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opinion

Roger Beauchemin is president and chief executive officer of Addenda Capital

Canadian investors want consistent and comparable company reporting of climate-related risks and opportunities to inform their allocation of investment capital. Yet disclosure continues to be uneven across the country, creating the risk of capital moving to other jurisdictions with more transparent reporting.

It is now well-established from science-based evidence that climate change is a risk to Canada’s economy. Businesses need to identify and manage those risks and to align their strategies with Canada’s new A Healthy Environment and a Healthy Economy plan to reduce greenhouse gas emissions.

Canada and the other Group of 20 countries share the common objective of enhancing climate-related disclosure, and the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, or TCFD, has helpfully proposed a framework that captures governance, strategy, risk management and targets and metrics for tracking successes.

The TCFD has rapidly gained support globally. Its 2020 status report states that more than 1,340 companies with a market capitalization of US$12.6-trillion and financial institutions responsible for assets of US$150-trillion have endorsed the TCFD framework, but reports that many companies globally, including in Canada, continue to have poor disclosure. More than 110 governments and regulators have expressed support for the TCFD. The British and New Zealand governments have introduced mandatory TCFD-aligned disclosure for companies in their jurisdiction.

Canadian law already requires publicly traded companies to disclose material climate-related risks. Last year, the Canadian Securities Administrations issued guidance that climate change is a mainstream business issue and that securities laws require disclosure of material climate-related risks and the management of those risks. But it’s not working.

And as Canada attempts to rebuild from the economic blow dealt by the COVID-19 pandemic, we cannot afford to risk losing access to investment capital as we fall behind on climate risk disclosure.

As one of Canada’s largest multiasset investment firms, with more than $35-billion under management, Addenda Capital supports enhanced disclosure of climate-related financial risks across asset classes and plays an active role in promoting sustainable financial markets.

It is time for Canada to act. The federal government should require federally regulated companies and financial institutions to disclose management of climate-related risks and opportunities in alignment with the TCFD framework or to explain why they have concluded, after carrying out duly diligent assessment, that climate change does not pose a material risk to their business.

Provincial governments should also require this disclosure and adopt the TCFD framework as a means to bring consistency, transparency and comparability to securities law disclosure in Canada. In the meantime, Canadian securities regulators should direct resources toward ensuring compliance with existing laws on disclosure of material climate-related risks.

There are extensive resources available to support companies in addressing climate-related risk.

  • The TCFD Knowledge Hub offers guidance on implementation and scenario testing.
  • The Bank of Canada and Office of the Superintendent of Financial Institutions are piloting a program with financial institutions to develop scenarios to assess climate-related risks to the financial system.
  • Members of the Canadian Sustainable Finance Network, established by the Institute for Sustainable Finance at Queen’s University in Kingston, have already been publishing research on climate risk and implications for companies and investors.
  • The Canada Climate Law Initiative, based at the University of British Columbia, offers guidance for boards to get started. Its resources include the Audit Committees and Effective Climate Governance guide. Also, its climate governance experts from across the country offer their time free to meet with corporate boards to discuss effective climate governance.

It is time for Canada to demonstrate leadership in climate-related disclosure. Our financial system and our economy depend on it.

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