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Climate-related Disclosure: Divisiveness in the Canadian Capital Markets

Author: Ashton Brehm

On October 18, 2021, the Canadian Securities Administrators (the “CSA”) published for comment proposed National Instrument 51‑107 Disclosure of Climate‑Related Matters (the “Proposed Instrument”) and its companion policy. For additional information, please see Climate-related Disclosure under Canadian Securities Law. The comment period for the Proposed Instrument has closed with the CSA receiving 131 submissions.

There was widespread support for climate-related disclosure aligned with recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (the “TCFD”) with many commentators applauding the Proposed Instrument’s infusion of a clear and phased approach to climate-related disclosure that allows for continuous improvement over time. However, consensus was lacking among commentators on details surrounding the quantification and disclosure of greenhouse gas (“GHG”) emissions and the requirement for reporting issuers to conduct scenario analysis. Additionally, commentators stressed the need for greater harmonization with climate-related disclosure regimes of other capital markets.

Quantification and Disclosure of GHG Emissions

The Proposed Instrument entails a ‘comply or explain’ approach to the disclosure of Scope 1, Scope 2, and Scope 3 GHG emissions meaning that a reporting issuer can elect not to report if they instead explain their reasons for not reporting. Scope 1 emissions refer to the GHG emissions generated directly by the reporting issuer, Scope 2 emissions are those produced indirectly through the purchase of electricity, heat or steam and Scope 3 covers all other indirect GHG emissions other than those described in the definition of Scope 2 GHG emissions.

Critics of the ‘comply or explain’ approach believe the approach is inadequate due to divergences from the recommendations of the TCFD. The majority of commentators supported mandatory Scope 1 and Scope 2 GHG emissions disclosure pointing out that the development of processes and internal controls necessary to identify, track, and disclose Scope 1 and Scope 2 GHG emissions has matured to the stage where such information can be generated on a high quality and cost-effective basis. Critics of the ‘comply or explain’ approach expressed concerns that it:

  • does not go far enough to ensure that Canadian capital markets keep pace with best practices internationally;
  • disclosure may not be complete, consistent, or comparable;
  • will inhibit the development of transition plans by enabling reporting issuers to not have starting point measurements for their GHG emissions;
  • shifts the burden of sourcing estimated emissions data to investors and makes it challenging to understand their GHG emission investment footprint, including tracking progress on net zero goals and fund-level reporting; and
  • runs the risk of Canadian reporting issuers becoming less competitive and increasing the cost of capital in a global market where climate-related expectations of global investors, stakeholders and consumers are increasing.

On the minority side, proponents of the ‘comply or explain’ approach to Scope 1 and Scope 2 GHG emissions disclosure point out that Canadian capital markets consist of a diverse array of reporting issuers with varying market capitalizations and asset bases operating in industries and geographies entailing unique considerations. They note that the ‘comply or explain’ approach accommodates materiality judgments and the unique circumstances of individual reporting issuers while providing flexibility for a reporting issuer to phase in climate-related disclosures.

There was greater consensus among commentators surrounding Scope 3 GHG emission disclosure with many stating that Scope 3 GHG emission disclosure should be encouraged but not required at this time. The main concern expressed over mandatory reporting of Scope 3 GHG emissions related to the lack of a clearly defined methodology for measuring and comparing Scope 3 GHG emissions with commentators also noting significant barriers to effectively determining Scope 3 GHG emissions such as:

  • geographic impediments and other factors which result in a loss of control over information for the collection of data;
  • differing levels of supply chain sophistication and resources;
  • challenges in ensuring uniformity of data;
  • costs of supply chain outreach and training on emissions management;
  • the ability to influence or obtain cooperation from supply chain actors; and
  • the reporting issuer’s lack of control over portions of the value chain hindering their ability to effect changes in Scope 3 GHG emissions.

However, as harmonization of the methodology for measuring and comparing Scope 3 GHG emissions progresses, and carbon accounting practices continue to evolve one can expect increased support for the mandatory disclosure of Scope 3 GHG emissions.

Scenario Analysis

The Proposed Instrument does not entail the requirement to conduct scenario analysis which would require reporting issuers to describe how resilient their strategies are to climate-related risks and opportunities, taking into consideration a transition to a lower-carbon economy consistent with a 2°C or lower scenario and, where relevant to the reporting issuer, scenarios consistent with increased physical climate-related risks. Commentators were divided on the topic of mandatory scenario analysis.

Proponents of mandatory scenario analysis, largely comprised of investor and third-party submissions, assert that scenario analysis is a critical tool for risk identification and management as it provides a point of reference to the level of actions that the reporting issuer plans to undertake to mitigate risks of climate change and enables consideration of a broader range of assumptions, uncertainties, and potential future states when assessing the financial implications of climate change. Proponents further point out that this type of disclosure is critical to helping investors understand corporate preparedness for various potential future outcomes.

Critics of mandatory scenario analysis, largely comprised of issuer and industry association submissions, cite that the biggest challenges in preparing scenario analysis are data availability and the lack of consistent assessment approaches to allow for comparability across reporting issuers. They note that scenario analysis presently requires one to make various assumptions which in turn diminishes the value of comparability for investors. Critics expressed concerns that imposing a mandatory requirement to conduct a scenario analysis would not only be costly for reporting issuers but would also expose them to unacceptable levels of litigation risk if required to be included in continuous disclosure documents that attract secondary market liability.

For scenario analysis to be useful disclosure to investors, there must be consistency in methodology and application among reporting issuers. Industry and regulatory standards for scenario analysis are still under development and are expected to improve over time. However, based on trends in other capital markets, it is likely that most Canadian reporting issuers will be required to undertake disclosure on scenario analysis in the future and proponents of mandatory scenario analysis believe the Proposed Instrument should be aligned with this direction of travel.


Alignment with global capital markets was a consistent theme across submissions. Commentators expressed harmonization related concerns noting that the Proposed Instrument does not contain a mechanism to allow inter-listed issuers to follow, for example, either the Canadian or the U.S. rules, as applicable. The result is that reporting issuers listed in multiple jurisdictions may be subject to different requirements in each jurisdiction. If issuers are required to disclose under two different, and potentially conflicting regimes, this could result in increased complexity, inconsistency and diminished comparability for investors. Accordingly, commentators indicated support for greater alignment with securities regulators in other jurisdictions to align progress toward the shared goal of consistent, comparable and decision-useful climate-related information for capital markets.

Venture Issuers

The Proposed Instrument provides a three-year transition period for venture reporting issuers. Commentators acknowledged that venture reporting issuers may not have the resources to comply with new requirements on the same timeline as larger issuers which may necessitate accommodations. However, concern was expressed that the Proposed Instrument creates too long of a gap where no information from the venture reporting issuer group is mandated to be made available to investors.

Proponents of the earlier imposition of climate-related disclosure requirements for venture reporting issuers state that it has been evident for years that climate-related disclosure would be forthcoming and that such disclosure would likely draw heavily on the TCFD framework. These proponents point out that the Proposed Instrument does not encourage venture reporting issuers to implement climate-related disclosure incrementally and iteratively wherein they can build on work year over year rather it is a delayed reporting requirement that creates the expectation that venture reporting issuers will have complete reporting after the three-year transition period. This has the potential to create a resource intensive compliance crunch in year three rather than a smooth ramp up that would allow a more efficient allocation of time and resources as expertise within the company grows.

A proportionate approach entailing accommodations reflective of the financial resources available to venture reporting issuers for expenditure on immediate term compliance is appropriate to not stifle investment and interest in Canada’s venture capital markets. Despite any accommodations made available under the Proposed Instrument, it may be wise for venture reporting issuers to adopt an incremental and iterative approach to their climate-related disclosure to stay competitive and avoid potential compliance crunches.


Following the closing of the comment period, Canadian capital market regulators will now consider feedback received on the Proposed Instrument while engaging in further targeted consultations, including with Indigenous organizations, as the Proposed Instrument is finalized. While opinions remain varied on the appropriate approach towards the disclosure of Scope 1, Scope 2, and Scope 3 GHG emissions, the comment period revealed noteworthy support for mandatory disclosure of Scope 1 and Scope 2 GHG emissions. There have been global developments in capital markets concerning climate-related disclosure since the Proposed Instrument was published for comment creating challenges for Canadian capital market regulators. These factors may affect the final shape of climate-related disclosure under the Proposed Instrument.

Canadian capital market participants require clear and actionable guidance on climate-related disclosure. Considering rapidly evolving global capital markets, the Proposed Instrument should be forward looking to lay the roadmap towards achieving endgame climate-related disclosure while assisting reporting issuers in the journey towards full spectrum quantitative climate-related disclosure. The EnerNEXT team is well equipped to assist clients in navigating their securities law disclosure and ESG needs including advising on climate-related disclosure obligations and the quantification, management and reporting of GHG emissions. Please contact info@enernext.ca to learn more.

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice or an opinion on any issue. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.



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Ashton Brehm

Ashton Brehm

Ashton Brehm is a lawyer in Calgary, Alberta whose practice focuses on corporate and securities law.