Public Companies Should Keep in Mind Climate Change-related Risk Disclosures
The Canadian Securities Administrators recently released CSA Staff Notice 51-358 Reporting of Climate Change-related Risks, which reinforces and expands upon Climate Change-related Risk disclosure guidance in CSA Staff Notice 51-333 Environmental Reporting Guidance. The staff notice offers guidance to assist public companies identify and disclose material climate change-related risks.
The guidance also applies to companies that are not carbon intensive industries.
The general rule in determining whether information is required to be disclosed in a reporting issuer's continuous disclosure is materiality. While there is no bright line test, information is likely material if a reasonable investor's decisions whether to buy, sell, or hold securities in a reporting issuer would likely be influenced or changed if the information in question was omitted or misstated.
(b) Preparation of Disclosure
A full risk assessment should be done by the board and management in order to determine the materiality of climate change-related risks to their business. This assessment should consider potential climate change-related risks over the short, medium, and long term and should consider both:
1. Acute and chronic physical risks
Example assessment questions:
- What is the issuer's exposure to the potential effects of extreme weather events?
- How does the issuer ensure the reliability and resilience of its networks and services to the impact of severe weather events?
- What is the exposure of the issuer's properties to risks, such as flooding or fires?
- What are the major risks associated with the issuer's water use, particularly in water stressed regions?
- What is the issuer's exposure to supply chain disruption climate change-related risks?
2. Transition risks, including:
- legal; and
Example assessment questions:
- What is the issuer's exposure to emissions-limiting regulations? How does the geography of the issuer's operations factor into this analysis?
- How does the issuer incorporate emissions regulations and climate change considerations into its asset valuations?
- How does pricing and demand for the issuer's product/services and/or climate change regulation impact capital expenditure strategy for exploration and development of assets?
- What are the issuer's largest risks associated with environmental compliance, disposal and recycling costs, increased capex requirements, etc.?
- How does the issuer limit and manage risks associated with air emissions of pollutants in or near areas of dense population?
(c) Communication of Material Risks
In communicating material risks, management and the board should take care so as to avoid vague or boilerplate disclosure. Relevant, clear, and understandable issuer-specific disclosure helps investors understand how the issuer's business is specifically affected by all material risks resulting from climate change.
(d) Where to Disclose
Material information relating to climate change-related risks should be disclosed:
- in an AIF (risk factors relating to the issuer and its business that would be most likely to influence an investor's decision to purchase the issuer's securities); and
- in an MD&A (analysis of the issuer's operations for the most recently completed financial year, including commitments, events, risks, or uncertainties that the issuer reasonably believes will materially affect its future performance).
(e) Forward Looking Information
A reporting issuer may choose to include certain forward-looking information (complying with NI 51-102) in their continuous disclosure, including climate change-related risks and opportunities under various scenarios. This may provide for alerting potential investors not only of certain risks associated with climate change, but also certain opportunities that may impact a potential investor's decision whether to buy, hold, or sell a reporting issuer's security.
Invitation for Discussion:
If you would like to discuss this article in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Nerland Lindsey LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.