Securities regulators have issued a new guidance to help companies report risks from climate change.
The Canadian Securities Administrators’ (CSA) notice on Thursday is meant as an educational tool to clarify the legal requirements for disclosing climate change-related risks, the regulator said, and to help small issuers prepare those disclosures.
“Many investors are seeking improved disclosure on the material risks, opportunities, financial impacts and governance processes related to climate change,” said Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers, in a statement.
The guidance “will enable issuers to improve their disclosure of material climate change-related risks affecting their business,” he said.
The notice is focused on disclosure obligations for management discussion and analysis (MD&A) documents and annual information forms (AIF).
For those forms, information is likely material if “a reasonable investor’s decision whether to buy, sell or hold securities in an issuer would likely be influenced or changed if the information in question was omitted or misstated,” the notice said.
The physical risks from climate change include weather events such as hurricanes and floods, as well as longer-term climate shifts that result in chronic heat waves or rising sea levels.
Transition risks include the potential political and societal shifts that could affect a company’s fortunes, the CSA said. This could be policy to reduce greenhouse gas emissions or other factors contributing to climate change; reputational damage and legal action against companies seen to be contributing to climate change; and new technology that displaces products.
The CSA said the potential financial impacts to companies include stranded assets, regulatory penalties, decreased revenue due to declining demand or supply chain disruptions, and higher costs for capital expenditures, insurance or regulatory compliance.
The regulator’s disclosure project found that investors are increasingly focused on risks from climate change and concerned that issuers aren’t disclosing those risks sufficiently.
Read the CSA notice.