ResearchNovember 23, 2020

Climate Disclosure Rises Sharply for Canadian Financial Firms

Report shows firms north of the border are increasingly adopting TCFD-aligned climate-risk disclosures.

Reported by Michael Katz

Canadian financial firms are increasingly disclosing their climate risks in alignment with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). According to a new report from the Global Risk Institute (GRI), there has been a 40% increase in the number of Canadian financial firms publicly disclosing their climate-related risk per the TCFD’s guidelines since 2017.

The study examined trends in climate-related financial disclosure among 58 financial firms in Canada, which includes banks, pensions, insurance firms, financial Crowns, and credit unions over the 2017, 2018, and 2019 reporting cycles. The Financial Stability Board introduced its recommendations for reporting in 2017, providing a framework for companies to disclose their material climate-related governance, strategy, management, and metrics and targets.

“Climate change-related risk is both a competitive issue and a regulatory issue—the landscape is changing dramatically and the Canadian financial sector must be ready,” Sonia Baxendale, president and CEO of GRI, said in statement. “As the world shifts to a low-carbon economy, there will be increasing expectations, and we need to ensure that Canada’s natural resource-based economy is an asset and not a liability.”

According the study, 44% of firms disclosing climate risk included TCFD-recommended information in annual reports, up from only 12% in 2017. It also found that nearly 80% of disclosing firms reported that they were assessing risk over the short, medium and long terms, and, among those, 70% disclosed the specific risks they were facing in each of the time horizons.

The number of firms reporting that they have undertaken climate risk scenario analysis has more than tripled during the 2017 to 2019 time period, and 72% of firms disclosed that they undertook a materiality assessment for climate risk, up from 44% in 2017.

The report also outlines steps that can be taken by policymakers, companies, and investors to increase the quality and quantity of reporting, and to accelerate the road to adoption.

It said policymakers need to plainly articulate a road map for the adoption of the TCFD recommendations and outline what is expected and by when. They should also clarify what is mandatory and what is voluntary for both large companies and smaller ones.

The report also said company boards should increase their involvement in how climate risk is incorporated into corporate planning and discuss how climate risk and opportunities could impact future business plans. It also said firms should set and report on metrics and targets that are science-based and aligned with net-zero carbon emissions.

And for investors, the report said they should engage with senior executives and boards to encourage climate disclosure that is in alignment with TCFD recommendations and explain why and how the data is used. Additionally, the report suggests investors work with issuers to help increase understanding of climate risk and encourage commitment to emissions reductions and other actions toward carbon net-zero policies.

“I hope this report inspires those firms that have not yet taken steps to assess and report the financial implications of climate risk to get started, and those firms who are already solidly on the path to continuously push forward,” Baxendale wrote in the report. “In the end, facing climate change head on and taking action now is the right thing for future generations.”