October 27, 2022
A new study by the Institute for Sustainable Finance (ISF) demonstrates that the current state of climate-related risk disclosures by Canadian companies is inadequate, which impedes the ability of financial institutions to properly price the opportunities and risks associated with climate change. This presents significant consequences for Canadian competitiveness, the functioning of Canadian markets, and the fight against climate change.
The study, titled “Partial Disclosure: Assessing the state of physical and transition climate risk disclosure in Canada,” by ISF Chair Dr. Sean Cleary and Senior Research Associate Simon Martin, provides a qualitative review and scoring of corporate climate-risk reporting to the leading global standard, the Task Force on Climate-related Financial Disclosures (TCFD). This is combined with interviews with boots on the ground practitioners and experts on where the gaps are and what needs fixing.
The report focuses on disclosures of physical risk, or the costs brought on by environmental damage from climate change, and transition risk, which is created by the changes in the economy produced by efforts to transition to Net Zero. It finds that, to date, capital providers are largely flying blind with regard to several climate-related risks and opportunities in their investment decisions.
Report co-author, Dr. Sean Cleary said that “the solutions to the issues exposed by this report are complex, but manageable if approached cooperatively, with clarity of intention, and with strong regulatory leadership and support.”
The report finds the following key areas for improvement:
The insights from the experts interviewed for this report are powerful. The consensus among interviewees is that Canada has come to recognize the importance of climate-related disclosures and that progress is occurring, but that we have a long way to go in terms of providing the reliable, consistent, comparable and publicly available and accessible climate-related data that is essential. The critical importance of aligning Canadian regulations with evolving global standards such as those proposed by the International Sustainability Standards Board (ISSB) and US Securities and Exchange Commission (SEC) was also emphasized.
A few key quotes:
“The physical risk models are not always grounded in the Canadian reality, and that leaves our companies wary.” — Craig Stewart, Vice President, Climate Change and Federal Issues at Insurance Bureau of Canada.
“… there’s a difference between what companies are saying and what they’re doing.” — Adam Rochwerg, Manifest Climate
“Quality of data varies significantly and tends to degrade as the size of companies decreases. When you get to privately held companies, which are, of course, the vast majority of Canadian organizations, quality moves from degraded to essentially non-existent.” — Pamela Steer, President and CEO, Chartered Professional Accountants of Canada
“I don’t know how you actually can do strategic planning without thinking through what the various scenarios are.” — Janis Sarra, UBC and Canada Climate Law Initiative
The ISF’s groundwork analysis and interview process both point to recommendations for improvement in climate-related reporting in Canada. They include:
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ABOUT THE INSTITUTE FOR SUSTAINABLE FINANCE
The Institute for Sustainable Finance (ISF) is the first-ever multi-disciplinary and collaborative hub in Canada that brings together academia, the private sector and government with the singular focus of increasing Canada’s sustainable finance capacity. Its mission is to align mainstream financial markets with Canada’s transition to a prosperous sustainable economy, including long-term environmental sustainability. Housed at Smith School of Business at Queen’s University, the ISF will fill the gap of relevant data, expertise and business-oriented solutions for sustainable finance. By aligning financial knowledge and tools with climate change imperatives, the ISF will foster Canada’s leadership in the shift to a low-carbon global economy.
Media contact
David Watson
Associate Director, Communications, Institute for Sustainable Finance
david.watson@queensu.ca
C: 613.796.3605