‘No justification’ for delaying full corporate climate disclosure, experts tell standards CSSB board

“Requiring climate transition plans across the economy would ensure businesses have plans to actually help deal with climate change,” said Julie Segal at Environmental Defence Canada

One of the central issues is whether Canadian businesses will have to report their Scope 3, or end use, emissions when the new regulation takes effect in 2025. Shutterstock photo.

This article was published by The Energy Mix on March 18, 2024.

By Mitchell Beer

The Canadian Sustainability Standards Board (CSSB) is taking fierce criticism for a new climate risk reporting rule that gives businesses extra time to fully disclose their climate pollution and contains no requirement for them to reduce it.

While the draft disclosure standard the CSSB released last week appears to go farther than securities regulators would have preferred, it still doesn’t bring Canada up to the international standard that companies in the European Union and California are expected to meet, sustainable finance experts say.

One of the central issues is whether Canadian businesses will have to report their Scope 3, or end use, emissions when the new regulation takes effect in 2025, rather than receiving two years of “transition relief” before the requirement takes effect. In developing the new rule, the Globe and Mail reported March 13, the CSSB mostly adopted the framework laid out by the International Sustainability Standards Board (ISSB)—except for the added leeway on Scope 3 reporting.

But that’s a crucial shortcoming in the midst of a climate emergency, critics say.

‘Canada is Not Special’

“Already, we are experiencing more extreme weather events, wildfires, and extreme temperatures,” Sen. Rosa Galvez (ISG-Quebec), whose Climate-Aligned Finance Act is currently before a Senate committee, told The Energy Mix in an email. “We need to be more ambitious in our climate action efforts. If Canadian standards for sustainability risk and emissions data disclosures do not start until 2025 and a transition period is drawn out for two years, with the full rules only set to be reached by 2027, how can we expect to meet our 2030 [emissions reduction] targets?”

“There’s no justification for Canada having any different rules from the ISSB at all,” said Adam Scott, executive director of Shift Action for Pension Wealth and Planet Health. “It’s an international standard for a reason. Canada is not special. We have to follow the same rules.”

Julie Segal, senior manager, climate finance at Environmental Defence Canada, said the CSSB’s growing alignment with global norms is “a sign to pick up the pace” for private companies and Canadian securities administrators. “But there is a glaring missing piece,” she warned in a statement Thursday. “The guidance from Canadian and international standards bodies would have businesses only counting their emissions, not reducing them. This is akin to only counting the leaking holes in a sinking boat without plugging them.”

The Globe said the CSSB draft has “fully embraced” the new international standards—unlike the U.S. Securities and Exchange Commission (SEC), which voted March 6 to water down its requirements by leaving out Scope 3 emissions. That will make U.S. requirements less stringent than those that apply in California and the European Union.

Regulators Wanted Less Disclosure

But Canadian Securities Administrators, the umbrella group representing provincial and territorial regulators, was holding out for a much easier ride, the Globe wrote. “The regulators’ proposed rules included an option where only Scope 1 emissions—carbon emissions from a company’s own operations—would have to be disclosed. Another option might have allowed a company to disclose no emissions data if it provided an explanation why. The CSA put those proposed rules, which would apply only to public companies, on hold as the CSSB made its choices.”

CSSB chair Charles-Antoine St-Jean told the Globe the board had the option of stepping back from the international rules, but (mostly) decided not to.

“We do take into account to see what the various regulators, including and especially our American friends, come up with, but we do have the flexibility to issue the standards that we feel are in the best public interest for Canada,” he said. “Our position that was very clear, unanimous from the board, was that we should be disclosing Scope 3.”

CSA chair Stan Magidson, CEO of the Alberta Securities Commission, said in a statement that the administrators “will consider the final CSSB standards and may include modifications appropriate for the Canadian capital markets,” after collecting comments on “the scope of application and the need for additional time and/or guidance for reporting issuers to comply with certain disclosure requirements.”

Shift Action’s Scott said that kind of thinking underscores the need for the CSSB to stand its ground.

“The investors we talk to complain all the time that they don’t have Scope 3 data, and they desperately need it,” he told The Mix. “So the idea of delaying the reporting standard is ridiculous.”

But “I know there are lots of players who are trying to slow down any regulation on this, and in Canada, our regulators are clearly captured by those folks.” A “made-in-Canada” standard, he added, “is code for protecting our oil industry from the implications of climate change.”

“Allowing for an extended transition period and delaying the effective date of full rules for sustainability risk and emissions data disclosure could negatively impact the Canadian economy, and this could in turn disadvantage Canadian investors,” Galvez cautioned. “To future-proof the Canadian economy, the financial sector must align with our climate commitments and must replace investments in emissions-intensive activities with increased investment in energy efficiency, clean energy, and clean technologies.”

Do More, Do It Faster

In an email Monday evening, St-Antoine explained that “we chose transitional reliefs to make sure Canadian businesses can smoothly transition to the new standards. Our goal was to align with the global standards but also consider Canada’s unique needs. This way, businesses are ready to report on sustainability disclosures comprehensively.”

With the new draft open for comment until June 10, he wrote, “we look forward to the feedback we receive on these proposals before we finalize these standards for voluntary adoption.” CSSB hopes to issue the final rule in mid-September.

Earlier, St-Jean told the Globe that companies will need new systems to collect climate risk data that is accurate enough for a formal securities disclosure. “We feel that’s a reasonable estimate of when we can start doing that in Canada.”

But Scott said there’s no reason not to start the process sooner.

“Nobody expects reporting to be perfect,” he said. “This is going to be a learning process for everyone, but we need this information.” Scope 3 data “is the best indicator of climate-related transition risk, and if they don’t have it, a lot of investors are exposed to very significant financial risks, without knowing it. So it’s urgent that we get on top of reporting and understanding Scope 3 emissions.”

Galvez, Segal, and Scott all said the next step after emissions disclosure is to mandate companies to set targets to reduce their climate pollution, then get on with the job.

“Disclosures need to be followed by strong action to reduce Scope 1, Scope 2, and Scope 3 emissions before 2030,” Galvez wrote. “Identification and disclosure of sustainability risk and emissions data is only the first step.”

But “for that to happen, Canadian policy-makers and regulators must start requiring it,” Segal said. “Requiring climate transition plans across the economy would ensure businesses have plans to actually help deal with climate change.”

“Beyond just reporting emissions data, we expect a regulation on climate alignment, as well, actually having a credible target and making progress toward that target,” Scott agreed.

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