Canada’s PM calls for climate disclosure in finance

Canada’s Prime Minister, Justin Trudeau, did not mince his words last month in a letter to Canada’s Deputy Prime Minister and Minister of Finance, Chrystia Freeland. In the letter, Trudeau makes a firm commitment to tackling climate change and calls for climate-related financial disclosures. “The science is clear” he writes, “we must not only continue taking real climate action, we must also move faster and go further”.

These are strong words from the Canadian PM, who has set ambitious climate-related targets for the country in the past few months. Within the letter to Freeland, Trudeau goes on to ask that she “achieves results for Canadians” by meeting a number of commitments. Of those (nearly 40) commitments, one pertains to climate-related disclosures. He asks that Freeland:

“Supported by the Minister of Environment and Climate Change, work with provinces and territories to move toward mandatory climate-related financial disclosures based on the Task Force on Climate-related Financial Disclosures (TCFD) framework and require federally regulated institutions, including financial institutions, pension funds and government agencies, to issue climate-related financial disclosures and net-zero plans”.

Trudeau’s letter points to a continued commitment in Canada to tackle climate-change both societally and in financial services. However, despite the PM’s request, some might ask whether Canada is taking genuine steps to tackle climate change, or whether it is all talk so far.

What steps are the regulators taking?

Canada’s financial regulator, the Office of the Superintendent of Financial Institutions (OSFI) recently outlined its work towards tackling climate risk in its Annual Report 2020-21. It highlights that:

• In November 2020, it launched a pilot project on climate risk with the Bank of Canada and six other financial institutions. This project is aimed to better understand the risk posed by a transition to a low-carbon economy.
• In January 2021, OSFI launched a three-month consultation on the impact of climate-related risks and published a subsequent discussion paper.
• Over 2022, the regulator will release a “summary of comments” received during its climate-related risk consultations and outline its next steps.

Aside from its annual report, in October 2021 OSFI stated in a letter to federally regulated institutions that it would continue to monitor the situation and reveal its next steps in early 2022.

Also in October, the Canadian Securities Administrators (CSA) published proposed climate-related disclosure requirements for comment – the closing date of which is January 17, 2022.

While both the CSA and OSFI have certainly taken steps to consider climate change, they are yet to publish any clear rules or regulations to tackle climate related disclosures.

CUBE comment

Early 2022 is upon us, so I wait with bated breath to see what commitments Canada’s OSFI might make in 2022. It will also be interesting to see what responses the CSA’s disclosure requirements receive, though it has not set out a date on which it will publish next steps. It is certainly hoped that developments in early 2022 will mark action from the Canadian regulators on the plans they have spoken about and consulted on in the last few years.

Canada has dreams to tackle climate change through financial services, but until now they remain only dreams. Of course, it would be unfair to suggest that Canada is alone in this, many other countries have similarly outlined plans for climate-related disclosures (for example) that have yet to materialise. This is not surprising, climate change is an ever-evolving beast, implementing a regulatory framework to tackle it is not an easy task.

Interestingly, the UK – which was starting to develop a reputation for falling short on plans – is not one of the countries failing to act. On 1 January 2022 the FCA’s rules on climate-related disclosures came into force, marking itself as one of the growing number of regulators to adopt the TCFD’s recommendations. Perhaps Canada will follow suit or use the UK’s approach as a blueprint for their own regime.

Canada appears to be staking steps towards developing climate-related disclosure rules for financial services, but is it all talk? Our upcoming ESG report will explore global regulatory data to uncover regulatory action for ESG. If you haven’t already, sign up to our newsletter or contact the team to receive a copy as soon as it’s published.