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Climate-related disclosure

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Deputy Prime Minister and Minister of Finance Chrystia Freeland has released the federal government’s Fall Economic Statement 2023 (the FES). The FES sets out two areas of focus: supporting the middle class through targeted affordability, mortgage support, and price stabilization measures; and measures to support housing construction and housing affordability generally.  This bulletin outlines key energy and climate highlights from the FES: Implementation of new clean economy investment tax credits for carbon capture, utilization and storage (CCUS), clean technology adoption, clean hydrogen, clean technology manufacturing, and clean electricity. Subject to consultations, FES commits to delivering all investment tax credits in 2024. The clean economy investment tax credits would be introduced through legislation this fall in the case of CCUS and Clean Technology, and by the end of 2024 in all other cases, with projected effective dates as follows: CCUS: January 1, 2022 Clean Technology: March 28, 2023 Clean Hydrogen: March 28, 2023 Clean Technology Manufacturing: January 1, 2024 Clean Electricity: Budget 2024 for projects that did not begin construction before March 28, 2023. Expansion of the 30-per-cent Clean Technology investment tax credit. FES proposes to expand eligibility to include systems that produce electricity, heat, or both electricity and heat from waste biomass. This expansion will apply to eligible property that is acquired and becomes available for use on or after the date of the FES. Expansion of the 15-per-cent Clean Electricity investment tax credit. FES proposes to expand eligibility to include systems that produce electricity or both electricity and heat from waste biomass. This expansion will apply to eligible projects as of the date of Budget 2024, provided that construction did not begin before March 28, 2023.   Canada Growth Fund. The Canada Growth Fund (CGF) announced its first investment on October 25, 2023, with a $90 million investment in Calgary’s Eavor…

The UK’s High Court (the Court) has denied the world’s first climate-related derivative action against a board of directors to hold them personally accountable over their alleged failure to properly prepare for the energy transition.   Background. On February 9, 2023, environmental law organization ClientEarth filed a derivative action, brought by shareholders on behalf of the company, seeking permission to bring a claim against Shell’s board of directors (the Board), alleging breaches of legal duties under the UK’s Companies Act 2006 (the Act). ClientEarth alleged that the Board was mismanaging material and foreseeable climate risks in breach of the Act and had failed to adopt and implement an energy transition strategy that aligns with the Paris Agreement. Specifically, ClientEarth alleged that the Board breached its duties under: s. 172 of the Act, which requires directors to act in a way that they consider will best promote the success of the company for the benefit of its members as a whole; and s. 174 of the Act, which requires directors to exercise reasonable care, skill and diligence in the discharge of their duties. ClientEarth had requested that the Board be required to adopt a strategy to manage climate risk in line with its duties under the Act, and in compliance with the 2021 Dutch Court judgment requiring Shell to reduce CO2 emissions of the Shell group by net 45% in 2030, compared to 2019 levels, through the Shell group’s corporate policy (see our earlier bulletin here).   Judgment. Mr Justice Trower of the UK High Court denied permission to ClientEarth to bring its climate-related derivative action against the Board in the UK. In dismissing the lawsuit, the judge determined that ClientEarth’s action sought to “impose specific obligations on the directors as to how the management of Shell’s business and affairs should be conducted, notwithstanding the well-established principle that it is for directors…

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…