5 minute read 11 Nov. 2019
milky way over communication tower

How Canadian issuers can adapt to guidance on climate change

By Thibaut Millet

EY Canada Climate Change and Sustainability Services Partner

Business and environmental leader. Contributor to clean capitalism. Guide for companies‘ path to sustainability. McGill MBA alumnus.

5 minute read 11 Nov. 2019

Climate change is reshaping the regulatory agenda and issuers’ reporting requirements. Knowing how to adapt, and thinking ahead, is key.

Climate change is reshaping the regulatory agenda in powerful ways.

The level of clarity regulators now seek from issuers of company filings isn’t necessarily new. Since 2017, the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) report has been considered the gold standard of voluntary climate-related financial disclosures.

Still, in the several years’ since, the very reach of climate change-related disclosure has expanded. The Canadian Securities Administrators’ (CSA) Staff Notice 51-358, Reporting on climate change-related risks dives deep into the issue.

Motivated by an uptick in investor interest, perceived room for improvement in disclosure, and developments both in Canada and abroad, 51-358 offers greater clarity around whether a particular climate change-related risk is material and requires disclosure.

At the heart of the matter is the definition of materiality itself. Under the latest notice, information is generally considered material if its omission or mis-statement would likely influence a reasonable investor’s decision to buy, sell or hold the issuer’s securities.

But making that call isn’t always straight-forward. In 51-358, the CSA outlines four guiding principles that, while not exhaustive, can help issuers’ determine materiality:

  • There’s no bright-line test. In other words, because there’s no quantitative threshold at which point information becomes material, consider both quantitative and qualitative factors in determining materiality.
  • Context counts. Materiality depends on the nature and amount of the item in review. So, don’t assess the materiality of individual facts. Rather, when one or more facts do not appear to be material on their own, consider materiality in light of all the facts available.
  • Timing is everything. If an environmental matter might reasonably be expected to grow over time, early disclosure could be important to the proverbial reasonable investor. That means timing becomes especially relevant for issuers operating in an industry with a longer investment or operation cycle, or where emerging technologies are required.
  • Trending issues matter. The time horizon of a known trend, demand, commitment, event or uncertainty could be relevant to the way issuers assess materiality. Keep the probability and anticipated magnitude of those factors in mind.

Even with that additional clarity, the question of materiality can have significant ripple effects on the broader market. Global investors, lenders and insurers are paying more attention than ever to the risks that climate change poses to business performance. It will also affect access to capital regardless of legislative or regulatory action in Canada. What are the key drivers for disclosure?

  • Canada’s Expert Panel on Sustainable Finance came out with wide ranging recommendations to mobilize financial services around climate risk and opportunities. The panel also strongly recommended adoption of the TCFD and went as far as to set out a near-term schedule for large corporations and financial institutions (banks, insurance companies, pension plans and investment boards) to start this kind of reporting.
  • In 2019, the European Commission published new guidance for companies required to disclose environmental, social and governance information under the EU’s Non-Financial Reporting Directive (which had been in place for large public entities since 2018). The latest guidance recommends climate-related disclosures be aligned with the TCFD.
  • France’s Energy Transition Law requires all major institutions, including banks and institutional investors, to evaluate, report and address their exposure to long-term climate-related financial risk.
  • According to TCFD Chair Michael Bloomberg and Chair of the Financial Stability Board, Mark Carney, nearly 800 companies globally representing approximately US$118 trillion have expressed support for the TCFD recommendations.

Any way you cut it, disclosures are an opportunity for issuers to inform investors about the sustainability of their business model, and provide insight into how they’re mitigating and adapting to these risks. How can Canadian issuers seize that chance to have a more robust dialogue with key stakeholders? Issuers that ask the right questions now can gain a better understanding of the ways policy is evolving, and prepare for what comes next.

As management, consider how you could:

  • Assess your organization’s exposure to climate change and other business disruptions today and potential impacts in the future. This assessment should focus on both the risks and opportunities to inform your decisions and help manage associated outcomes. The TCFD offers useful guidance on how to do this through its recommended framework.
  • Focus on what is truly material or may become material in the future. For some companies, it’s greenhouse gas emissions from operations or a shifting market demand. For others, it could be the risk of technological substitution or weather impacts on assets or supply chain. Focusing on key risks will enable you to prioritize resources on initiatives to address them.
  • Incorporate climate-related financial risks into existing processes where feasible. Issuers with in-house economic research and analysis capabilities (e.g. large banks and some energy companies) regularly stress-test assets based on possible macroeconomic scenarios, which can be expanded to include consideration of climate change-related impacts.

As an audit committee, consider how you could:

  • Hold a meaningful discussion on the risks and opportunities associated with climate change that may affect the company over the long term (recognizing that long term may go beyond the typical timeframe you consider in financial planning), and decide where (and if) such information should be discussed in corporate reports (MD&A, financial statements, and other reports made available to the public).
  • In fulfilling the oversight function, consider management’s assessment regarding the materiality of climate change-related matters, and whether the disclosure made in regulatory filings is consistent with this assessment.
  • Encourage management to start now when there is still less pressure on “getting it right.” Providing decision-useful information to lenders, investors and insurers on the potential financial impact of longer-term risks in mainstream filings will take time. It will require discussion and collaboration with your capital providers, government and sector peers, and will involve adjustments as new information emerges and data improves.

Where do we go from here?

More disclosure on risks — and opportunities — that will play out over the medium and long term, including climate change, may reduce the need for new rules set by securities regulators. On the other hand, if new requirements are introduced, a proactive internal strategy for identifying and managing such risks will better position issuers to respond. Investing in the right planning now can ensure you’ve got the right pieces of the puzzle in place to respond effectively later.


Climate change is shaping the regulatory agenda in powerful new ways. Clearer, reliable and efficient voluntary climate-related financial disclosures are only one piece of the puzzle. The very scope of climate-related disclosure is expanding to include longer-term risks and unpredictable events — like cybersecurity, and the impact of disruptive technologies. Asking the right questions of your organization now can help you understand the way policy is evolving, and best prepare for what comes next.

About this article

By Thibaut Millet

EY Canada Climate Change and Sustainability Services Partner

Business and environmental leader. Contributor to clean capitalism. Guide for companies‘ path to sustainability. McGill MBA alumnus.