include emissions from the extraction and production of purchased materials and fuels, outsourced activities, waste disposal or transport-related activities in vehicles not owned or controlled by the issuer. For the 2021 reporting year, 67% of reviewed issuers – up from 58% the previous year – reported their Scope 3 Emissions, the most challenging type of emissions to quantify. The Canadian Approach to Mandatory Climate Disclosure In October 2021, the CSA released for public comment proposed National Instrument 51-107 – Disclosure of Climate-related Matters (CSA Proposal), aimed at improving the consistency and comparability of climate disclosure and aligning Canadian disclosure standards with the expectations of international investors and, more generally, assisting investors in making informed investment decisions. Currently, Canadian securities law requires issuers to disclose any material information, including climate- related information. The CSA Proposal imposes a more stringent disclosure requirement, calling for the disclosure of certain climate-related information, even if such information is not material. The climate disclosure rules set out in the CSA Proposal are, for the most part, aligned with the recommendations of the TCFD. More specifically, the CSA Proposal follows the TCFD in calling for disclosure to be made under four key categories – governance, strategy, risk management, and metrics and targets. The CSA Proposal departs from the TCFD framework in two key respects. First, the CSA Proposal would not require issuers to undertake scenario analysis, whereas the TCFD recommends that this analysis form part of issuers’ disclosure strategy.
Second, unlike the TCFD framework, which calls for the disclosure of Scope 1 Emissions and Scope 2 Emissions and encourages the disclosure of Scope 3 Emissions, the two options the CSA is currently considering would instead require issuers either – to disclose Scope 1 Emissions, Scope 2 Emissions and Scope 3 Emissions or explain why no such disclosure was made; or – to disclose Scope 1 Emissions and either disclose Scope 2 Emissions and Scope 3 Emissions or explain why no such disclosure was made. While scenario analysis has historically been viewed by issuers as one of the most challenging aspects of climate disclosure, the results of the 2022 Review suggest that the private sector is making strides in this area, and that most, but certainly not all, issuers will be in a position to undertake and report on scenario analysis either immediately or in the near term. Prior to finalizing the proposed rules, the CSA will likely consider whether to maintain this departure from the TCFD framework (which would be inconsistent with global trends) or whether it can fashion a rule that is both consistent with the TCFD recommendations, while also allowing issuers to get up to speed – for example, a rule that mandates scenario analysis subject to a grace period. The CSA’s proposed “comply or explain” approach to GHG emissions disclosure is similar to the approach taken in National Instrument 58-101 – Disclosure of Corporate Governance Practices regarding an issuer’s disclosure of its policies (or the lack thereof) concerning the identification and nomination of women on boards, and the manner in which the issuer’s board or nominating committee considers the level of representation of women on the board in identifying and nominating board candidates. It is difficult to predict what approach to GHG emissions disclosure
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Governance Insights 2022
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