Disclosure of Climate Risks increasingly becoming important as more companies support the Task Force on Climate-related Financial Disclosures (TCFD) At the COP21 Paris Climate Change Conference in 2015, the Financial Stability Board (FSB) established an industry-led disclosure task force on climate-related financial risks under the chairmanship of Michael Bloomberg – the Task Force on Climate-related Financial Disclosures (TCFD). Since the establishment, the TCFD developed recommendations on climate-related financial disclosures in 2017 to help businesses disclose clear, comparable and consistent information about the risks and opportunities presented by climate change as well as promote and monitor adoption of its recommendations. In 2018, it published a status report, which stated that the TCFD had more than 500 supporters, including 457 companies and 56 other organizations (e.g., industry associations, governments). The companies represent a broad range of sectors with a combined market capitalization of over $7.9 trillion. This includes over 287 financial firms, responsible for assets of nearly $100 trillion. (2018 Status Report: Task Force on Climate-related Financial Disclosures)
Recent Development in Canadian Regulatory World
This growing voluntary movement is bringing the issue of climate-related financial disclosure to mainstream. In light of TCFD recommendations, Canadian Securities Administrators (CSA) announced a project in 2017 to review the disclosure of risks and financial impacts associated with climate change. The CSA’s review looked at the mandatory and voluntary climate change-related disclosures of 78 large companies from the S&P/TSX composite Index. Currently, the companies are obliged under existing Ontario Securities Commission (OSC)’s rules to disclose information relating to climate change if the information is deemed a “material fact,” but there is otherwise no explicit obligation for companies to disclose climate change related information or risks. (Green Peace Report) Earlier this year, the CSA completed the report with a finding that there was a broad consensus for improvement on disclosure in respect to climate change-related risks and financial impacts. In the near-term, the CSA plans to develop new guidance and initiatives to educate issuers about climate change-related disclosures and consider new disclosure requirements regarding climate change-related risks. The OSC, in its Notice of Statement of Priorities for Financial Year to End March 31, 2019, stated that it will continue to monitor developments of TCFD for a regulatory response.
Recent Development in American Regulatory World
In the U.S., the Securities and Exchange Commission (SEC) requires public companies to disclose any “material” effects on their operations that arise from the direct and indirect effects of existing or pending legislation and regulations related to climate change as well as the effects of physical changes caused by climate change (such as more severe weather events, water availability, and changing patterns of farmland fertility). However, a number of reports point out that these requirements were not prioritized or enforced.
In response to investors’ call for greater SEC scrutiny, Senator Elizabeth Warren introduced a bill with seven co-sponsors in September, 2018 that would require public companies to disclose climate-related risks in their annual Securities and Exchange Commission (SEC) reporting. The bill also directs the SEC, in consultation with climate experts and other federal agencies, to issue rules within one year that require every public company to disclose:
- Its direct and indirect greenhouse gas emissions
- The total amount of fossil-fuel related assets that it owns or manages
- How its valuation would be affected if climate change continues as its current pace or if policymakers successfully restrict greenhouse gas emissions to meet the Paris accord goal; and
- Its risk management strategies related to the physical risks and transition risks posed by climate change.
The bill further directs the SEC to tailor these disclosure requirements to different industries and to impose additional disclosure requirements on companies engaged in the commercial development of fossil fuels.
Following this legislative push, a group of investors representing more than $5 trillion in assets under management petitioned the SEC in October, 2018 to develop a comprehensive framework that would require public companies to disclose environmental, social and governance (ESG) aspects relating to their operations. The petition cites increasing demand from investors for information regarding climate risks, notes that voluntary disclosures by some companies are insufficient and suggests the TCFD’s recommendations as a starting point for the SEC to “promulgate its own Framework for comprehensive ESG disclosure.”
More on TCFD
The TCFD has 32 members that were chosen by the Financial Stability Board to include both users and preparers of disclosures from across the G20’s constituency covering a broad range of economic sectors and financial markets. The TCFD’s recommendations published in 2017 are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets. In addition, there are guidance to support all organizations in developing climate-related financial disclosures as well as supplemental guidance for specific sectors.
One of the TCFD’s key recommended disclosures focuses on the resilience of an organization’s strategy, taking into consideration different climate-related scenarios, including a 2° Celsius or lower scenario. The Climate Disclosure Standards Board (CDSB)—an international consortium of business and environmental NGOs committed to advancing and aligning the global mainstream corporate reporting model to equate natural capital with financial capital—developed a Framework for reporting environmental information, natural capital and associated business impacts aligned with the TCFD’s recommendations.
As mentioned earlier, as of September 26, 2018, 513 organizations from around the world have expressed their support for the TCFD—of which 32 supporters are from Canada. It is notable that major pension funds, banks and asset management firms from Canada are in support of disclosure of climate risks.
Canadian organizations that support the TCFD
| Name | Sector | Industry | Date |
| AIMCO | Financial | Asset Management | June 2017 |
| Barrick Gold Corporation | Materials | Metals & Mining | June 2017 |
| British Columbia Investment Management Corporation | Financial | Asset Management | June 2017 |
| Caisse de dépôt et placement du Québec | Financial | Asset Management | June 2017 |
| Canada Pension Plan Investment Board | Financial | Pension | June 2017 |
| Ontario Teachers’ Pension Plan | Financial | Pension | June 2017 |
| OPTrust | Financial | Pension | June 2017 |
| PSP Investments | Financial | Asset Management | June 2017 |
| Royal Bank of Canada | Financial | Banking | October 2017 |
| TD Bank Group | Financial | Banking | October 2017 |
| Chartered Professional Accountants of Canada (CPA Canada) | Other | Accounting Association | November 2017 |
| City of Vancouver | Government | Government Local | November 2017 |
| Manulife Financial Corporation | Financial | Insurance | November 2017 |
| Telus | Telecommunication Services | Diversified Telecommunication Services | November 2017 |
| The Co-operators Group | Financial | Insurance | November 2017 |
| Workplace Safety & Insurance Board (WSIB) | Financial | Insurance | November 2017 |
| BMO Financial Group | Financial | Banking | December 2017 |
| Scotiabank | Financial | Banking | February 2018 |
| Canadian Imperial Bank of Commerce (CIBC) | Financial | Banking | March 2018 |
| AGF Investments Inc. | Financial | Asset Management | April 2018 |
| Desjardins Group | Financial | Asset Management | April 2018 |
| National Bank of Canada | Financial | Banking | April 2018 |
| NEI Investments | Financial | Asset Management | April 2018 |
| Suncor Energy | Energy | Oil, Gas & Consumable Fuels | April 2018 |
| Toronto Financial Services Alliance (TFSA) | Other | Government Organization | April 2018 |
| AlphaFixe Capital | Financial | Asset Management | June 2018 |
| Addenda Capital | Financial | Asset Management | July 2018 |
| Export Development Canada | Financial | Export Credit Agency | September 2018 |
| Sun Life Financial | Financial | Insurance | September 2018 |
| Teck | Materials | Metals & Mining | September 2018 |
| Toronto Centre-Global Leadership in Financial Supervision | Industrials | Professional Services | September 2018 |
| Ontario Power Generation | Utilities | Utilities | November 2018 |
Source: TCFD Supporters as of the One Planet Summit September 2018. https://www.fsb-tcfd.org/tcfd-supporters/