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Canada has become the latest G20 nation to adopt the Task Force on Climate-related Financial Disclosures (TCFD) recommendations in the government’s Climate Plan. In a mandate letter, the Canadian government has reiterated a commitment to achieve net-zero by 2050. As well as various legislated climate goals by 2030, including use of the TCFD framework for climate-related financial disclosures. This is part of a wider package of mandates that serve to accelerate Canada’s carbon transition and climate adaptation strategy.
The Prime Minister's office has issued a new rule that requires certain organizations, pension funds, and government agencies in Canada to follow the TCFD guidelines. These rules apply to about 910,000 employees working in industries like:
Companies in these areas will need to adjust how they report information to meet the TCFD standards, and this requirement will begin in 2024.
No detailed requirements have been specified in the mandate. However, we can expect the requirements to be similar to those adopted by the UK and the EU. Namely, companies within scope will have to meet the four pillars of the TCFD recommendations:
Under TCFD, disclosure of Scope 1 and 2 emissions are mandatory and likely to form part of Canada’s requirements, with Scope 3 disclosure potentially to be phased in due to the challenge of data collection. Given that the mandate is targeted at a cross-section of the Canadian economy and public companies, it will have to be flexible enough to accommodate different sectors.
Quite possibly, TCFD supplemental guidance will be used or referenced, providing sectoral guidance to:
Scenario analysis (projections of the future based on data and science) are a key recommendation under TCFD. Scenario analysis helps companies develop adaptation strategies in response to plausible future scenarios and to stress test the resilience of the business.
Climate-related risks and opportunities will need to be accounted for in companies’ enterprise risk management framework, and the financial impacts from those risks should be included in the financial statements or annual filings.
Mandatory climate reporting provides the basis for understanding climate risks and opportunities, benchmarking mitigation plans and strategies, and progressing transition plans. A recognised international framework like the TCFD makes it easy to compare across entities, and we can expect more G20 nations to follow suit.
New Zealand was the first G20 country to legislate mandatory TCFD reporting, followed by the UK and France. The US Securities and Exchange Commission is looking to adopt requirements this year as well. By volume, Japan ranks first for the number of TCFD reporting companies.