March 14, 2023
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.
The TCFD’s recommendations1 for climate-related financial disclosures are structured around four pillars:
The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning.
The processes used by the organization to identify, assess and manage relevant climate-related risks.
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 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.
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.
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.
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.
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.