How Canadian companies can prepare for TCFD reporting requirements

Investors, regulators and other stakeholders want to understand how Canadian companies are managing their climate-related risks and opportunities. And they’re turning to companies’ public disclosures in search of clear, comprehensive and comparable climate-related financial information.

We’re seeing leading Canadian organizations responding to these rising expectations by adopting the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) in their climate reporting. These companies clearly define their sustainability strategy, disclose science-based targets linked to climate risks and opportunities, and perform climate scenario analyses that are based on the unique characteristics of their operations and industry.

We recently studied and benchmarked the ESG reporting of Canada’s top 250 public companies.

We found 59% of these companies don’t mention TCFD or its principles in their disclosures, despite the increasing interest from investors and stakeholders.

This suggests many Canadian companies don’t yet appreciate the importance of the TCFD framework and why they should apply it.

What’s the TCFD framework?

The TCFD’s recommendations 1 for climate-related financial disclosures are structured around four pillars:

Governance

The organization’s governance around climate-related risks and opportunities.

Strategy

The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning.

Risk management

The processes used by the organization to identify, assess and manage relevant climate-related risks.

Metrics and targets

The measurements and goals used to assess and manage relevant climate-related risks and opportunities.

Why Canadian companies need to act on TCFD now

As stakeholders use companies’ climate disclosures for decision-making, regulators around the world are requiring organizations to adopt the TCFD framework in their reporting. And investors expect companies to take notice. Nearly three-quarters (73%) of investors in Canadian companies say managing regulatory risks is an important factor in including sustainability in their investing decision, according to our most recent Global Investor Survey .

But research 2 shows only 15% of TSX-listed companies are fully aligned to the TCFD framework. That compares to 81% of publicly traded companies in Europe, where regulators already require companies to disclose their climate risks. Other jurisdictions are following suit. For example, the U.S. Securities and Exchange Commission published ESG draft disclosure rules that are influenced by the TCFD recommendations. We’re also seeing similar moves within Canada.

In its 2022 budget, the Canadian government committed to mandating companies to report climate-related financial risks. As a result, we’ve seen several regulatory developments in Canada that draw on the TCFD framework:

• Canadian Securities Administrators (CSA): The CSA proposed a new regulation, 51-107 Disclosure of Climate-related Matters, which will require public companies to disclose climate risks and opportunities based on the TCFD recommendation starting as early as 2024. The CSA received comments on the proposition and is reviewing the measures planned and enacted by the SEC and other international regulators. The CSA’s final regulation is expected in 2023.
• Office of the Superintendent of Financial Institutions (OSFI): OSFI’s draft climate risk management guideline was released in May 2022. It outlines the expectations for federally regulated financial institutions’ (FRFIs) management of climate-related risks. In addition to required governance and risk management processes, FRFIs are required to disclose information aligned with the TCFD framework to regulators. OSFI published the first iteration of final Guideline B-15 in March 2023, with plans to review and amend it as practices evolve 3 .

• Crown corporations: Large Canadian government organizations with more than $1 billion in assets had to release their climate disclosures in 2022. All other Crown corporations are expected to report according to the TCFD framework by 2024.
• ISSB: The ISSB has issued exposure drafts regarding its proposed IFRS Sustainability Disclosure Standards: The General Requirements for Disclosure of Sustainability-related Financial Information and Climate-related Disclosures. These two exposure drafts are based on the TCFD’s four pillars. At its February 2023 symposium in Montreal, the ISSB made its final decisions on all the content of its initial standards, with issuance expected in June 2023 4 . The Canadian Sustainability Standards Board (CSSB) is being formed with a mandate to develop and support the adoption of international sustainability standards in Canada.