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Climate-related disclosure

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The U.S. Commodity Futures Trading Commission (CFTC) has released a Request for Information seeking public comment on climate-related financial risk (the RFI). The CFTC notes that the RFI will inform its understanding and oversight of climate-related financial risk relevant to the derivatives markets, underlying commodities markets, registered entities, registrants, and other related market participants. This bulletin briefly summarizes the RFI. The RFI is seeking comments on questions posed by the CFTC around the following topic areas: data; scenario analysis and stress testing; risk management; disclosure; product innovation; voluntary carbon markets; digital assets; financially vulnerable communities; public-private partnership/engagement; and capacity and coordination. The CFTC indicated that it may use the responses and comments received through the RFI to inform potential future actions including the issuance of new or amended guidance, interpretations, policy statements, or regulations, or other potential action by the CFTC. All of the CFTC’s commissioners voted in favour of the RFI. However, Commissioner Mersinger, in a concurring statement included in the RFI, indicated that several of the questions in the RFI were beyond the jurisdiction of the CFTC. Commissioner Mersinger asserted that the CFTC does not regulate commodity markets and does not have statutory authority to create a registration framework for participants within voluntary carbon markets nor the authority to regulate digital assets or distributed ledger technology outside of activities related to derivatives. In addition, Commissioner Pham stated that the CFTC should seek to harmonize any climate risk management framework with existing prudential and other regulatory regimes for registrants already subject to such regimes. The RFI follows the CFTC’s first Voluntary Carbon Convening (the Convening) which discussed issues related to the supply and demand for high quality carbon offsets, including product standardization and the data necessary to support the integrity of carbon offsets’ greenhouse gas emission avoidance and claims.…

Deputy Prime Minister and Minister of Finance Chrystia Freeland yesterday released Budget 2022: A Plan to Grow Our Economy and Make Life More Affordable (Budget 2022). This bulletin outlines key climate, energy, and Indigenous highlights from Budget 2022, part of total new spending of $31.2B, which includes: A proposal to establish the Canada Growth Fund (initial investment of $15B over five years), directly targeted at reducing emissions and enabling the transition to a low-carbon economy. Confirmation of the government’s intention to establish a refundable investment tax credit for carbon capture, utilization and storage (CCUS) projects to the extent that they permanently store captured CO2 through an eligible use. Plans to engage with experts on establishing an investment tax credit of up to 30 per cent, focused on net-zero technologies, battery storage solutions, and clean hydrogen. Support for the co-development of an Indigenous Climate Leadership Agenda to support self-determined action in addressing Indigenous Peoples’ climate priorities. Climate Budget 2022 includes new and proposed funding supporting important climate action, as follows: Canada Growth Fund. Budget 2022 proposes establishing the Canada Growth Fund, with an initial $15B investment over the next five years and the aim of attracting substantial private sector investment supporting the following economic policy goals: reduce emissions and contribute to achieving Canada’s climate goals; diversify the economy and bolster exports by investing in the growth of low-carbon industries and new technologies across new and traditional sectors of Canada’s industrial base; and support the restructuring of critical supply chains in areas important to Canada’s future prosperity—including our natural resources sector. Clean technology. Budget 2022 proposes the following new clean technology funding and investments: engage with experts to establish an investment tax credit of up to 30 per cent, focused on net-zero technologies, battery storage solutions, and clean hydrogen; provide $2.2B over…

The International Sustainability Standards Board (ISSB), a standard-setting board of the IFRS Foundation, has published Exposure Draft IFRS S2 Climate-related Disclosures (the Climate Exposure Draft) and Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (the Sustainability Exposure Draft). The Climate Exposure Draft is based on the recommendations of the Task Force on Climate-Related Financial Disclosure and incorporates industry-based disclosure requirements from the SASB Standards. The Sustainability Exposure Draft provides overall requirements for disclosing sustainability-related financial information about significant sustainability-related risks and opportunities. This bulletin provides key information on both documents and the recently launched consultations.  Climate Exposure Draft Objective. The objectives of the Climate Exposure Draft include, among others, requiring disclosure of information about exposure to significant climate-related risks and opportunities, enabling users of an entity’s general purpose financial reporting to: Assess the effects of significant climate-related risks and opportunities on enterprise value. Understand how the use of resources, and corresponding inputs, activities, outputs and outcomes support responses to and strategy for managing significant climate-related risks and opportunities. Evaluate the ability to adapt planning, business model, and operations to significant climate-related risks and opportunities. Enable users of general-purpose financial reporting to understand the governance processes, controls, and procedures used to monitor and manage climate-related risks and opportunities and the strategies for addressing significant climate-related risks and opportunities. Scope. The Climate Exposure Draft would apply to climate-related risks an entity is exposed to including physical and transitional risks, and climate-related opportunities available to an entity. Sustainability Exposure Draft Objective. The objectives of the Sustainability Exposure Draft include, among others: Require disclosure of significant sustainability-related risks and opportunities useful to the primary users of general purpose financial reporting when assessing enterprise value and deciding whether to provide resources. Require disclosure of material information about exposure to all significant…

The Securities and Exchange Commission (SEC) yesterday proposed rule changes that would require climate-related disclosures in registration statements and periodic reports (the Proposed Rule). The Proposed Rule is similar to other disclosure frameworks including the recommendations of the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. This bulletin summarizes key, high-level details of the Proposed Rule, which is over 500 pages in length:   Required climate-related disclosure. The Proposed Rule would require registrants to disclose: the oversight and governance of climate-related risks by the board and management; how any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term; how any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook; the registrant’s processes for identifying, assessing, and managing climate-related risks and whether any such processes are integrated into the registrant’s overall risk and management system or processes; the impact of climate-related events and transition activities on the line items of a registrant’s consolidated financial statements, and disclosure of financial estimates and assumptions impacted by such climate-related events and transition activities; Scope 1 and 2 emissions and Scope 3 emissions in specific circumstances;  carbon offsets and renewable energy credits or certificates (RECs); any  internal carbon price; and any climate-related targets, goals, and transition plans. Scope 1, 2, and 3 emissions. The Proposed Rule would require the disclosure of a registrant’s Scope 1 and 2 emissions in disaggregated constituent GHGs and in the aggregate, as well as in absolute and intensity terms. Scope 3 emissions and intensity would be disclosable only if material or where a registrant has set a GHG emissions target or goal that includes Scope 3 emissions. The SEC notes that the…

The Canadian Institute for Climate Choices today released its timely report “Sink or Swim: Transforming Canada’s economy for a global low-carbon future” (the Report). The Report is the first of its kind in Canada and is critical in prudent planning in a rapidly changing global economy that directly affects Canadians, Canadian companies, and Canadian exports. The Report moves from qualitative transition paradigms and platitudes to quantified realities for Canadian business, workers, and communities as the world rapidly progresses in its transition to a decarbonized global economy. The key findings and recommendations of the Report follow.   Findings   Net zero emissions. The Report indicates growing support for net zero emissions by 2050, currently including economies representing over 60% of the world’s GDP and over 50% of global emissions, and that an ambitious low-carbon transition will cost less than inaction. We expect that number to increase dramatically at or around the upcoming UNFCCC COP26 negotiations during the first two weeks of November.   Canadian exports and jobs are at risk. Approximately 70% of Canadian exports and 60% of foreign direct investment come from transition-vulnerable sectors, with over 800,000 Canadian workers in these sectors. Alberta has the highest percentage of workers in transition-vulnerable sectors whereas Ontario has the highest absolute numbers in such sectors. Transition-vulnerable sectors include: mining and mineral products;  downstream and midstream oil and gas; auto manufacturing and parts; chemical, plastic, and rubber materials; airlines; oil and gas exploration and productions; and high-carbon power. Private finance. Canadian companies listed on the TSX are more exposed to transition risks than other major international stock markets and are facing a -14% market capitalization impact by 2050.   Transition opportunity. Industries best positioned to profit from the transition include those associated with biofuels, batteries and storage, fuel cells, and solar and wind equipment. The Report notes…