The Canadian Securities Administrators’ (CSA) recent decision to pause work on a mandatory climate-related disclosure rule has generated understandable concern across the financial and investment community. While we acknowledge the rapidly evolving global landscape and recognize the CSA’s intention to prioritize market competitiveness, this pause must be temporary. A long pause could easily erode Canada’s ability to attract global capital and undermine the transparency that global investors expect.
Trillions of dollars in foreign capital from pension plans, sovereign wealth funds and other institutional investors are guided by climate commitments and carbon-reduction targets. This is true even for many of the largest U.S. asset owners, despite recent events south of the border. Investors need consistent, comparable and useful climate data in order to allocate capital in ways that seize opportunities and avoid risks associated with a changing climate. If Canadian issuers can’t meet those expectations, they could be screened out of global portfolios.
In our submission to the CSA on its 2021 consultation on mandatory climate reporting, we made it clear that high-quality emissions data — Scope 1 and Scope 2 at a minimum — are essential for investment decision-making, corporate engagement, proxy voting and tracking climate risk exposure in investment portfolios. (The Scope categories are used to classify greenhouse gas emissions based on their sources).
Emissions data is essential for investment managers to meet their obligations to clients. However, requiring companies to disclose only Scope 1 and Scope 2 emissions is a modest ask, particularly for large firms. Scope 1 includes direct emissions from company operations, while Scope 2 covers indirect emissions from purchased electricity, steam, heating and cooling.
The Net-Zero Asset Owner Alliance, representing over US$9.5 trillion in assets, has called on regulators to also mandate disclosure of Scope 3 emissions — those generated across a company’s entire value chain — including suppliers and the use of products by customers. While we recognize the importance of Scope 3 data for assessing long-term threats and opportunities, a balance must be struck so that investors get reliable data to make choices, and companies’ reporting requirements are manageable.
The Securities and Investment Management Association (SIMA) also supports the climate disclosure standards developed by the International Sustainability Standards Board (ISSB) and the Canadian Sustainability Standards Board (CSSB). These frameworks provide the structure and credibility investors require, and their alignment with international norms ensures that Canada remains on an even playing field with respect to the transparency of financially material information.
Regulatory uncertainty
Another reason the pause on climate disclosure regulations must be short is the growing chilling effect caused by regulatory uncertainty. In response to amendments to the Competition Act under Bill C-59 — intended, ironically, to reduce greenwashing — several of Canada’s largest emitters have begun removing climate-related information from their websites citing legal uncertainty and heightened liability risks. This is a troubling trend.
Prior to the Bill C-59 changes, many firms were making good-faith efforts to report climate-related information, even in the absence of binding standards.
Without clear and specific regulatory requirements, companies may default to removing disclosures altogether. That’s the opposite of transparency and it does not serve investors, issuers or the integrity of our markets.
While a pause may be understandable, let’s not miss this opportunity to distinguish ourselves from our southern neighbour by providing the transparent marketplace that so many investors need, and securing the international investment that is critical to Canada’s future.
Ian Bragg is vice-president, research & statistics at The Securities and Investment Management Association.