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Canadian public companies have to get used to the idea of reporting their climate-related risks. The question is how stringent the rules will be.

The country’s securities commissions are developing a plan to make annual disclosure of such data mandatory. Some experts in sustainable finance warn that the rules, as currently proposed, have big holes that would reduce effectiveness for investors.

They make a good point. These are rules aimed at clearing up confusion for investors and regulators about a company’s resilience in the face of a decarbonizing economy, and they must be both comprehensive and durable, especially as other jurisdictions around the world toughen their standards.

Canadian Securities Administrators, the umbrella group for the regulators, has been collecting submissions from interested parties on its planned regulations, announced in October. The deadline for public comments has been pushed back to Feb. 16. Rules would come into force next year.

It’s important stuff, as investors clamour for standardized reporting to help them judge which companies will thrive in a lower-carbon world and which could implode. The U.S. Securities and Exchange Commission is also developing plans to force companies to report on climate risks, and is going a step further by monitoring for greenwashing – that is, bogus environmental claims.

CSA’s recommendations mostly follow the framework from the Task Force on Climate-Related Financial Disclosures (TCFD), which public companies and other organizations around the world are widely adopting.

Few take issue with that. TCFD has become the gold standard for disclosing and managing climate risks. But aspects of the current CSA plan are contentious, and how these play out will determine how effective the regime will be.

Among them are which categories, or scopes, of carbon emissions will have to be reported. The CSA also proposes giving companies a pass on one key TCFD aspect: providing analysis of business prospects over a range of target temperature scenarios and policy changes.

Under CSA’s proposal, companies would have to report all emissions: scope 1, those from sources owned or controlled by the company; scope 2, indirect emissions from the purchase of power, heat or steam; as well as scope 3, “downstream” emissions created, for example, when consumers use a product. The latter is the most difficult to tally. Here’s the rub: Companies could be exempted from disclosing any of them if they provide an explanation.

Under a second option, only scope 1 would have to be disclosed.

Many experts say all scopes are needed for an accurate picture of emissions-related risks. In its submission to CSA, the Global Risk Institute acknowledges that scope 3 emissions are the most difficult to quantify and could be subject to double counting. But it points out they represent the greatest risks in the transition to a low-carbon economy, so investors are keenly interested.

The Institute for Sustainable Finance (ISF) at Queen’s University’s Smith School of Business said regulators should include all three scopes and scrap the disclose-or-explain option. In their assessment, ISF authors Sean Cleary and Jim Leech said it is important to establish a clear starting point for measurement so regulators and investors can plan their own transitions to net-zero emissions.

On the other side of the debate, the C.D. Howe Institute said companies should concentrate on getting scope 1 emissions right, and leave scope 2 and scope 3 for another day. The lack of control over other emissions categories could make for inaccurate tallies, and that would make them less reliable and useful, Amin Mawani, associate professor of taxation for the Schulich School of Business at York University, wrote in the submission.

On scenario analysis, the ISF also argues in favour, saying it is a key part of TCFD reporting and fundamental to determining a company’s climate risks.

It is already recognized as necessary on a broader scale. The Bank of Canada and the Office of the Superintendent of Financial Institutions are to release their final report this week about a pilot project on building capability for climate scenario analysis at authorities and banks, trust companies and insurers. They call the practice “a useful tool for identifying potential risks in an environment of considerable uncertainty.”

That is what the whole exercise is about: pinpointing material threats so investors can direct their capital accordingly. Offering an incomplete picture would only make it all the more confusing as policies aimed at moving the country to net-zero emissions get tougher.

Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. E-mail him at

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