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Janis Sarra is professor of law emerita at Peter A. Allard School of Law at the University of British Columbia. She is principal co-investigator at the Canada Climate Law Initiative, which has made submissions to provincial securities regulators on climate disclosures.

It has been well over two years since the Canadian Securities Administrators (CSA) proposed draft National Instrument 51-107 Disclosure of Climate-related Matters. At that time, institutional investors with $21-trillion in assets under management urged the CSA to move swiftly to finalize NI 51-107 if Canada is to obtain its share of capital flows to sustainable finance.

Since then, the world has moved forward exponentially on commitments to transition to net-zero greenhouse gas emissions and effective governance and disclosure of climate-related financial risks and opportunities, recognizing the urgent risks that climate change poses to capital markets. But the CSA has still not finalized the proposed climate disclosure rules.

Canada’s failure to act has left companies increasingly vulnerable to litigation risk as they try, on an ad hoc basis, to craft disclosure that meets regulatory and civil liability materiality standards.

Investors need information to be able to make effective investment and engagement decisions. Companies require guidance in order to navigate the dynamic reporting landscape. Here’s how the CSA should finalize its disclosure rules.

Securities regulators need to align with the global baseline, the International Financial Reporting Standards’ S2 Climate-related Disclosures, which represents the most universally accepted provisions for climate-related financial disclosure globally. It is investor focused, allowing investors to assess the issuer’s ability to adapt its business model and operations to significant climate risks and opportunities.

The standards recognize the diversity of companies in Canada, offering a proportional approach that the CSA should adopt. Specifically, the global standards say that in preparing disclosures about the anticipated financial effects of a climate-related risk or opportunity, a company shall use only reasonable and supportable information that is available to it at the reporting date without undue cost or effort. And the company should use an approach commensurate with the skills, capabilities and resources that are available for preparing those disclosures. These measures allow companies to disclose based on their size and capacity.

Canada’s disclosure should further align with IFRS S2 by requiring similar standards of disclosure of the issuer’s governance, risk management, resilience, and financial position and performance.

Investors need to see that companies have climate transition plans and strategies in place to transition to net-zero, including measuring and reporting progress on emissions reduction targets annually. With 92 per cent of the world’s economy by gross domestic product now covered by a net-zero target, having transparent transition plans will enhance access to capital, allow companies to become competitive in global capital markets, and make meaningful progress in Canada’s commitment to transition to a net-zero economy.

Some leeway should be given to a company’s indirect carbon emissions, though. Given that it will take some time to obtain fully accurate information on Scope 3 emissions in an issuer’s value chain, securities regulators should adopt a time-limited “safe harbour” from civil liability from disclosure of Scope 3 emissions, protecting directors and officers who act diligently and in good faith. Securities regulators can work with companies by offering guidance in initial reporting, focusing on outcomes-based oversight.

As of January, the IFRS Foundation reports that regulators in 63 jurisdictions have declared support for IFRS S2. Without clear requirements in Canada, the risk of litigation against companies increases, as evident by the more than 900 climate litigation cases against corporations globally.

The IFRS disclosure rules are already recognized domestically. The new Canadian Sustainability Standards Board (CSSB) has announced it will release its proposed Canadian Sustainability Disclosure Standards CSDS 1 and CSDS 2 in March, endorsing the IFRS global baseline with accommodation in terms of timing and small venture companies.

The CSA should work in tandem with the CSSB and expedite release of a revised NI 51-107. A clear framework will reduce the risk of capital flowing out of Canada to jurisdictions where the rules are clear.

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