There’s nothing like a pesky new disclosure demand to raise hackles on Bay Street. But the Canadian Securities Administrators’ (CSA) plans for mandatory climate risk disclosure should be applauded, not resisted.
On Oct. 18, the CSA issued proposals that would oblige public companies to provide investors with reporting that aligns with the recommendations from the Task Force for Climate-Related Financial Disclosures (TCFD). One of several competing sets of global standards, the TCFD recommendations were developed by the Financial Stability Board in 2017 to help uncover the financial system’s exposure to climate risks and to better inform investing, lending and insurance underwriting decisions.
In mandating public company disclosures that align with these standards, the CSA is poised to fulfil one of the dearest hopes of institutional investors, which are growing increasingly sensitive to climate risk.
A recent report from Queen’s University’s Institute for Sustainable Finance found that mandatory TCFD-aligned disclosures were the most desired short-term action to drive the growth of sustainable finance. Earlier this year, the Ontario government threw its support behind a recommendation from its Capital Markets Modernization Taskforce calling for mandatory TCFD-compliant disclosure.
While the CSA still has to iron out the details — it’s consulting on options for reporting greenhouse-gas emissions — the direction of travel is clear and inevitable. The consultation indicates the CSA isn’t considering alternatives to mandated disclosure.
Once companies can no longer cherry-pick their climate reporting, well-informed investors can begin making decisions meant to fuel a transition to a lower-carbon economy. As poor performers in climate-related matters are exposed and their cost of capital rises, finance should eventually favour green companies.
Given the importance of that goal, issuers should be preparing to embrace the CSA’s new demands, not digging in for battle.