In November 2022, we discussed the upcoming mandatory climate reporting requirements affecting lenders and insurance companies. The first of those required climate reports will begin in 2024 and the reach of this new reporting will go well beyond the financial community.
Climate Reporting Rule Background
On March 7, 2023, the Office of the Superintendent of Financial Institutions (“OSFI”) issued Guideline B-15: Climate Risk Management. According to McCarthy Tetrault, “The Guideline sets out OSFI’s expectations on climate-related risk management and disclosure by federally regulated financial institutions (“FRFIs”) such as banks and federally regulated insurers. The Guideline applies to all FRFIs except foreign bank branches.”
Purpose of Reporting Requirements
The requirements aim to ensure that financial institutions in Canada are ready for climate-related risks. These requirements are two-fold. One goal is the physical risks, such as an increased frequency of extreme weather events and “indirect effects of climate change such as public health implications.” The second goal of the reporting requirement is the transition risks associated with energy transition, such as financial risks due to changing government regulations and “changes in market and customer sentiment towards a low-GHG economy” associated with climate change.
Information Required
Examples of what information must be disclosed include
Governance – Describe the board of directors’ oversight of climate-related risks and opportunities.
Strategy – Describe the climate-related risks and opportunities the FRFI has identified over the short, medium, and long term.
Risk Management – Describe the FRFI’s processes for identifying and assessing climate-related risks.
Metrics and Targets – Disclose the metrics used by the FRFI to assess climate-related risks and opportunities in line with its strategy and risk management process
For complete details regarding reporting requirements and the phased-in approach see, “Annex 2-2 – Minimum mandatory climate-related financial disclosure expectations.”
Reporting requirements associated with greenhouse gas emissions come into effect this year across Canada. As the reporting requirements expand, this will likely affect a growing list of companies.
Emissions Reported
As specified under “Metrics and Targets,” larger institutions must disclose their annual Scope 1 and 2 greenhouse gas emissions, with Scope 3 numbers to follow by the end of 2025.
Scope 1 emissions are direct emissions from a company
Scope 2 emissions are indirect emissions such as purchased energy
Scope 3 emissions are value chain emissions (emissions by your vendors). They often represent the majority of an organization’s total GHG emissions. This can include purchased goods and services, business travel, employee commuting, and more.
The Rule Will Affect More Companies
The Scope 3 emissions can reach far beyond the regulated entity and are often controversial. For example, in the United States, the Security and Exchange Commission (SEC) recently finalized a similar rule that requires publicly traded companies to report Scope 1 and 2 emissions. The requirement for Scope 3 emissions was removed just before the rule was finalized.
The American Farm Bureau wrote of the Scope 3 emissions, “…the SEC would be granted unprecedented jurisdiction over America’s farms and ranches, potentially creating onerous compliance requirements for even small farms and ranches with few or no employees.”
Read more about Scope 3 emissions – “Government of Canada’s Greenhouse Gas Emissions Inventory.”
Climate Reporting Requirements for Companies Not Located in Canada
According to Persefoni, a climate management and carbon accounting firm, the reporting requirements will extend beyond the borders of Canada:
“Companies outside of Canada will be affected in two ways. First – and most importantly – companies outside of Canada that do business with Canadian banks and insurers will likely see requests for data on their emissions profiles. As part of the requirement to measure Scope 3 financed emissions, Canadian financial institutions will need to collect data from businesses around the world. Just like companies in Canada, companies outside of Canada that do business with Canadian banks and insurers will likely also face increasing pressure to share data on their GHG emissions. The second impact on foreign entities is more direct: these new guidelines will directly impact foreign insurers with Canadian branches.”
Reporting Dates
The reporting dates to keep in are as follows:
- September 2024: Public reporting deadline for Canada’s largest banks and insurers under OSFI Guideline B-15
- September 2025: Public reporting deadline for the rest of the 350 federally regulated financial institutions covered by OSFI Guideline B-15
Reporting requirements associated with greenhouse gas emissions come into effect this year across Canada. As the reporting requirements expand, this will likely affect a growing list of companies.
If you need assistance with an environmental issue, contact Christopher Pare’, P.Geo. Q.P. at 519-948-7300, Ext. 114.
Dragun Corporation does not use artificial intelligence in drafting our blogs or any other material.
Alan Hahn drafted this blog. Alan holds an undergraduate degree in Environmental Studies and completed a graduate program in Environmental Management. He has worked in environmental management for more than 45 years. He has written hundreds of blogs and articles. His published work includes HazMat Magazine, BizX Magazine, Michigan Lawyers Weekly, GreenStone Partners, Manure Manager Magazine, and Progressive Dairy.
Christopher Paré, P.Geo, reviewed this blog. Chris is a senior geoscientist and manager of Dragun’s Windsor, Ontario, office. Chris has more than 30 years of experience on projects ranging from environmental site assessments (Phase One/Two ESA), excess soils, remedial investigations, soil and groundwater remediation, Permits to Take Water, Records of Site Conditions, vapour intrusion, and site decommissioning. Chris is a frequent speaker, author, and expert witness. See Chris’ bio.
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