CHAPTER 05 Competing Frameworks: Mandatory Climate Disclosure Is (Almost) Here
the CSA will ultimately select because both of the foregoing options represent significant departures from the TCFD recommendations and will thus likely fail to satisfy stakeholder expectations. For example, the first option affords issuers an opportunity not to disclose even Scope 1 Emissions – arguably now viewed as table stakes, given the current level of voluntary climate disclosure – whereas the second option arguably fails to recognize the significance of Scope 3 Emissions, which typically far outweigh an issuer’s direct emissions, and which are falling under ever-increasing scrutiny by investors. That being said, we would not expect the CSA to require mandatory Scope 3 Emissions disclosure at this time because not all issuers are currently in a position to make such disclosure, as the requisite data remain both difficult and costly to collect, measure, compile and verify. The View from Afar: A Higher International Standard While a comprehensive overview of the SEC’s proposal for The Enhancement and Standardization of Climate- Related Disclosures for Investors (SEC Proposal) and the ISSB’s draft IFRS S2 Climate-related Disclosures (ISSB Proposal) is beyond the scope of this chapter, it is important to understand the manner in which the two international proposals go beyond the demands of the CSA Proposal, given that the CSA has made it clear that it will continue to monitor international developments and that such developments will inform its approach to climate disclosure.
With regard to the disclosure of GHG emissions, the disclosure mandated under the SEC Proposal and the ISSB Proposal is more closely aligned with the TCFD framework than the corresponding rules in the CSA Proposal. Both the ISSB Proposal and the SEC Proposal would require issuers to disclose both Scope 1 Emissions and Scope 2 Emissions, as well as Scope 3 Emissions, where material. The SEC Proposal would also require the disclosure of Scope 3 Emissions when the issuer has set a Scope 3 Emissions-reduction target or goal. To address issuers’ concerns regarding potential liability associated with Scope 3 Emissions disclosure (which would likely include data and information gathered by third parties in the issuer’s supply chain), the SEC Proposal includes a targeted safe harbour for the disclosure of Scope 3 Emissions. The proposed safe harbour would provide that the disclosure of Scope 3 Emissions by or on behalf of an issuer would be deemed not to be a fraudulent statement unless it was made or reaffirmed without a reasonable basis or the disclosure was not made in good faith. That approach strikes a suitable balance between promoting the disclosure of Scope 3 Emissions, while recognizing that, over the near term, such disclosure will include data that the issuer may have had no part in collecting, quantifying or verifying. Unlike the CSA Proposal, both the SEC Proposal and the ISSB Proposal mandate disclosure in respect of any internal carbon price used by an issuer. Although the SEC Proposal does not require issuers to set climate targets or goals, or undertake scenario analysis, it does mandate disclosure of any such targets, goals or analysis that issuers may have set or completed – a requirement that aligns with the TCFD framework. By contrast, the ISSB Proposal requires issuers to complete and disclose their scenario analysis unless they are unable to do so, in which case they would still be required to disclose why they were unable to do so. Similarly, the ISSB Proposal requires issuers to make
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