Home Blogs Paul Lansbergen Increasing Expectations in Disclosing Climate-Related Risks

Increasing Expectations in Disclosing Climate-Related Risks

Do you know how your company is reporting climate-related risks in financial disclosures? Like everything else climate change, there is no simple answer. Here are some developments to think about as you consider your obligations and meeting the increasing expectations of stakeholders.

Back in 2010 the U.S. Securities & Exchange Commission (SEC) issued interpretative guidance on the topic. The Canadian Securities Administrators staff notice on environmental reporting guidance is more general but does cover climate related risks. SEC highlighted four areas of where climate change may trigger disclosure requirements: 1) Impact of legislation and regulation; 2) impact of international accords; 3) indirect consequences of regulation or business trends; and 4) physical impacts of climate change. The first of these four was the easiest for companies to determine how they should report. However, the last one has been the most difficult because the science hasn't been sufficiently certain for companies to identify material impacts with any certainty themselves.

In March 2017 the Canadian Securities Administrators launched a climate change disclosure review project. The project will review mandatory requirements in Australia, the UK and the U.S. as well as four voluntary frameworks. This project is not yet complete. Keep an eye out for this.

Perhaps more importantly, expectations of financial community stakeholders have grown and considerable effort has been expended to develop guidance on how to apply the science to determine more specific impacts on Canada's forests. Let's look at both of these.

The Canadian Public Accountants have released a study reviewing current climate-related disclosures by Canadian publicly-traded companies. The forest products industry was not covered but you might be interested in disclosure practices of the banking and insurance sectors as those disclosures may provide insights on how they view downstream risks of their clients – including forest products companies.

The industry-led Task Force on Climate-related Financial Disclosures of the Financial Stability Board released in July its recommendations on climate-related disclosures. This raises the bar on expectations. However, the Task Force did try to balance out the burden on companies vs encouraging more widespread reporting that is consistent and comparable.

Looking at the science, the Canadian Forest Service, through its Forest Change program, have research results and practical tools to help forest managers. The government team has selected 7 indicators – drought, fire weather, growing season, distribution of tree species, fire regime, tree mortality, and cost of fire protection. Companies should compare the indicator outlooks to their own experiences to determine the risks and corresponding financial disclosures. But companies still have to consider climate impacts on their facilities, supply chains, and markets. One example could be a variety of infrastructure failures during more extreme weather events. Here are links to two reports that highlight climate-related infrastructure risks: IISD, 2013 and U.S. NCA, 2014.

I suggest executives discuss their current disclosure practices in light of these trends and in relation to their fiduciary duty, disclosure obligations, and investment strategies. Lastly, don't forget adaptation strategies to manage identified risks!


Paul Lansbergen has over 20 years' experience in public policy, advocacy and association leadership.
For the last 15 years, Paul was an integral part of the senior management team at the Forest Products Association of Canada. He is recognized for his strategic and operational corporate knowledge, as a consensus builder, and as a progressive leader.
Paul is a Certified Association Executive (CAE) and has two degrees in Economics. Paul is based in Ottawa, Ontario, Canada.

 
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