The Climate Risk Management Guideline (the Guideline) published on July 4 by the Autorité des marchés financiers (AMF) is a new adoption by a Canadian regulator of the International Sustainability Standards Board (ISSB) standards, which were developed by the international community to facilitate consistent sustainability disclosure.
While the AMF's Guideline applies to licensed insurers, financial services cooperatives, licensed trust companies and other licensed deposit-taking institutions under the AMF's jurisdiction, this development may be indicative of the path Canadian securities regulators will take as they finalize forthcoming mandatory climate disclosure rules for publicly listed companies. We note that in March 2024, the Office of the Superintendent of Financial Institutions (OSFI) announced the alignment of its expectations for federally regulated financial institutions with the ISSB requirements regarding climate disclosure.
Highlights
The final version of the Guideline incorporates the ISSB standards, namely IFRS S1 (general requirements) and IFRS S2 (climate-related requirements).
This represents a significant change from the AMF's 2023 draft guideline, which was less complex and instead relied on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD has long been one of the most credible references for climate disclosure and while the ISSB based its standards on this framework, it went further by requiring mandatory disclosure of indirect greenhouse gas emissions, among other things.
The Guideline outlines the AMF's expectations with respect to climate matters for financial institutions under six broad themes: (1) governance, (2) integrated risk management, (3) climate scenarios and stress testing, (4) capital and liquidity adequacy, (5) fair treatment of consumers, and (6) climate-related financial risk disclosures.
- Regarding governance, requirements include an obligation for the board of directors to act competently and independently when addressing climate-related risks; to ensure that issues associated with climate-related risks are addressed when elaborating, for example, the main action plans, integrated risk management policies, annual budgets, performance objectives, climate risk management policies, and the remuneration policy for senior management and other key positions.
- Regarding fair treatment of consumers, financial institutions must ensure product descriptions and documentation are drafted in clear and plain language, including information regarding extreme weather events or climate-related risks that affect the target client group or particular product.
- The financial reporting requirements for climate-related risks essentially consolidate the requirements of IFRS S1 and IFRS S2, which include the disclosure of direct and indirect greenhouse gas emissions, i.e., scopes 1, 2 and 3, as well as a description of its strategy's resilience considering various climate scenarios.
The requirement to disclose emissions under scope 3 has been the subject of much criticism, particularly in the United States, for mandating the disclosure of indirect greenhouse gas emissions related to the company's value chain, such as its suppliers. This data is more difficult to collect and control.
Climate-related financial risks disclosure must be disclosed and synthesized in a report to shareholders or in a stand-alone report, made publicly available on the company's website.
Coming Into Force
The Guideline came into effect upon publication on July 4 of this year. However, for larger, more complex organizations, the required climate-related disclosures take effect 180 days after the end of financial year 2024. For smaller institutions, the start date will be the end of financial year 2025. Some requirements enter into force one year later, including requirements for the disclosure of emissions under scope 3.
The AMF will inform each financial institution under which category it falls.
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