Draft Policy Statement to Regulation 51-107 on Climate-Related Disclosures

DRAFT POLICY STATEMENT TO REGULATION 51-107 ON CLIMATE-RELATED DISCLOSURES

CHAPTER 1
GENERAL PROVISIONS
Introduction and Purpose

1. Regulation 51-107 on Climate-Related Disclosures (indicate reference here) (the "Regulation") establishes disclosure obligations regarding climate-related matters for reporting issuers (excluding investment funds, asset-backed security issuers, designated foreign issuers, SEC-registered foreign issuers, certain exchangeable security issuers, and certain credit-supported issuers).

We implemented the Regulation to require reporting issuers to communicate certain climate-related information in their continuous disclosure documents. We believe this information is gaining importance for investors in Canada and abroad, and that the information required by the Regulation constitutes an important factor in their investment and voting decisions.

This Policy Statement (the "Policy Statement") provides information on the interpretation and application of the Regulation.

CHAPTER 2
TCFD RECOMMENDATIONS
TCFD Recommendations
2. 1) The disclosure obligations set out in the Regulation are set out in Appendix 51-107A and Appendix 51-107B and, subject to certain modifications, are consistent with the recommendations (the "TCFD Recommendations") issued by the Task Force on Climate-related Financial Disclosures (the "TCFD") and published in its June 2017 report titled "Recommendations of the Task Force on Climate-related Financial Disclosures" (the "TCFD Final Report"), in English only. In particular, the Regulation does not require issuers to present a scenario analysis, which is the TCFD-recommended information describing the resilience of an issuer's strategy, considering different climate-related scenarios. Furthermore, issuers may choose not to present the TCFD-recommended information regarding greenhouse gas ("GHG") emissions and the risks associated with them, provided they indicate the reasons justifying the omission of presenting this information1.

2. The TCFD Recommendations are summarized in Figure 4 of Section C of the TCFD Final Report, reproduced in Table 1 below. This table also presents the differences between the information the TCFD recommends communicating and that to be provided under the Regulation.

1 The CSA are also seeking comments on another option that would require issuers to report their Scope 1 GHG emissions without having to report those from Scopes 2 and 3. Issuers would therefore have to choose to report either GHG emissions from Scopes 2 and 3 and their associated risks, or the reasons justifying the omission of presenting this information.

Table 1: TCFD Recommendations and Information to be Provided Under the Regulation

TCFD Recommendations	Information Recommended by TCFD	Information to be Provided Under the Regulation
Governance<br>Describe the organization's governance around climate-related risks and opportunities.	a) Describe the organization's governance around climate-related risks and opportunities.	a) Same information as recommended by the TCFD.<br>b) Same information as recommended by the TCFD.
Strategy<br>Describe the actual and potential impacts of climate-related risks and opportunities on the organization's businesses, strategy, and financial planning where such information is material.	a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.<br>b) Describe the impact of climate-related risks and opportunities on the organization's businesses, strategy, and financial planning.<br>c) Describe the resilience of the organization's strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.	a) Same information as recommended by the TCFD.<br>b) Same information as recommended by the TCFD.<br>c) Information not required.
Risk Management<br>Describe the organization's processes for identifying and assessing climate-related risks.	a) Describe the organization's processes for identifying and assessing climate-related risks.<br>b) Describe the organization's processes for managing climate-related risks.<br>c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization's overall risk management.	a) Same information as recommended by the TCFD.<br>b) Same information as recommended by the TCFD.<br>c) Same information as recommended by the TCFD.
Metrics and Targets<br>Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.	a) Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.<br>b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 GHG emissions, and the related risks.<br>c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets.	a) Same information as recommended by the TCFD.<br>b) Optional information.<br>The issuer must disclose its GHG emissions and the risks associated with them, or the reasons justifying the omission of presenting this information.<br>c) Same information as recommended by the TCFD.

3. In accordance with the TCFD Recommendations and the disclosure obligations regarding governance matters set out in National Instrument 58-101 Disclosure of Corporate Governance Practices (Chapter V-1.1, r. 32), the information required by the Regulation regarding "governance" and "risk management" according to the TCFD Recommendations indicated in Table 1 is not subject to a materiality assessment. Consequently, issuers are required to provide this information in the continuous disclosure document required by the Regulation.

Information under the "Strategy" and "Metrics and Targets" headings is only required if it is material. It is likely material if a reasonable investor's decision to buy, sell, or hold securities of an issuer would likely be different if the information were omitted or misstated.

An issuer must disclose its GHG emissions and the risks associated with them, or the reasons justifying the omission of presenting this information. The CSA are also seeking comments on another option that would require issuers to report their Scope 1 GHG emissions a) when the information is material, or b) in all cases. Under this option, reporting of GHG emissions from Scopes 2 and 3 would not be mandatory. Issuers would therefore have to choose to report either GHG emissions from Scopes 2 and 3 and their associated risks, or the reasons justifying the omission of presenting this information. If necessary, the final version of the Policy Statement will be modified to reflect the chosen option.

TCFD and Other Guidance
3. The TCFD Recommendations and their application are addressed in detail in the TCFD Final Report, as well as in other TCFD publications, such as the following:
a) Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017), in English only; b) Guidance on Risk Management Integration and Disclosure (October 2020), in English only.

In addition to this Policy Statement, issuers should consider the TCFD Final Report and related TCFD publications when preparing the information to be provided under the Regulation. They should also refer to the guidance on materiality assessment issued by the CSA and existing disclosure obligations that are consistent with the TCFD Recommendations (addressed below), including those set out in the following texts:
a) National Instrument 51-201 Continuous Disclosure Obligations: Disclosure Guidelines; b) CSA Staff Notice 51-333 Environmental Disclosure Guidance (October 2010); c) CSA Staff Notice 51-354 Report on the Climate Change Information Project (April 2018); d) CSA Staff Notice 51-358 Climate-Related Risk Information (August 2019).

Consistency with Existing Disclosure Obligations
4. Certain disclosure obligations contained in the Regulation align with those already provided for by Canadian securities legislation. For example, the provisions of paragraph (a) of Item 1 of Appendix 51-107B require issuers to describe the short, medium, and long-term climate-related risks and opportunities they have identified. This disclosure obligation aligns with the obligation regarding risk factor information set out in National Instrument 51-102 Continuous Disclosure Obligations (Chapter V-1.1, r. 24). An issuer is required to disclose in its annual form (if it produces one) the risk factors to which it and its activities are exposed that are most likely to influence an investor's decision to purchase its securities, and is required to present in its management's discussion and analysis a review of its activities during the last fiscal year, including commitments, events, risks, or uncertainties that it is reasonable to believe will have a significant impact on its performance.

Greenhouse Gas Emissions Information
5. 1) Under paragraph (a) of Item 4 of Appendix 51-107B, the issuer must disclose information on GHG emissions from Scopes 1, 2, and 3, or explain the reasons for not doing so. Consequently, an issuer that discloses information on GHG emissions from Scopes 1 and 2 but chooses not to disclose information on Scope 3 would be required to justify its choice not to disclose the latter. An issuer that chooses not to disclose any information on GHG emissions may explain the reasons for the entire GHG emissions, rather than for each scope separately.

2. Some issuers are already required to report their GHG emissions under existing reporting programs, including for each of their facilities under the federal government's Greenhouse Gas Emissions Reporting Program. Securities regulators expect issuers subject to an existing program to report their Scope 1 GHG emissions in accordance with the Regulation. However, if they choose not to do so, they should clearly justify their choice in light of existing disclosure obligations.

3. According to paragraph 2 of section 4 of the Regulation, the issuer must follow a GHG emissions reporting standard to calculate and report these emissions. Such a standard means the GHG Protocol or a comparable standard for calculating and reporting GHG emissions. Consequently, issuers that report their GHG emissions using a standard other than the GHG Protocol must explain how it is comparable, in accordance with paragraph (c) of Item 4 of Appendix 51-107B.

4. Appendix 51-107B allows the issuer to incorporate by reference GHG emissions information contained in another document. If it uses this method, the issuer must clearly indicate the referenced document or any excerpt thereof that it incorporates by reference into the information to be provided under Item 4 of Appendix 51-107B. Unless the referenced document or excerpt has already been filed in its SEDAR profile, it must be filed at the same time as the document containing the information required by Appendix 51-107B.

Forward-Looking Information
6. Information provided by issuers in accordance with the Regulation may constitute forward-looking information. An issuer presenting such information is required to comply with the obligations set out in Part 4A, Part 4B, and section 5.8 of National Instrument 51-102 Continuous Disclosure Obligations.

Guidance on these obligations can be found in Part 4A of the Policy Statement on National Instrument 51-102 Continuous Disclosure Obligations (Decision 2006-PCG-0223, 2006-12-12) and in CSA Staff Notice 51-330 Guidance on the Application of Forward-Looking Information Obligations under National Instrument 51-102 Continuous Disclosure Obligations.

Forward-looking information obligations do not relieve issuers of the obligation to disclose significant climate-related risks, even if they are not expected to materialize for some time.

CHAPTER 3
TRANSITIONAL PROVISIONS
Transition Periods
7. The Regulation applies to issuers through a phased implementation that first targets issuers other than emerging issuers ("non-emerging issuers") and then emerging issuers. Non-emerging issuers must present the information required by the Regulation in the relevant continuous disclosure document for each fiscal year beginning on or after January 1 of the first year following the effective date of the Regulation. For example, if the effective date is in 2022, a non-emerging issuer whose fiscal year begins on January 1 and ends on December 31 would be required to present in its annual form the information required by Appendix 51-107B for its fiscal year ending on December 31, 2023, and each following year. For emerging issuers, the Regulation applies to each fiscal year beginning on or after January 1 of the third year following the effective date. Using the same example (for an emerging issuer), the issuer would be required to present the information required by Appendix 51-107B for its fiscal year ending on December 31, 2025, and each following year.

If an emerging issuer becomes a non-emerging issuer during the period when the Regulation applies only to non-emerging issuers, it will not be required to present the information required by the Regulation in the relevant continuous disclosure document for the fiscal years during which it was an emerging issuer.