Some of Canada’s biggest corporations are opposing an Ontario proposal to require publicly traded companies to disclose their climate-change-related financial risks in a manner that aligns with global reporting standards.
They have also rejected a call for rules that would require public companies to set diversity targets for their boards of directors.
The province’s Capital Markets Modernization Taskforce published a discussion document last summer in which it proposed mandatory disclosure of material environmental, social and governance (ESG) information in a format consistent with international standards bodies.
In submissions filed last fall, the Canadian Bankers Association (CBA) said that, while it supports the principle of heightened climate-related disclosure, it would be premature to mandate a specific framework as there are several that are still under development.
Blake, Cassels & Graydon LLC filed a submission on behalf of major Canadian corporations opposing what it characterized as a “one size fits all” approach to climate-related disclosures. The submission was signed by top legal officers from a dozen companies, including Power Corporation of Canada, George Weston Ltd. (Loblaw’s parent company), Onex Corp., Fairfax Financial Holdings Ltd. and Corus Entertainment Inc.
The task force’s recommendations are now in the hands of Ontario Finance Minister Peter Bethlenfalvy, who has deep experience in capital markets. The Ontario government is reviewing the task force’s report amid growing evidence of the cost of global inaction on climate change. Canadian insurers last year paid out $2.4 billion in losses due to extreme weather events, one of the highest totals on record.
Canadian banks are already facing a move by the Office of the Superintendent of Financial Institutions to require more robust assessing and reporting on the risks they face from worsening climate change. The Bank of Canada has warned that the climate crisis represents a systemic risk to the country’s economy.
While many companies already provide ESG disclosures, the task force noted that “both issuers and investors have expressed concerns about the lack of a standardized framework for this disclosure.” It added that enhanced ESG disclosure can “set the basis for improved access to global capital markets and enable an equal playing field for all issuers.”
SHARE – a non-profit research group that works with institutional investors, including some of the banks’ investment arms – argued in a submission that mandatory climate-risk disclosure and adherence to international standards is essential for Canada to “remain an attractive market for global investors.”
In its letter filed to the task force, the CBA said further work needs to be done before decisions can be made on what framework should be adopted. The bankers’ group also said any Canadian disclosure standard “must consider the importance of oil, gas and other resource-heavy industries to the Canadian economy.”
CBA spokesman Mathieu Labrèche said January 18 that all large banks are working on implementing the climate-related disclosures developed by the Task Force on Climate-Related Financial Disclosures (TCFD), an international group that was headed by former New York City mayor Michael Bloomberg.
The TCFD proposes that companies should not only disclose material risks, but also include analysis as to how they will manage those risks and what impact a successful transition to a zero-carbon economy would have on their businesses.
The CBA position contrasts with the stand taken by asset management operations owned by Royal Bank, the Bank of Montreal and the Bank of Nova Scotia. They signed off on a submission by SHARE that supports the task force’s proposal to mandate adherence to disclosure standards set by the TCFD and the Sustainability Accounting Standards Board.
In the Blakes letter, the companies said they support increased corporate focus on ESG issues and agreed there is a growing interest among investors in those matters. However, they noted that companies are already required under Ontario law to disclose material ESG information: “Accordingly, we do not think it is necessary to incrementally mandate such material disclosures.”
Former Bank of England and Bank of Canada governor Mark Carney – who is currently a special envoy for the United Nations on climate action and finance – is also urging a mandatory approach to climate-risk disclosure.
On the diversity issue, the task force noted that TSX-listed companies are already required to disclose their policies and progress on adding women to their boards and senior executive ranks. However, progress has been slow, it said. According to an Ontario Securities Commission survey, total board seats of a sample group of companies rose to 17% in 2019 from 11% in 2015.
The task force proposed amending the Ontario Securities Act to require companies to set targets for women and Black, Indigenous and people of colour (BIPOCs) and to annually report on progress in meeting those targets.
In the Blakes letter, the corporate legal counsels say they are “mindful” of the need to increase representation among historically under-represented groups. But, they added, the mandating of targets “serves as a blunt instrument to address a myriad of nuanced issues that should instead be tackled within a flexible system” managed by a company’s board and its senior officers.
“One-size-fits-all regulatory directives are problematic and companies should have the freedom to adopt an approach to diversity that is appropriate for their particular context,” the letter said.
Shawn McCarthy writes on sustainable finance and climate for Corporate Knights. He is also senior counsel for Sussex Strategy Group.