Institutional Investors Call for Increased, Standardized, Climate-Related Disclosures

December 06, 2017

Written By Thomas W. McInerney, Sharon G.K. Singh and James Struthers

On October 26, 2017, 30 Canadian financial institutions representing $1.2 trillion in investment assets (the Signatories), including Desjardins and Vancity, issued a declaration (the Declaration) of commitment to advancing climate-related disclosures.

The Declaration, which aligns with emerging social and economic trends towards attentiveness to climate risks and corporate sustainability, includes the following Signatory commitments:

1. urging Canadian public corporations to adopt rigorous frameworks for financial disclosures relating to climate risk;
2. improving data collection and measurement of climate change, and integrating the results into corporate decision making processes;
3. seeking and participating in low-emissions investment opportunities that align with internal investment mandates, policies, and performance objectives; and
4. collaborating with investee corporations to support climate-risk management.

A key barrier to widespread adoption of climate-related financial disclosures is lack of agreement on a method of identification, measurement, and reporting. A 2016 publication on sustainability disclosures, co-authored by KPMG, noted that there are almost 400 different sustainability-reporting guidelines across 84 countries.

The Signatories' support the use of a rigorous disclosure framework, and make specific mention of the Task Force on Climate-Related Financial Disclosure (TFCRFD), an industry led international organization which recognizes the potential impacts of climate change on all industries, and the need for business leaders to take voluntary action to improve climate-related financial disclosures. The TFCRFD published its Final Recommendations Report in June 2017, which contains one such set out climate-related disclosure guidelines. Similar to the Declaration, the report notes growing demand for transparency, identification, quantification, and management of climate-related risks.

Market indicators signal an alignment of the marketplace towards increased relevance of climate-related disclosures. For example, Caisse de dépôt et placement du Québec (CDPQ) announced in October 2017, its intention to incorporate climate change as a factor in every investment decision, increase low-carbon assets by C$8 billion by 2020, and decrease its carbon footprint per dollar invested by 25 percent by 2025. Included in CDPQ's efforts is a market analysis of best practices of institutional investors in climate related disclosure.

Canadian governments are demonstrating a similar shift in focus to climate-related concerns as evidenced by the recently formed Expert Panel on Adapting to Climate Change, Canada's recently published technical paper on carbon-pricing, and public funding of clean-technology and the low-carbon economy. Likewise, the Canadian Securities Administrators (CSA) are currently reviewing required disclosures of the risks and financial impacts of climate changes and associated governance practices, and a report is expected in the coming months.

We will monitor legal developments regarding climate-related financial disclosures, including the CSA's review, and provide an update following the issuance of CSA's report. Please contact us if you have any questions.