Resilient LLP (formerly DeMarco Allan LLP)
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Canadian Youth File Climate Risk Lawsuit Against CPP Investments

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Four young Canadians have launched a legal claim against the Canada Pension Plan (CPP) Investment Board (CPP Investments), Canada’s largest pension fund manager, alleging that it is mismanaging and has underestimated climate-related financial risks to the $732B in assets under management of the CPP. The claim alleges that by underestimating and failing to disclose climate-related financial risks, CPP Investments could expose Canadians to dramatically reduced retirement benefits, the need for substantially higher contribution rates, or both. This bulletin briefly summarizes key information regarding the claim. Overview. The claim notes that CPP Investments has publicly recognized climate change as a significant investment risk, but “backtracked” on its net-zero commitment earlier this year. The applicants allege that this reversal, combined with ongoing fossil fuel investments, demonstrates an absence of sufficient measures to manage climate-related financial risks in the best interests of younger contributors. The youth applicants, which are all anticipated to receive pension benefits after 2050, argue that by severely underestimating and failing to disclose climate-related financial risks, CPP Investments is failing to: properly manage climate-related financial risks, thereby jeopardizing the long-term value of the portfolio and the security of contributors’ benefits; and adequately identify and assess climate-related financial risks to CPP funds, including in its use and reporting of the MSCI Climate Value-at-Risk model without describing how it applies judgement to the results despite the alleged uncertainty regarding the model’s ability to adequately capture systemic risks from higher degrees of warming. The claim relies on the latest research on the severe impacts of climate change (including the triggering of tipping points and cascading risks) on society and financial systems beyond 1.5°C of warming. According to Ecojustice, the claim is the first climate case against a pension fund investment manager “anchored in the duty of impartiality and even-handedness in a multi-generational context” and is also…

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CSSB Publishes Exposure Drafts for Sustainability and Climate Disclosure

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UPDATE: The Canadian Securities Administrators (CSA) announced on March 13, 2024 that it anticipates seeking comment on a revised rule setting out climate-related disclosure requirements once the CSSB consultation is complete and its standards are finalized. The CSSB standards must be incorporated into a CSA rule in order to become mandatory under Canadian securities legislation. — The Canadian Sustainability Standards Board (CSSB) today announced the release of exposure drafts for the proposed Canadian Sustainability Disclosure Standards (CSDS), which include: CSDS 1, General Requirements for Disclosure of Sustainability-related Financial Information (CSDS 1); and CSDS 2, Climate-related Disclosures (CSDS 2). The International Sustainability Standards Board (ISSB) published IFRS S1 and IFRS S2 in June 2023. Those disclose standards served as the baseline for the development of CSDS 1 and CSDS 2, respectively. The CSSB also published a consultation paper on criteria for modifying the IFRS Sustainability Disclosure Standards when formulating Canadian standards based on them. The CSSB has proposed to make the new standards effective as of annual reporting periods beginning on or after January 1, 2025. Comments on the proposed standards are due June 10, 2024. CSSB will host a webinar on the exposure drafts on April 10, 2024. This bulletin provides a brief summary of the objectives and key conceptual foundations / core content of CSDS 1 and CSDS 2, as well as the Canadian changes as compared to the ISSB standards. CSDS 1: General Requirements for Disclosure of Sustainability-related Financial Information Objective. The objective of CSDS 1 is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the entity. An entity would be required to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its…

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SEC Adopts Climate-Related Disclosure Rules

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The U.S. Securities and Exchange Commission (SEC) today adopted final rules for the “Enhancement and Standardization of Climate-Related Disclosures for Investors” (the Rules). The Rules require registrants to disclose climate-related risks that have had, or are reasonably likely to have, a material impact on business strategy, results of operations, or financial condition, together with their associated actual or potential material impacts. The Rules do not require reporting on Scope 3 emissions or greenhouse gas (GHG) emissions originating in a registrant’s value chains or outside of its direct operations (as was proposed in earlier versions – see our earlier bulletin here). The Rules notably require more disclosure from registrants on capitalized costs, expenditures expensed, and losses related to material use of carbon credits. Disclosure requirements will be phased-in between 2025-2033, with compliance dates dependent on the type of registrant. The SEC also published a fact sheet alongside today’s release. This bulletin briefly summarizes key details of the Rules. Content of the disclosures. The Rules will require a registrant to disclose, among other things: Strategy. The Rules require disclosure of the following strategy-related climate risks and impacts: actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook; if, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk or has adopted a transition plan to manage material risks, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities; and specified disclosures regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices. Risk management. The Rules require disclosure of a registrant’s climate-related risk management, including: any oversight…

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Government of Canada Releases Fall Economic Statement: Key Energy and Climate Highlights

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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…

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UK High Court Dismisses Shareholder Climate Lawsuit Against Shell’s Board of Directors

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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…

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