Securities regulators to assess climate change-related risks

Energy and utility companies in Canada have yet to take the impact of climate change seriously in their public reporting even though investors are increasingly concerned about the issue, finds a new report from the Vancouver-based Shareholder Association for Research and Education (SHARE).

SHARE examined the public disclosures of 39 energy companies and 13 utilities firms that trade on the Toronto Stock Exchange to examine how they’re disclosing climate change-related risks and the extent to which they’re overseeing those risks. The group found that these companies’ directors are not demonstrating “climate competency.”

Specifically, SHARE’s report finds that companies in these sectors are not reporting that their boards have expertise on the climate change issue. Furthermore, firms are not disclosing “the extent to which their boards are adequately equipped with the right skills and experience, comprehensive understanding, and proper oversight processes and systems to tackle the risks climate change poses to their businesses” to investors.

Although most companies are starting to talk about climate change risk, SHARE’s report says these efforts are often limited: “At best, this shows a lack of transparency, and at worst this suggests a lack of consideration of the broader strategic implications of a transition to a low carbon global economy.”

Overall, SHARE concludes that its research shows “a gap exists between the acknowledgment of climate risks and the disclosure of specific competencies at the board level to address these risks. Whereas companies are broadly acknowledging climate risk, they’re not disclosing how they’re taking steps to establish the board competency that is necessary to adequately address this risk.”

The study looks at required disclosures, including companies’ annual information forms and proxy circulars, along with reported board and committee mandates, company websites and their responses to the CDP Climate Change 2016 questionnaire.

SHARE calls on corporate boards to “speak more forcefully and openly about their efforts” to address climate change in response to the findings. “Long-term corporate strategy needs to take the risks and opportunities associated with climate change into account. Boards that develop a comprehensive understanding of the issues and place it firmly on their agenda will be better positioned to meet this challenge,” the report says.

“Risk-management and long-term strategy are fundamental responsibilities of boards of directors, and climate risk represents a major challenge to Canadian companies,” says Laura Gosset, an analyst with SHARE, who co-authored the report in a statement. “Boards of directors have to think about a very different future as we transition to a lower-carbon economy. Investors need boards to demonstrate that they are ‘climate-competent’ — that they understand and prioritize climate change risks to long-term value, including the physical, legal, reputational, stranded asset and regulatory risks related to climate change.”

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