The Canadian Securities Administrators is releasing guidance for public companies on reporting the material risks that climate change poses to their businesses.
The guidance aims to help public companies meet regulatory requirements and “inform investors about the sustainability of their business model and to provide insights into how they are mitigating and adapting to these risks,” the CSA said in a notice.
Institutional investors are looking for better disclosure around climate change-related risks, which are becoming increasingly important in their investment choices and voting decisions, noted the CSA. “We recognize that, while disclosure of material climate change-related risks is important for investors to make informed investment decisions, this disclosure presents challenges and other potential burdens for all issuers, especially smaller issuers with more limited resources.”
The climate change-related risks that companies should be disclosing include: physical risks, such as weather events that could affect their assets; operational disruptions; water scarcity and increased insurance and financing costs; and reputational, regulatory and technology-related risks.
The guidance also touched on factors that companies should consider when preparing a climate change risk assessment, like the durability of their networks and services in the face of severe weather, fire, floods and other disasters, as well as the reliability of their water access.
Companies should also take into account the potential impact that emissions-limiting regulations would have on their business and the value of their assets, how they manage energy consumption and the connected supply and price risks. Another relevant factor in risks assessments is the way companies take their climate risks into account in their capital expenditure strategy, the guidance noted.
It recommends that companies’ boards of directors and C-suites conduct climate risk management assessments. They should ask whether the oversight of climate change risks and opportunities are included in companies’ strategic plans, whether C-suite executives have access to people with expertise to assess climate change risk and whether effective systems and controls are in place to gather climate change-related information for disclosure.
Directors should also determine whether they’re given enough information about management’s materiality assessments to understand the company’s specific climate change-related risks and oversee management’s assessment of them, the guidance said. And they should consider the effectiveness of the company’s climate risk disclosure procedures and how shareholders are considering these risks in their decision-making.
The guidance advised how companies can determine what information is material and should therefore be disclosed. Companies’ management and boards should consider information relevant if a “reasonable investor” would make a different decision to buy, sell or hold the company’s securities if that information was omitted or misstated. It also stated that known environmental trends, demands, commitments, events or uncertainties should be disclosed if there’s a probability they’ll occur, along with the anticipated magnitude of their effect.
While the guidance didn’t add any new legal requirements for public companies or modify existing ones, the CSA noted companies must remember to identify material information, such as greenhouse gas emission reduction targets or a scenario analysis of their climate change-related business impacts as forward looking to remain in compliance with securities law.