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Canadian Financial Institutions Will Need to Publish Climate-related Risks and Disclosures

This article is part one of a series on regulatory changes in Canada regarding ESG reporting.
Read part two and part three.

IsoMetrix Lumina ESG software can assist your business in dealing with these changes effectively and efficiently.

Designed to ensure that companies and organizations disclose information about their climate-related risks and opportunities, climate-related disclosure regulations are becoming increasingly mandated throughout the world.

Major Environmental, Social, and Governance (ESG) regulations include the proposed GHG disclosures for public companies by the U.S. Securities and Exchange Commission (SEC), whilst within the European Union (EU), the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) remain prime examples.

Major ESG regulations are coming to Canada too. The country is set to require eligible banks, insurance companies, and federally regulated financial institutions to publish climate-related risks and disclosures aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) framework, from 2024 onwards.

The exact details around this regulation are yet to be finalized at the time of writing. The Canadian Securities Administrators group [CSA] has paused the development of the regulation to consider both the recent ISSB IFRS S1 and IFRS S2 standards release, as well as the forthcoming final version of the US SEC’s climate-related disclosures proposal (expected in the final quarter of 2023).

Nevertheless, it’s clear that the requirement is imminent and that Canadian financial institutions need to be identifying and collecting the relevant climate-related data now to be able to report on it from 2024.

Companies other than financial institutions are expected to be indirectly affected by the new regulation as well. As financial companies become mandated to gather and evaluate climate-related risks and emissions data from their clients (via Scope 3 greenhouse gas emissions for example), non-financial enterprises will also need to divulge their climate metrics. With the new regulation in place, failure to do so may well jeopardize their access to capital investment, or other supply chain and business partnership opportunities.

Scope 1, 2, & 3 emissions

Moving from voluntary to obligatory framework-based ESG reporting will force other challenges on organizations. No longer will companies have the freedom to pick and choose their disclosure topics to suit their own strengths or strategic and marketing agendas, but instead will have ‘nowhere to hide’ in being forced to conform to the same metrics as everyone else.

Furthermore, mandatory disclosure may unveil prior instances of ‘greenwashing’ among companies that selectively highlighted more positive ESG data in their prior voluntary disclosures while either downplaying or not disclosing less favorable information.

In short, the forthcoming Canadian ESG regulations will force financial institutions (and indirectly, their clients) to be more transparent, organized, and focused on providing the right information to the right people at the right time.

To do so, companies are increasingly looking to modern digital systems to streamline and automate ESG data collection, perform carbon emissions calculations, and ensure that their ESG reporting aligns with relevant frameworks and standards.

The ability to eliminate siloed data and utilize one software platform as a ‘single source of ESG truth’ improves the accuracy, transparency, and reliability of ESG information within the organization. Managing ESG activities and operations becomes more efficient, and disclosure reporting less burdensome.

The fact that some ESG management platforms have added functionalities such as built-in ESG standards and frameworks libraries, and carbon emissions calculators makes their use case yet more compelling.

Given the fact that 2024 is ‘just around the corner’ and the newfound importance of maintaining compliance, Canadian financial institutions and their business clients should be investigating implementing ESG management and reporting software promptly, if they haven’t already done so.

Last-minute feasibility studies and rushed software installations only increase the chances of strategic misalignment, inaccurate and incomplete datasets, making mistakes, and missing blind spots that could potentially damage not only their reputations, but their financial standings as well.