to show how their operations support Canada’s national climate-change goals.

Currently, few Canadian companies issue climate reports with the stringency set out by the task force, which developed its standards while former Bank of Canada governor Mark Carney was Financial Stability Board (FSB) chair and governor of the Bank of England.

“This is going to be a meaningful obligation for companies to take on as a condition to access any of these resources,” said Andrew MacDougall, a lawyer with Osler, Hoskin & Harcourt LLP, who specializes in corporate climate-risk reporting. “If you’re going to take on the support, you’re going to, essentially, really up your game in disclosure in a way that really doesn’t exist right now for the vast majority of companies.”

The loan program is aimed at companies with $300-million or more in annual revenues that are seeking financing of at least $60-million. Finance Minister Bill Morneau said the program will be “very important” for airlines like Air Canada or Westjet, as well as for companies in the energy sector.

Many of the details have yet to be explained. It follows billions of dollars of other federal programs to help companies and their employees bridge the financial collapse caused by the pandemic and restrictions on movement imposed to deal with it. Critics have raised questions about whether the government is pushing its environmental agenda at the expense of struggling companies.

FSB requirements are more comprehensive than those set out in Canadian securities laws. In Canada, for instance, a public company must disclose environmental policies related to operations, as well as the board’s mandate on the issue and its standing-committee functions.

The FSB standards include such requirements as explaining the role of executives in assessing environmental risks and how they are integrated into overall corporate risk management. There are also industry-specific standards based on varying degrees and types of climate risk.

Alberta Finance Minister Travis Toews said “the devil’s in the details,” but he doesn’t envision the reporting requirements being too difficult or expensive for the province’s energy companies. “Canada as a whole has been very responsible from an environmental and social-governance standpoint, and certainly the large-cap companies already do significant reporting in this regard,” he said.

However, of the 55 Canadian companies, governments and professional organizations that are listed as supporters of the FSB task force, there are only two companies that produce oil – Suncor Energy Inc. and Teck Resources Ltd. Most are in the financial-services and pensions sectors, and so they are not eligible for the LEEFF program.

Cenovus Energy Inc., an oil sands producer, said it has used the task-force standards as a basis for climate disclosures as part of its environmental, social and governance reporting for the past three years.

Numerous companies publish voluntary sustainability reports, with varying levels of disclosure, Mr. MacDougall said. “They provide a limited amount of detail about what the company is doing. They’re not done with a particular set of standards or guidelines to the disclosure, so in practice it can be a bit mixed,” he said.

Canadian Securities Administrators, in a 2018 report, said a number of large companies that produce voluntary reports expressed concern about the cost and staff numbers required for them.

However, Paul Boothe, a former senior Environment Canada official and retired academic who specializes in debt management and public finance, said the disclosure stipulations should not prove too onerous for companies that must make use of the program. He said they already face increasing scrutiny from shareholders and regulators on climate risks and responses.

“I think the federal government wants their loans to be consistent with their environmental policies, but I don’t see that as being otherwise restrictive for a large publicly traded company. Some of them are leaders in this,” he said.

With reports from Emma Graney in Calgary

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