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Climate change considerations are looming large in corporate boardrooms as directors grapple with emerging reporting rules.

The latest development came last week with Mark Carney’s announcement at the COP26 summit in Glasgow of the Global Finance Alliance for Net Zero (GFANZ), whose signatories, including major Canadian banks, have committed to achieving net-zero carbon emissions across their assets by 2050. That means clients seeking investments or loans from banks (not to mention insurance companies, pension funds, etc.) will also have to have their reporting ducks in a row.

Most of Canada’s big banks have begun setting their own net-zero goals earlier. For them, as for all corporations, effective climate governance means adopting strategic plans to manage the risks and opportunities, setting clear targets for emissions reductions and reporting on progress, embedding climate-related information in their financial statements, and being accountable for meeting promises.

As it is, most companies in Canada adhere to International Financial Report Standards (IFRS), under which directors and officers need to account for material climate-related risks across 11 accounting standards. IFRS is set to announce a new International Sustainability Accounting Standards Board next month, and top of the list will be promulgating new global accounting standards for climate risk.

Recently, the Canadian Securities Administrators proposed mandatory climate-related financial disclosures for all publicly held companies based on the Taskforce on Climate-related Financial Disclosures (TCFD) framework.

Now, Canada has an opportunity to catch up to many of the G20 countries that are well ahead on regulatory change to accelerate transition.

A brief I wrote for the C.D. Howe Institute earlier this year focused on why Canada’s economic recovery post-coronavirus pandemic must take shape alongside its commitment to achieve net-zero carbon emissions, observing that directors risk failing in their duties to the corporation if they do not identify and manage climate risks.

Climate change is materially impacting 72 of 77 industry subsectors. We need climate action plans to address physical risks such as growing acute events — flooding, storms and wildfires — that are increasingly disrupting businesses and harming communities. Transition risks from climate change continue to grow, including market risks and financial and reputational risks due to changing consumer and investor preferences.

Globally, there have been 2,000 climate-related lawsuits against governments, companies and their directors and officers for breach of fiduciary obligation, failure to disclose material financial risks to investors or tort claims as a result of losses. Canadian directors must act proactively before these lawsuits grow in Canada.

The duties of corporate fiduciaries in Canada are very clear. Directors and officers must act in the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. The Supreme Court of Canada has consistently ruled for 20 years that best interests of the company include considering the company’s sustainability, the company as a good corporate citizen and the ability of directors to take account of the interests of multiple stakeholders and the environment.

Directors therefore need to consider the risks, now well documented by both the scientific and investment communities, determine what is material to the business, and have a strategy to minimize such risks and capture any opportunities presented by new technologies and energy-saving innovations. Balancing different time horizons for strategies, managing risks and opportunities, and different stakeholder concerns is a key responsibility of directors and officers, and as information on climate risk continues to become available, these decisions can be complex.

At the political level, the will to address climate change is strengthening. During the recent federal election, the platforms of all the major parties shifted climate policy to the fore, recognizing the urgency of addressing climate-related physical and financial risks. Parliament has therefore been given a strong mandate to move ambitiously on climate change at every level within its constitutional authority.

While debate remains on the specific policies and how they should be designed given economic realities, such as the pace of energy transition, Parliament has a critically important opportunity to pull together business, finance and civil society organizations to move Canada to net-zero carbon emissions.

At the regulatory and policy level, however, Canada has not kept pace with changes globally. The United Kingdom, New Zealand and European Union and its member states are implementing mandatory disclosure and management of climate risks for publicly traded companies, large private companies and financial firms. Many companies are now moving beyond net-zero emissions targets to developing plans to become climate positive, reducing more greenhouse gas emissions than the company’s value chain emits, and they are being rewarded by investors and consumers with increasing financial returns and access to capital. Investors are shifting their investments to renewable energy, energy-efficient transportation and manufacturing technologies, low-carbon innovations and a massive reduction of waste.

The failure of federal and provincial regulators to create a level playing field for businesses to transition and to give clear signals to capital markets remains a barrier to Canada capturing new economic opportunities. RBC recently reported that $2 trillion is needed to support Canada’s transition to net zero and that capital is not in short supply, but a lack of consistent and reliable policies impede Canada’s ability to attract private capital to finance the transition and seriously scale up investible projects. Investors need clear and consistent policies that allow them to make the investment decisions to support rapid growth.

Now is the time to implement policies that are responsive to business, finance and civil society, transitioning the economy in a way that is just and equitable and shifts Canada’s current trajectory on global warming and its devastating impacts on communities and the economy.

Canada’s corporate boardrooms have a crucial role to play.

Janis Sarra is a professor of law at the University of British Columbia and principal coinvestigator, Canada Climate Law Initiative. She is the C.D. Howe Institute author of Duty to Protect: Corporate Directors and Climate-Related Financial Risk.