Navigating the sustainable finance regulatory agenda: Focus on Canada
Bloomberg Professional Services
This article was written by Cinzia Chiriac, Head of ESG Regulatory Affairs at Bloomberg.
Worldwide, regulatory agendas on sustainable finance are quickly unrolling, helping to drive capital flows toward more sustainable outcomes. How does that look in the case of Canada?
During recent Bloomberg’s Sustainable Finance Forum held in Toronto, I moderated a discussion focused on topics such as deepening diversity scope, enhancing corporate reporting and environmental, social, and governance disclosures, and new regulations that are helping to combat greenwashing in Canada.
Panel participants included Lisa French, vice president, Sustainability Standards, Canadian Sustainability Standards Board (CSSB), Jo-Anne Matear, head of Sustainable Finance, Ontario Securities Commission (OSC), and Javinder Sidhu, director of the Advanced Climate Analytics and Disclosures Team, Office of the Superintendent of Financial Institutions (OSFI).
OSC’s Jo-Anne Matear set the stage by reminding the attendees that we are living in a time of significant changes in investor behavior, technological advances, and economic conditions. It is the confluence of these factors that has investors seeking “sustainability-related information that can help them manage their risk and effectively manage their capital for value creation,” explained Matear.
“That is what we are working toward, bringing decision-useful information to investors. But we want to do that in a balanced way that takes into account the costs associated with preparing these disclosures and recognizes that different issuers have different capabilities and capacities.” To that end, two of the OSC’s priorities for 2024 and 2025 are corporate diversity and climate-related disclosures.
“Diversity has been a priority for the OSC for over a decade,” stated Matear. “There is a strong business case for having diverse perspectives around the table as it can improve corporate governance as well as decision-making. Our current corporate governance regime requires non-venture issuers to disclose the representation of women on their boards and executive roles, but it is time for that regime to evolve and take into account other aspects of diversity.”
Pivotal moment for regulation
In April 2023, the Canadian Securities Administrators (CSA), the country’s umbrella organization for its provincial and territorial securities regulators, published two proposals relating to diversity beyond women, which received mixed feedback. The CSA is now working on finding a harmonized path forward that meets the needs of the market.
It is indeed a pivotal moment with the first iterations of Canadian ISSB standards under consultation, after which the OSC plans to publish for comment a revised proposed rule anticipated to be based on the CSSB standards with modifications appropriate for the Canadian context.
“The OSC’s new vision is about working together to make our capital markets inviting, thriving, and secure. As part of that, our goal is to build trust throughout the sustainable finance ecosystem, and we’re doing that by trying to provide reliable and robust disclosures that can be used by investors and other stakeholders,” said Matear.
Looking to set a level playing field for the preparers of sustainability disclosures and establish the consistency and comparability the investor community needs, Lisa French stated that the CSSB plans to stick as closely as possible to the international baseline created by the ISSB, with changes for the Canadian context being made on an exception basis with well-defined and transparent criteria.
“With that in mind, the CSSB developed criteria for modification framework, which is currently out for public comment alongside the two exposure drafts of CSDS 1 and CSDS 2,” said French.
Since launching the consultation period on March 13, CSSB members and support staff have been focused on building awareness and educating the market. However, the CSSB is now pivoting, starting to glean information and gather data to inform its decisions.
Combating regulatory misunderstanding
Reflecting on how the Office of the Superintendent of Financial Institutions (OSFI) is helping institutions consider climate risk, Javinder Sidhu pointed to Guideline B15. Released by the OSFI in March 2023, the guideline sets expectations on internal processes for managing climate-related risks and offers a secondary component on mandatory public disclosures.
After highlighting climate-related risk as a transverse risk that impacts all traditional risks that institutions are usually exposed to, the OSFI will be collecting climate-related data directly from Federally Regulated Financial Institutions (FRFIs) on a confidential basis. “That data will be used to assess the vulnerabilities and opportunities that might exist within our institutions’ portfolios and how they can further take actions to address those risks and opportunities moving forward,” said Sidhu.
OSFI has also released a consultation on a standardized scenario exercise which will later be fully operationalized. In addition, the OSFI ran a self-assessment exercise where institutions were asked to self-assess how they are complying with Guideline B15 when it comes into effect at the end of this year. That information has been published in a report highlighting some of the key areas that institutions identified are challenges and areas where they are excelling.
New regulations are also helping to combat greenwashing. In January 2022, the CSA issued notice 81-334 regarding ESG-related investment funds disclosure, which was updated again in March of this year. “Our goal with that staff notice was to help fund managers better understand the regulatory expectations under our rules so that ESG claims are not exaggerated, unsubstantiated, or misleading,” said OSC’s Matear.
“Ultimately, the aim is to improve the clarity of disclosures to protect investors from greenwashing and also to help them to make informed investment decisions that align with their investing preferences,” added Matear.