(Bloomberg) -- The US Securities and Exchange Commission’s plan requiring companies to comply with a set of climate-related disclosures is set to become a de facto standard for most large corporations in Canada, according to an analysis by Toronto-based consultancy firm ESG Global Advisors.
That’s because the SEC’s draft regulation is stricter than a similar plan being circulated by the Canadian Securities Administrators. The US plan requires disclosure of potential financial impacts of severe weather events, transition, as well as assumptions used for those stress tests, Sarah Keyes and Dustyn Lanz said in a report Thursday.
There are over 200 Canadian firms listed both in the US and domestic markets ranging from oil producers Suncor Energy Inc. and Cenovus Energy to the large telecom companies Rogers Communications and BCE. Also the US bond market is a major funding source for Canadian corporations with over $72 billion raised in dollars so far this year, according to data compiled by Bloomberg.
“The SEC’s proposed regulations are far more rigorous than the CSA’s,” said Keyes and Lanz, the chief executive officer and senior adviser at the firm, respectively. “Therefore, unless dramatic changes are made, the SEC’s climate disclosure rules will likely become the go-to disclosure framework for cross-listed issuers.”
The SEC released its plan for issuers in March, followed by a parallel proposal for investment funds last month. In October, the CSA requested feedback from market participants on a proposed set of climate-related disclosures from issuers other than investment funds.
If the SEC regulation is enacted, issuers will have to carry out a mandatory evaluation and disclosure of the potential financial impacts of severe weather events, transition, and mitigation activities. In the case that those can produce a change of 1% or more to any line item in the financial statements, this would need to be disclosed in a note in financial statements. In addition, securities issuers will need to disclose the assumptions used for their projections. In contrast, the CSA draft has no requirement to disclose financial statement impacts based on a quantitative threshold.
Under the SEC proposal, if an issuer uses climate scenario analysis, it should disclose parameters, assumptions and projected financial impacts, as well as the volume of carbon offsets to reach emission reduction targets. These requirements are not included in the proposal from the Canadian regulators, the report said.
“Compliance with the SEC’s proposed rules would cover nearly all the CSA’s proposed rules,” the report said. “Cross-listed companies that comply with the SEC’s proposed rules while also disclosing their targets and exposure to climate-related opportunities would likely be operating in compliance in both Canadian and US markets.”
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