In its Advisory Report – Facing the Elements: Building Business Resilience in a Changing Climate, the National Round Table on the Environment and the Economy provides a fascinating insight into the way different business sectors perceive, and disclose, the risks associated with climate change.
The report found that voluntary responses by Canadian businesses to the Investor Carbon Disclosure Project (CDP) varied widely by sector. For example, the financial services and insurance sector tended to report high levels of perceived risk and perceived opportunity in a wide range of areas. The natural resources and mining sector showed moderate concern and were more likely to focus on the impact of physical changes, such as limited access to facilities due to unreliable use of winter roads or potential opportunities in warmer Arctic weather. The energy sector was the least likely to report possible opportunities, and it was not uncommon for firms in this sector to be more concerned with the risks of GHG mitigation policy than the risk of possible physical changes.
This mixed awareness of risks is particularly interesting, from a legal perspective, in light of the requirement that publicly traded companies must report material risks and associated management actions to investors under continuous disclosure obligations.
The report found that despite guidance from Canadian Securities Administrators regarding environmental disclosure obligations, “climate change risk disclosure in financial filings is limited, at best.” The authors note:
“Our analysis of 2010 annual securities filings of 35 issuers across seven industries revealed limited climate change disclosure, including of physical climate change risk and adaptation strategies. Even when issuers discuss how severe weather events or water availability affect their business operations, they rarely link these to broader climate trends, despite the weight of scientific evidence on current and projected climate change impacts. In some cases, businesses acknowledge climate change-related risks in voluntary reports, providing only minimal or boilerplate disclosure in their mandatory reports.”
This section of the report concludes:
“Insufficient disclosure presents information challenges for investors and enforcement questions for securities regulators. For investors to make informed decisions about the risks a business faces from a changing climate (let alone attempt to influence such positions), businesses must disclose these risks and their management strategies to investors in their mandatory financial filings. Relative to risks from GHG emissions mitigation policy, risks from future physical impacts of climate change are becoming increasingly certain, at least in a directional sense. A rise in demand for greater disclosure on adaptation by the investing public and other stakeholders is soon to follow. Limited recognition of material risks from a changing climate by the insurance companies assessed is a particular concern since failure to incorporate climate change risk in underwriting could have knock-on implications for the performance of investments.”
As we have written before, regarding municipal liability for flooding, where a climate related risk is foreseeable, it may give rise to a claim in negligence. This report further emphasizes the importance of understanding, managing, and reporting climate related risk for Canadian businesses.
The federal Conservatives are eliminating the National Round Table on Environment and Economy, presumably because the NTREE has persistently taken the climate change issue seriously. It will be much missed.
The Climate Change Lawyers Network, which assisted with portions of the report , will be hosting an evening with the NRTEE and Ceres to discuss the report on June 5, at 5:30 at 199 Bay Street, Suite 4000, Commerce Court West, Toronto. All are welcome.
by Meredith James