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An Ontario government task force has released a set of recommendations that would lead to the biggest overhaul of the country’s main securities regulator in nearly two decades.

One of the starkest changes is its prescription for mandating that companies report to their shareholders and regulators the risks of climate change on their corporate health. To do it, the task force recommends that corporations adopt the most stringent set of standards out there – those created by the international Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).

Institutional investors, including Canada’s largest pension funds, are demanding that corporations adhere to a standardized set of criteria for assessing how measures to reduce carbon emissions would affect their profitability. Currently there are several, and their acronyms have been called an alphabet soup. The Ontario Capital Markets Modernization Task Force said companies should disclose all material environmental information, as they do in their financial reporting.

The question was who would police this. The task force would put that responsibility in the hands of the industry’s top regulator, the Ontario Securities Commission.

“It was pretty unanimous with all the stakeholders that we spoke with – issuers, investors, academics – that we should be coming out with a recommendation on standards,” said Melissa Kennedy, a task force member who was instrumental in making sure climate factors were included in the final report.

In the end, the group settled on the TCFD standards, and their wide adoption would catch Canada up with other jurisdictions such as Britain and Europe, said Ms. Kennedy, who is Sun Life Financial Inc.’s executive sponsor of sustainability and head of the insurer’s legal, compliance and government relations teams.

Former central banker Mark Carney and billionaire ex-mayor of New York Michael Bloomberg led the effort to develop the TCFD standards. They include such requirements as explaining the role of executives in assessing environmental risks and how they are integrated into overall corporate risk management. The TCFD requirements also include industry-specific standards based on varying degrees and types of climate risk. At last count, only about 30 per cent of Canadian companies have adopted the standards.

The overall task force report is a substantial volume, addressing everything from forming a new tribunal within the OSC to hear cases about securities violations to levelling the playing field to make it easier for independent dealers to compete with the investment banking services of the major financial institutions.

Since the previous big securities overhaul in 2003, climate investing has become intertwined with the investing climate. Understanding has grown about the risks of global warming, and government policies to limit it, for companies, capital markets and society as a whole.

One worry in Corporate Canada has been the cost of compliance, especially to smaller companies. Some regulators have said they are hesitant to be too prescriptive on demanding adherence because of that. However, Ms. Kennedy said adoption of a single set of requirements would eliminate the expense of navigating several standards, as will a gradual adoption of TCFD reporting.

The task force, which was led by Bay Street lawyer Walied Soliman, chair of Norton Rose Fulbright Canada LLP, recommends that the OSC give companies with a market capitalization above $500-million two years to phase in adherence, those worth $150-million to $500-million three years, and allow smaller ones to take five years.

An early criticism of the recommendation is that it would not require companies to report on how different climate scenarios would affect their corporate strategy, which experts see as key to gauging resilience.

However, the Bank of Canada and Office of the Superintendent of Financial Institutions have launched a pilot project to study what forms scenario-testing might take, and that work is not complete. Because of the timing, scenario analysis could be added later, she said.

“The problem in this area is that because it is so nascent, there is considerable risk in deciding too soon on what is the appropriate test or the final parameters,” Ms. Kennedy said. “I fully expect this area to evolve as we get better at it.”

Jeffrey Jones writes about sustainable finance and the ESG sector for the Globe. Reach him at

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