How Canadian companies can prepare for TCFD reporting requirements

Sarah Marsh, Partner, National ESG Report and Assurance Leader, PwC Canada
Scott Morrison, Director, ESG and Sustainability, PwC Canada

Investors, regulators and other stakeholders want to understand how Canadian companies are managing their climate-related risks and opportunities. And they’re turning to companies’ public disclosures in search of clear, comprehensive and comparable climate-related financial information.

We’re seeing leading Canadian organizations responding to these rising expectations by adopting the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) in their climate reporting. These companies clearly define their sustainability strategy, disclose science-based targets linked to climate risks and opportunities, and perform climate scenario analyses that are based on the unique characteristics of their operations and industry.

We recently studied and benchmarked the ESG reporting of Canada’s top 250 public companies.

We found 59% of these companies don’t mention TCFD or its principles in their disclosures, despite the increasing interest from investors and stakeholders.

This suggests many Canadian companies don’t yet appreciate the importance of the TCFD framework and why they should apply it.

What’s the TCFD framework?

The TCFD’s recommendations¹ for climate-related financial disclosures are structured around four pillars:

Governance

The organization’s governance around climate-related risks and opportunities.

Strategy

The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning.

Risk management

The processes used by the organization to identify, assess and manage relevant climate-related risks.

Metrics and targets

The measurements and goals used to assess and manage relevant climate-related risks and opportunities.

Why Canadian companies need to act on TCFD now

As stakeholders use companies’ climate disclosures for decision-making, regulators around the world are requiring organizations to adopt the TCFD framework in their reporting. And investors expect companies to take notice. Nearly three-quarters (73%) of investors in Canadian companies say managing regulatory risks is an important factor in including sustainability in their investing decision, according to our most recent Global Investor Survey.

But research² shows only 15% of TSX-listed companies are fully aligned to the TCFD framework. That compares to 81% of publicly traded companies in Europe, where regulators already require companies to disclose their climate risks. Other jurisdictions are following suit. For example, the U.S. Securities and Exchange Commission published ESG draft disclosure rules that are influenced by the TCFD recommendations. We’re also seeing similar moves within Canada.

In its 2022 budget, the Canadian government committed to mandating companies to report climate-related financial risks. As a result, we’ve seen several regulatory developments in Canada that draw on the TCFD framework:

Canadian Securities Administrators (CSA): The CSA proposed a new regulation, 51-107 Disclosure of Climate-related Matters, which will require public companies to disclose climate risks and opportunities based on the TCFD recommendation starting as early as 2024. The CSA received comments on the proposition and is reviewing the measures planned and enacted by the SEC and other international regulators. The CSA’s final regulation is expected in 2023.
Office of the Superintendent of Financial Institutions (OSFI): OSFI’s draft climate risk management guideline was released in May 2022. It outlines the expectations for federally regulated financial institutions’ (FRFIs) management of climate-related risks. In addition to required governance and risk management processes, FRFIs are required to disclose information aligned with the TCFD framework to regulators. OSFI published the first iteration of final Guideline B-15 in March 2023, with plans to review and amend it as practices evolve³.

Crown corporations: Large Canadian government organizations with more than $1 billion in assets had to release their climate disclosures in 2022. All other Crown corporations are expected to report according to the TCFD framework by 2024.
ISSB: The ISSB has issued exposure drafts regarding its proposed IFRS Sustainability Disclosure Standards: The General Requirements for Disclosure of Sustainability-related Financial Information and Climate-related Disclosures. These two exposure drafts are based on the TCFD’s four pillars. At its February 2023 symposium in Montreal, the ISSB made its final decisions on all the content of its initial standards, with issuance expected in June 2023⁴. The Canadian Sustainability Standards Board (CSSB) is being formed with a mandate to develop and support the adoption of international sustainability standards in Canada.

Where should Canadian companies start?

Canadian companies can focus on several important areas to meet these new requirements. They include:

Decision-making: Formalize climate-related priorities within accountability structures to make sure it’s considered when setting strategy. This can be done through training and defining responsibilities and competencies of each decision-making party. Ensure each body has a clear understanding of the responsibilities and communication structure between committees, groups and roles.

Control and processes: The processes your organization uses to identify, assess and manage your climate risks and opportunities should be embedded into your overall enterprise risk management process.

Engage with your stakeholders: Identify what’s material for your company to identify priority areas of risk and opportunity, to focus efforts and impacts, and make your reporting relevant. Engaging stakeholders and obtaining their feedback also helps develop knowledge around climate-related risk.

Data: Securing relevant and robust data is key for both TCFD reporting and monitoring corporate progress. Work to improve data quality and availability, following global best practice standards and protocols, based on your most material impacts and associated metrics.

Preparing for assurance: Obtaining external assurance of climate disclosures helps organizations build trust through their ESG reporting. Companies can improve their assurance-readiness by training key members within their organization about what it means to go through an assurance process.

A tech-enabled TCFD assessment

We’re seeing organizations with high levels of ESG reporting maturity take a human-led and technology-powered approach to automate the collection of ESG data and prepare for new climate-related reporting requirements. Digital TCFD assessment platforms can be used to analyze your reporting and produce dashboards that show the results. This helps compare your performance to leading Canadian examples of TCFD disclosures and identify areas for improvement.

These efforts can increase investor confidence in your organization by demonstrating you’re preparing to comply with new regulatory requirements and are strengthening your climate-related business processes and controls. It can also identify opportunities to increase your enterprise value through a broader transformation of your strategy and operations that aligns your organization with a sustainable low-carbon future.

Are your disclosures aligned with the TCFD framework?

Contact our team to help you assess gaps in your ESG reporting

PwC Canada’s TCFD assessment

Our TCFD reporting assessment helps you understand your readiness to report against climate disclosure standards, identify potential gaps in your current state and build a roadmap of prioritized climate risk management and disclosures initiatives. Our digital tool also lets you see the alignment between your disclosures and the TCFD framework, as well as compare your reporting to other Canadian companies.

Explore our approach to ESG

Thank you to Aissata Diallo, Manager, ESG - Reporting and assurance at PwC Canada, for her valuable contribution to this blog.

^{1 “TCFD Recommendations,” Task Force on Climate-related Financial Disclosures, accessed January 27, 2023, https://www.fsb-tcfd.org/recommendations.}

^{2 “TCFD Insights Series,” CDP, accessed January 23, 2023, https://www.cdp.net/en/guidance/how-cdp-is-aligned-to-the-tcfd/tcfd-insights-series.}

^{3 https://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/sp-ds/Pages/pr20230109.aspx.}

^{4 Mark Segal, “IFRS Chair: Global Sustainability and Climate Reporting Standards to be Released in June,” ESG Today, January 19, 2023, https://www.esgtoday.com/ifrs-chair-global-sustainability-and-climate-reporting-standards-to-be-released-in-june.}