"The level of disclosure goes well beyond just emissions"
As environmental, social and governance disclosure requirements evolve from voluntary to mandatory, businesses are putting measures into place to prepare for the shift in the disclosure landscape.
“We are telling clients that they need to be increasingly monitoring developments around climate disclosure obligations,” says Bill Gilliland, partner at Dentons Canada LLP. Gilliland is a speaker at Canadian Lawyer’s ESG Summit on Oct. 12. This includes both the Canadian Securities Administrators’ proposals as those develop, as well as new standards set by the International Sustainability Standards Board. Businesses should also be aware of new proposals surrounding diversity disclosures, Gilliland adds, in addition to new legislations surrounding modern slavery in the supply chain, which will come into force in 2024.
Getting ahead of the game is key for in-house legal departments, Gilliland advises.
“As the shift occurs, there will need to be changes made, even by those companies that have historically been making extensive voluntary disclosures,” he says. “Companies are going to need to disclose the work they have done already to ensure there is no modern slavery within their supply chain, so there’s a lot of work to do there in addition to just figuring out what the actual report has to look like.”
Gilliland notes that businesses also need to be aware of timing implications which may vary depending on whether it is a private or public company, and under which statute it is incorporated. Public companies may have to make their disclosure earlier in the year compared to their previous disclosure dates, and disclosure documents will have to go through board review and approval from the company CEO and CFO.
“These are all things that take some time to change within an organization, and so I think it’s really critical that companies get going – especially public companies,” says Gilliland.
Gilliland is preparing clients across all industries for mandatory climate-related disclosures – not just energy companies. Ultimately, he says they should be preparing for climate-related opportunities and risk, incorporating both physical risks as well as transition risks. Physical risks may include climate-related events which can impact the supply chain, such as a flood or a landslide which prevents inventory from being delivered. All such risks will have to be described and evaluated in a company’s overall risk management system.
“The level of disclosure goes well beyond just emissions,” says Gilliland. “We are telling companies that they need to incorporate climate risks into their overall strategies.”
One of the biggest challenges facing Canadian companies is having the correct resources and expertise internally to address the changing disclosure requirements, so this will have to be carefully reviewed to see if third-party assistance is needed.
Gilliland warns that companies also face a risk with regard to reporting on scope 3 emissions as they are out of the direct control of the company.
“A company will have to be careful how it words disclosure around some of these areas to protect itself from the typical type of litigation and regulatory claims that could be made against them for misrepresenting themselves,” he says.
“When you make your disclosure, make sure it is thoughtful, and that there is appropriate backup in the work being done – which comes back to starting early – and ensure you do have the right resources available to come up with that disclosure.”
