Federal government plans mandatory climate disclosures for large private CBCA companies and voluntary sustainable investment guidelines

On October 9, 2024, the Government of Canada announced plans to enhance corporate sustainability and transparency for investors through

1. mandatory climate-related disclosure requirements for large federally incorporated private companies
2. “made-in-Canada” sustainable investment guidelines for “green” and “transition” investments

Planned climate disclosure obligations under the CBCA

The push for federally mandated climate-related disclosures began in 2021 when Prime Minister Justin Trudeau tasked his Cabinet with creating a reporting framework aligned with the Task Force on Climate-related Financial Disclosures. In 2022, it was announced that federally regulated financial institutions would be required to publish climate disclosures starting in 2024.  

In the meantime, the Canadian Sustainability Standards Board is expected to finalize a voluntary climate-related disclosure framework based on international standards before the end of this year and the Canadian Securities Administrators (CSA) will thereafter be reproposing rules for mandatory climate-related disclosures by Canadian public companies. Now, planned amendments to the Canada Business Corporations Act (CBCA) seek to expand upon those measures by also bringing large privately owned CBCA companies into a mandatory reporting framework, with the stated goal of helping them to attract private sector capital and helping investors better understand how large businesses are thinking about and managing risks related to climate change.

So far, there are not many details available, such as specifics of the disclosure requirements and the threshold for a “large” company. Those items will be addressed through the regulatory process involving multiple federal departments. Small- and medium-sized enterprises (SMEs) will not be required to comply with the planned climate-related disclosure requirements. However, the federal government is exploring ways to encourage voluntary disclosure among these SMEs. Further details on timing, processes and substantive requirements have yet to be announced, although the government has said that it intends to harmonize the CBCA requirements with those that the CSA will require of Canadian public companies. It is not yet clear whether provincial governments will introduce similar requirements under provincial corporate statutes.

‘Made-in-Canada’ sustainable investment guidelines

Alongside the planned CBCA amendments, the Canadian federal government will also roll out voluntary sustainable investment guidelines that investors and lenders can use to help them categorize their investments. This taxonomy will classify “green” and “transition” economic activities based on scientifically established criteria, seeking to provide investors with a clearer framework to evaluate whether a company’s activities support Canada’s net-zero objectives.

The taxonomy will be developed and overseen by one or more external third-party organizations, initially targeting key sectors such as electricity, transportation, buildings, agriculture and forestry, manufacturing, mineral extraction and processing and natural gas. This classification system aims to channel investments into projects that support Canada’s transition to net-zero emissions. “Green” investments would encompass low- or zero-emission activities, while “transition” investments would align with credible pathways for decarbonizing emissions-intensive sectors.

Takeaways

The federal government’s planned CBCA amendments and sustainable investment guidelines mark another significant step towards widespread climate-related disclosures to the Canadian marketplace. Climate-related disclosures are not yet compulsory in Canada (other than for certain federally regulated financial institutions), but they soon will be, and not just for Canadian public companies.

While many important details about the nature and reach of those disclosure requirements remain to be clarified in the near future, now is the time for Canadian companies to mobilize their compliance game plans, a process which begins with assessing climate-related talent gaps, any required changes to the corporate governance and oversight function and embedding climate-related matters in existing enterprise-wide data and information gathering procedures.