Audit Committees andEffective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORS

By Janis Sarra
With contributions from: Roopa Davé, Meghan Harris-Ngae, Ravipal BainsABOUT THE CANADA CLIMATE LAW INITIATIVEThe Canada Climate Law Initiative examines the legal basis for corporate directors, officers, pension fiduciaries, and asset
managers to consider, manage, and report on climate-related financial risks and opportunities, advancing knowledge on
effective climate governance practice and exploring the scope and limits of fiduciary obligation in respect of climate change.
It is a collaboration of the University of British Columbia (UBC) Centre for Business Law and Osgoode Hall Law School, York
University; and is the Canadian partner of the global Commonwealth Climate and Law Initiative, Oxford University, United
Kingdom. The Canada Climate Law Initiative is financially supported by the McConnell Foundation, Ivey Foundation, North
Family Foundation, Trottier Foundation, Jarislowsky Foundation, UBC and York Universities.
The Canada Climate Law Initiative acknowledges that the UBC Point Grey campus is situated on the traditional, ancestral, andunceded territory of the xwməθkʷəy̓əm (Musqueam).

ABOUT THE AUTHOR
Dr Janis Sarra is Professor of Law, Peter A Allard School of Law, University of British Columbia, and Principal Co-Investigatorof the Canada Climate Law Initiative. She was the founding Director of the National Centre for Business Law and held theposition of Presidential Distinguished Professor of the University of British Columbia from 2014 to 2019.

ABOUT THE CONTRIBUTORS
Meghan Harris-Ngae is a Partner at Ernst & Young in Calgary, leads EY’s Climate Change and Sustainability practice forWestern Canada, and is a Canadian Climate Governance Expert.
Roopa Davé is a Partner in KPMG’s Sustainability Services practice in Vancouver, sits on the board of directors of the Circular
Mining Association, previously taught sustainable accounting and finance at BCIT, and is a Canadian Climate GovernanceExpert.
Ravipal S Bains is a lawyer with McMillan LLP, practicing in the fields of corporate governance, mergers and acquisitions,and corporate finance, and is a Canadian Climate Governance Expert. The views and opinions expressed herein are thecontributor’s and do not necessarily reflect the official views and opinions of McMillan LLP, nor do they constitute legal advice.

ACKNOWLEDGEMENTS
Our sincere thank you to our contributors, who offered their insights on the draft and made invaluable recommendations
regarding questions for audit committees to ask themselves. Thank you also to Gigi Dawe, Patricia O’Malley, Sarah Barker, Ellie
Mulholland, Carol Liao, Niamh Leonard, Oujala Motala, and Cynthia Williams for their helpful comments on a draft of thisguide. Graphic Design by Gregory Ronczewski, Emplus.

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IN BRIEF

Audit committees are critically important to effective climate governance. While the board of directors has responsibility foroversight of the company’s strategic planning, business plan, risk management, and integrity of its public disclosures, its audit
committee is commonly delegated responsibility to undertake detailed scrutiny and oversight of financial reporting processes,
including the company’s financial statements. The audit committee thus has a key role in determining how the company’s
strategies and financial results are communicated to investors, regulators, and other stakeholders. Given the growing direct
and indirect financial impacts of climate change, directors have a duty to adopt a climate action strategy to tackle what
Canadian courts have called ‘an existential threat to human civilization and the global ecosystem’.
Canadian securities regulators have been clear that climate change is now a mainstream business issue and that companies
must disclose material climate risks and how they are addressing them. They have cautioned companies that boilerplate
disclosure of climate-related financial risks is no longer acceptable. In exercising their duties as directors, the board can
allocate oversight of climate-related risks and opportunities to one or more committees of the board, and audit committees
have a central role in ensuring the company is comprehensive and accountable in its financial reporting of climate-related
financial risks and opportunities.
This guide draws together current legal and best practice guidance for audit committees, to assist them in taking a leadershiprole in effective climate governance. The guide can also be used by the board, its risk committee or any other committees
that the board has assigned oversight to, always understanding that it is the board of directors that is ultimately responsible
for oversight and management of climate change in the best interests of the company. External auditors are increasingly
integrating climate issues into external audits, and it is only a matter of time before they will raise climate issues as a ‘key
audit matter’ for some entities, so the audit committee must be prepared. The guide offers a series of questions that the audit
committee can ask, in terms of assuring itself that financial reporting accurately reflects the company’s governance, strategicplan, risk management, and metrics and targets relating to climate change.

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CONTENTS

Glossary of Terms
Introduction

5
6

II.

The Legal Framework under which Canadian Audit Committees Operate
1.
Materiality Considerations

9
12

III.

The Development of Reporting Frameworks and Voluntary Standards
1.
Frameworks for Climate Disclosure
2.
Voluntary and Best Practice Reporting Standards and Guidance

18
19
21

IV.

The Evolution of the Audit Committee’s Role

24

I.

V.

Guide to Audit Committee Best Practices in Climate Governance1.
Identify Significant/Material Risks to, and Opportunities, for the Business			
i. Physical Risks Due to Climate Change
			ii. Transition Risks
				A. Market risk
				B. Technological risk
				C. Regulatory risk
				
D. Social risk and changing stakeholder preferences
				E. Litigation risk
2.
Questions for the Audit Committee to Ask			i. Oversight – Capability, Robust Process, and Methodology
			ii. Reporting – MD&A			iii. Reporting – Financial Statements

27
30
31
33
33
35
35
36
37
38
38
40
41

VI.

43

Key Takeaways

VIII.

Appendix
1.
Drilling Down Further – Additional Questions for Audit Committees
2.
Direction from Canada Securities Regulators on Disclosure of Climate-related Risks
3.
Audit Committees and Guidance from the TCFD Framework					i. Governance			ii. Strategy
			iii. Risk Management
			iv. Metrics and Targets
			
v. Scenario Analysis under the TCFD Framework4.
Dealing with Uncertainty in Financial Reporting5.
How the World Economic Forum 2020 Metrics Align with the TCFD and Other Frameworks
References
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46
48
51
51
52
52
53
54
55
57
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GLOSSARY OF
TERMS

AIF		

annual information form

CCLI

Canada Climate Law Initiative

CDSB		

Climate Disclosure Standards Board

CSA		

Canadian Securities Administrators

ESG		

environmental, social and governanceEU		European Union

GAAP		

generally accepted accounting principles

GDP		

gross domestic productGHG		

greenhouse gases

GRI		

Global Reporting Initiative

IAASB		

International Auditing and Assurance Standards Board

IAS		International Accounting Standards (a component of IFRS)IASB		

International Accounting Standards Board

IFAC 		

International Federation of Accountants

IFRS		

International Financial Reporting Standards

IIRC		

International Integrated Reporting Council

KPI		

key performance indicators

MD&A		

management discussion and analysis

NDC		

nationally-determined contributions

NI 52-102

National Instrument 51-102 Continuous Disclosure Obligations

NI 52-109

National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings

NI 52-110

National Instrument 52-110 Audit Committees

SASB		

Sustainability Accounting Standards Board

TCFD		

Taskforce on Climate-related Financial Disclosures

TSX		

Toronto Stock Exchange

TSXV		TSX Venture Exchange

UK		

United Kingdom

UN PRI		

United Nations’ Principles for Responsible Investment

US		

United States

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I.		 Introduction

Audit committees are a fundamentally important part of a company’s governance structure. While the board of directors
has responsibility for the oversight of the company’s strategic planning, business plan, risk management, and the integrity ofcorporate reports, its audit committee is commonly delegated responsibility to undertake detailed scrutiny and oversight offinancial reporting processes, including the company’s financial statements. Financial statements communicate details of thecompany’s activities, financial results, and strategies, critically important to debt and equity investors, regulators, and otherstakeholders. Audit committees need to be effective and independent in their oversight of financial reporting.
There is now wide acceptance that climate change is a systemic risk that can have a material impact on the financial position,
performance, and prospects of the company.1 The scientific community reports that warming of the climate system isunequivocal, with more than 99 per cent of scientists agreed that anthropogenic (human-caused) carbon emissions are theprimary cause, with serious implications for businesses across multiple sectors.2 Canadian appellate courts have affirmed thatclimate change ‘poses an existential threat to human civilization and the global ecosystem’.3
The Bank of Canada has reported that understanding the financial impacts of climate change and the transition to a low
carbon economy is a priority.4 The Bank reports:
Climate change looms as a potentially large structural change affecting the economy and the financial system…. While
this transition creates opportunities for innovation, investment and potential green growth, it also poses economictransition risks. Changes in climate policies, technology or market sentiment could lead to economic dislocation anda reassessment of the value of a variety of financial assets. In particular, climate change–driven alteration of projected
earnings and expenses could affect the debt repayment capacity and collateral of borrowers and increase credit risk
borne by banks and other financial institutions.
							. . .
Given the degree of interconnectedness in the economy and the financial system, it is important to assess both thedirect impacts of physical and transition risks, and the indirect and second-round effects. This implies accounting
for exposures along the whole production chain, the transmission of shocks through financial linkages and feedback
loops between the macroeconomy and the financial sector.5
That concern is echoed by the World Economic Forum, which reported in its 2020 global risk survey that climate and otherenvironmental-related issues dominate all of the top-five long-term risks, with failure of climate change mitigation the highest
risk, followed closely by biodiversity loss.6
The Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) was established by the G20 country
leaders to improve the effectiveness of climate disclosures. The TCFD has recommended that governance processes fordisclosures of climate-related financial risks in mainstream financial reporting should be similar to processes used for

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existing public financial disclosures, involving review by the chief financial officer and the audit committee.7 Revenues, costs,
and asset lives are likely to be impacted by climate change, and companies need to reassess their future cash flow forecasts
and management judgments relating to asset impairment, asset retirement obligations, and going concern and viability
statements.8 It is important to note that it is not an either/or application of financial reporting standards and the TCFD or otherframeworks.9 All aspects of financial reporting must be consistent. Even though the TCFD framework is focused on financial
implications of climate change in the financial filings, it is primarily directed to narrative disclosures in the front of the annual
report. The audit committee’s primary role relates to the financial statements, and thus, the application of the accounting
standards and relevant guidance.
Once the corporate board has determined its strategic priorities and approved a climate action plan, audit committees have acentral role in ensuring the company is comprehensive and accountable in its financial reporting of climate-related financial
risks and opportunities. This guide has been developed by the Canada Climate Law Initiative (CCLI) to assist audit committees
to meet their legal obligations. The guide offers current best practice advice from standards setters, Canadian regulators, andCanada’s major accounting firms. It is not meant to replicate the extensive work being undertaken by TCFD,10 the Sustainability
Accounting Standards Board (SASB),11 and other legal and best practice guidance, but rather, to offer Canadian audit
committees an overview of issues to think about and resources that are available to engage in effective audit committee climate
governance.
Where the corporate board has given the mandate for oversight of climate-related financial risks to another board committee,
such as a risk management committee, or to the board as a whole, this guide will assist directors in their oversight anddisclosure of the risks. The audit committee will always have a role, given its responsibility for financial reporting, whether thecompany is privately held or publicly-listed.

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II.		 The Legal Framework		 under which Canadian Audit 						Committees OperateA primary purpose of the audit committee is to provide oversight of the financial reporting process, the audit
process, the company’s system of internal controls, and compliance with laws and regulations, recommending
to the board approval of the financial reporting and making recommendations for improvement. An important
overarching principle for financial reporting is consistency and comparability of the financial statements year overyear.
In Canada, audit committees of publicly-listed companies (issuers) are governed, in part, by National Instrument
52-110 Audit Committees (NI 52-110), which defines an audit committee as a committee established by the boardof directors for the purpose of overseeing the accounting and financial reporting processes of the issuer, as wellas having oversight of external audits of the issuer’s financial statements.12 Every audit committee member must
be a director of the issuer, independent, and financially literate.13 It states that an individual is financially literate
if she or he has the ability to read and understand a set of financial statements that present a breadth and level ofcomplexity of accounting issues that are generally comparable to the breadth and complexity of issues reasonably
expected in the issuer’s financial statements.14
Among its responsibilities, the audit committee must review the company’s financial statements, management
discussion and analysis (MD&A), and annual and interim profit or loss press releases before the publicly-listedcompany discloses this information publicly; or for privately-held companies, before the company discloses theinformation to its investors.15 For publicly-listed companies that are not venture issuers, the audit committee mustalso review the annual information form (AIF).16 The scope and content of continuous disclosure obligations ofpublicly-listed companies in Canada is set by National Instrument 51-102 Continuous Disclosure Obligations (NI 51102), by agreement of all Canadian securities regulators.17 The objective of the continuous disclosure requirements
is to improve the quality, reliability, and transparency of annual filings, interim filings, and other materials thatissuers file under securities legislation.18
Canadian publicly-listed companies and publicly accountable enterprises are required to prepare all interim andannual financial statements in accordance with International Financial Reporting Standards (IFRS).19 The Canadiangovernment defines ‘publicly accountable enterprise’ as an entity that either has issued, or is in a process of issuing,
debt or equity instruments that are, or will be, outstanding and traded in a public market,20 or holds assets in afiduciary capacity for a broad group of outsiders as one of its primary businesses, noting that banks, credit unions,Audit Committees and Effective Climate Governance
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insurance companies, securities brokers/dealers, mutual funds, and investment banks typically meet the secondof these criteria.21 The International Accounting Standards Board (IASB) is responsible for the development andpublication of IFRS.22
Companies that are privately held in Canada have the option of reporting in accordance with IFRS, and many do;or they can report in accordance with the accounting standards for private enterprises set out in Part II of the CPA
Canada Handbook — Accounting (CPA Handbook). The CPA Handbook is the authoritative guidance on Canadian
generally accepted accounting principles (Canadian GAAP).23 The Canadian Accounting Standards Board (AcSB) has
authority to establish Canadian GAAP for financial reporting by Canadian private sector entities, including publicly
accountable enterprises, private enterprises, not-for-profit organizations, and pension plans. The AcSB follows due
process in incorporating IFRS into Canadian GAAP in Part I of the CPA Handbook, offering ‘wrap-around’ advice on
IFRS and contributing to further development of the IFRS.24
The Canadian Securities Administrators (CSA) Staff Notice 51-358 Reporting of Climate Change-related Risks
specifies that the audit committee is required to review an issuer’s financial statements and MD&A, as well as its
continuous disclosures such as material change reports, before the issuer publicly discloses this information.25
The audit committee must be satisfied that adequate procedures are in place for the review of the issuer’s
public disclosure of financial information extracted or derived from the issuer’s financial statements, and must
periodically assess the adequacy of the company’s procedures.26
Companies are also subject to requirements of the corporate law jurisdiction under which the company isincorporated or currently registered.27 These requirements include that directors must approve and deliver annual
financial statements to shareholders.28 The Canada Business Corporations Act specifies that the audit committee
is to be composed of not fewer than three directors of the corporation, a majority of whom are not officers or
employees of the corporation or any of its affiliates, and the audit committee must review the financial statementsof the corporation before such financial statements are approved by all the directors.29 The corporate statutory
duty of loyalty requires that the directors and officers of a corporation ‘act honestly and in good faith with a view tothe best interests of the corporation’.30 The duty of care requires that the directors and officers ‘exercise the care,diligence and skill that a reasonably prudent person would exercise in comparable circumstances’.31 These duties
are mirrored in provincial and territorial corporations statutes. Given the urgency and importance of climate

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change, it means that all directors, including audit committee members, have a fiduciary obligation and duty ofcare to ensure the company is addressing material climate-related risks.32
The Carol Hansell legal opinion in 2020 makes clear that climate change must be on the agenda of Canadian
corporate boards.33 Hansell observed:
Since there can be little doubt that directors are aware of climate change risk, they must informthemselves of the risk that climate change poses to the corporation and how that risk is being managed.
If this information is not already included in management reports to the board, the board should direct
management to deliver the necessary information to them.
							. . .
Members of the audit committee may have more insight into the financial statements than otherboard members because of the time they spend reviewing those statements and discussing them withmanagement, the internal auditor and the external auditor. However, a reasonably prudent person
in comparable circumstances would use the information he or she receives as a member of the audit
committee in exercising the powers and discharging the responsibilities of a director… Audit committees
will need to consider how climate change risk impacts financial reporting and may also be responsible foroverseeing other forms of climate change risk reporting.34

1.

MATERIALITY CONSIDERATIONS

Audit committees of publicly-listed companies in Canada need to be aware of the nuanced differences inmateriality reporting requirements in their disclosure decisions as between the national instruments, provincial
and territorial securities law, corporate statutes, and exchange listing requirements.
For example, NI 51-102 defines ‘material change’ asmaterial change means (a) a change in the business, operations or capital of the reporting issuer that would
reasonably be expected to have a significant effect on the market price or value of any of the securities of thereporting issuer; or (b) a decision to implement a change referred to in paragraph (a) made by the board of
directors or other persons acting in a similar capacity or by senior management of the reporting issuer who

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believe that confirmation of the decision by the board of directors or any other persons acting in a similarcapacity is probable.35
It sets out materiality requirements for forward-looking information;36 and in respect of changing auditors, NI
51-102 states that ‘material’ ‘has a meaning consistent with the discussion of the term materiality in the issuer’s
GAAP’.37‘Certifying officers’, usually the chief executive officer and chief financial officer, are required to certify, among
other things, that they are responsible for establishing and maintaining disclosure controls and procedures.38
Certification is intended to provide assurance that the financial information disclosed, viewed in its entirety,
provides a materially accurate and complete picture that may be broader than financial reporting under theissuer’s GAAP.39 National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI52-109) requires each certifying officer to:certify that an issuer’s financial statements (including prior period comparative financial information) andother financial information included in the annual or interim filings fairly present in all material respects
the financial condition, financial performance and cash flows of the issuer, as of the date and for the periods
presented.40
The concept of fair presentation encompasses a number of quantitative and qualitative factors, including: selectionof appropriate accounting policies; proper application of appropriate accounting policies; disclosure of financial
information that is informative and reasonably reflects the underlying transactions; and additional disclosurenecessary to provide investors with a materially accurate and complete picture of financial condition, financial
performance and cash flows.41
The requirement for full, true, and plain disclosure of all material facts is an essential requirement for companies
raising capital; however, definitions of ‘material fact’ in securities statutes vary slightly across Canada.42 For
example, the Québec Securities Act defines a material fact as ‘a fact that may reasonably be expected to have asignificant effect on the market price or value of securities issued or securities proposed to be issued’.43 Similarly,
there are nuances in respect of definitions of material change under securities laws.

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Financial reporting of publicly-listed companies in Canada must adhere to International Accounting Standard 1
Presentation of Financial Statements (IAS 1). The IASB amended the definition of materiality in IAS 1, effective forannual periods beginning on or after 1 January 2020, to specify: ‘Information is material if omitting, misstatingor obscuring it could reasonably be expected to influence decisions that the primary users of general purpose
financial statements make on the basis of those financial statements, which provide financial information about aspecific reporting entity’.44 Note the difference in that ‘primary users’ may be a broader group than ‘investors’.
For companies trading on the Toronto Stock Exchange (TSX) or the TSX Venture Exchange (TSXV), material isdefined as ‘any information relating to the business and affairs of a company that results in or would reasonably
be expected to result in a significant change in the market price or value of any of the company’s listed securities.’45
Timely disclosure of material information for TSX and TSXV issuers encompasses both material facts and materialchanges relating to a company, a higher standard than securities legislation.46 The 2020 TSX and CPA Canada
primer on enhancing environmental, social and governance (ESG) disclosure in regulatory filings recommends
that if there is doubt about whether information is material, audit committees should err on the side of caution
and disclose the information.47
In a brief published by the IASB and IFRS Foundation, IASB board member Nick Anderson notes that while ‘climatechange’, as a term, is not explicitly referenced in IFRS, the standards do address issues that relate to climate changerisks.48 In its responsibility for oversight of the company’s financial statements, the audit committee needs toensure that the materiality of relevant climate risks are incorporated into the assumptions underlying accounting
estimates so that these risks are explicitly included in the figures in the financial statements, or disclose in the notes
to the financial statements why the company has concluded that these risks are not relevant. The audit committee
should be able to describe how material climate risks have been considered in the preparation, presentation, anddisclosure in the financial statements, as these statements are subject to external audit.49
In November 2020, the IFRS Foundation published guidance titled the ‘Effects of climate-related matters on
financial statements’, which states that material climate-related financial information should be reported under
IAS 1 Presentation of Financial Statements, IAS 2 Inventories, IAS 12 Income Taxes, IAS 16 Property, Plant andEquipment, IAS 38 Intangible Assets, IAS 36 Impairment of Assets, IAS 37 Provisions, Contingent Liabilities andContingent Assets, IFRS 7 Financial Instruments: Disclosures, IFRS 9 Financial Instruments, and IFRS 13 Fair

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Value Measurement; and that it is important for companies whose financial position or financial performance isparticularly affected by climate-related matters to provide overarching disclosure.50
The difference between materiality in a management accounting context, commonly applied as a quantitative ruleof thumb, (+/- 5 per cent revenue),51 is a very different threshold than materiality in a disclosure context, which
is a more qualitative decision – what is useful to an investor or other user of the financial reporting. Companies
applying IFRS when preparing financial statements would consider whether investors could reasonably expect thatemerging risks, including climate-related risks, could affect the amounts and disclosures reported in the financial
statements, and what information about the effect of emerging risks, including climate-related risks, on theassumptions made in preparing the financial statements is material, and thus should be disclosed.52 The IASB/IFRS
brief states:
Given investor statements on the importance of climate-related risks to their decision-making, theimplication of the materiality definition and the Practice Statement is that companies may need to consider
such risks in the context of their financial statements rather than solely as a matter of corporate-socialresponsibility reporting.
For example, suppose that a company in an industry likely to be affected by climate-related risks
determines that its impairment testing does not need to include a specific assumption regarding suchrisks. However, taking into account investor comments on the importance of climate-related risks to theirinvestment decisions and reasonable expectations that the recoverable amount of the company’s assets
could be affected by such risks, when applying the Practice Statement, the company may conclude that itneeds to disclose information that explains clearly why the carrying amounts of its assets are not exposed toclimate-related risks. Such an explanation may provide material information to investors even though thecarrying amounts in the financial statements are not exposed to those risks.53
This latter point is reinforced by a recent Staff Audit Practice Alert by the International Auditing and AssuranceStandards Board (IAASB), which sets out considerations of climate change for the auditor and questions that
auditors are increasingly asking audit committees.54 It is aimed at assisting auditors in understanding what alreadyexists in the International Standards on Auditing and how it relates to auditors’ considerations of climate-relatedrisks in an audit of financial statements.55 The Practice Alert states: ‘If information, such as climate change, canAudit Committees and Effective Climate Governance
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affect user decision-making, then this information should be deemed as ‘material’ and warrant disclosure in thefinancial statements, regardless of their numerical impact.’56

The potential financial implications arising from climate-related and other emerging risks may
include, but are not limited to:• asset impairment, including goodwill;• changes in the useful life of assets;• changes in the fair valuation of assets;• effects on impairment calculations because of increased costs or reduced demand;• changes in provisions for onerous contracts because of increased costs or reduced demand;• changes in provisions and contingent liabilities arising from fines and penalties; and• changes in expected credit losses for loans and other financial assets.
		‘IFRS Standards and climate-related disclosures’ (2019).
Examples of accounting and financial reporting standards affected by climate-related risk include
International Accounting Standard (IAS) 1 Presentation of Financial Statements, IAS 36 Impairment of
Assets, IAS 16 Property, Plant and Equipment, IAS 38 Intangible Assets, IFRS 13 Fair Value Measurement,
IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures, and IAS 37 Provisions,Contingent Liabilities and Contingent Assets.
		
Excerpts, ‘IFRS Standards and climate-related disclosures’ (2019).

In November 2020, the Bank of Canada and Office of the Superintendent of Financial Institutions launched apilot program to use climate-change scenarios to better understand the risks to the financial system related to atransition to a low-carbon economy.57 Starting with six major banks and insurance companies, the program aims
to build the climate scenario analysis capability of authorities and financial institutions, and support the Canadianfinancial sector in enhancing the disclosure of climate-related risks; increase authorities’ and financial institutions’
understanding of the financial sector’s potential exposure to risks associated with a transition to a low-carbon
economy; and improve authorities’ understanding of financial institutions’ governance and risk-management
practices around climate-related risks and opportunities.

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It makes sense for the company to spend resources on a forward-looking basis to develop an enhanced
understanding of the financial impacts of climate change. As former Governor of the Bank of Canada
and Bank of England Mark Carney has observed, ‘You can’t wish away the systemic risk … in the end, asmall investment up front can save tremendous cost down the road.’58
CPA Canada has set out six characteristics that may help audit committees review the appropriateness ofmanagement-selected key performance indicators (KPI) and how they have been disclosed.59

Relevance

Transparency

Is the KPI a key metric in measuring the issuer’s
strategic and operational performance goals?

Does the level of disclosure meet regulatory
requirements and industry best practices (eg,have GAAP measures been given equal or greater
prominence than those of non-GAAP financial
measures)?

Consistency

Comparability

Is the KPI calculated in the same way as in priorreporting periods?

Is the KPI prepared in accordance with industry
standards and practices (if any)? Comparability
allows stakeholders to evaluate the KPIs against
those of peers.

Reliability

CompletenessHas the KPI been accurately calculated, verified
and subjected to internal controls?

Do the KPIs present a balanced view of the entity’s
performance?

CPA Canada, Key Performance Indicators, Tool for Audit Committees (2017)
These same characteristics are important in audit committee review of the appropriateness of managementselected KPI for climate-related risks and opportunities.

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III.		 The Development of Reporting
		 Frameworks and Voluntary 						Standards

There are many disclosure frameworks and standards developing, and in 2020, we see greater cooperation andconvergence among them. The Appendix to this guide offers greater detail on some of the frameworks; this partgives a brief overview as they relate to audit committees.

1.

FRAMEWORKS FOR CLIMATE DISCLOSURE

Three years ago, the TCFD issued recommendations and detailed guidelines (TCFD framework) to encouragecompanies to include climate-related information within their financial disclosures.60 It identified a range ofclimate risks and how they may impact an organization’s income statement and statement of financial position(balance sheet), outlining the roles of the audit committee and the board as a whole. Its core elements ofrecommended climate-related financial disclosures are: governance, strategy, risk management, and metrics andtargets, as set out in the image below.61 The TCFD reported that quality assurance in climate disclosure will make adifference in the way climate risks and opportunities are understood and communicated.

Core Elements of Recommended Climate-Related Financial Disclosures

Governance
Strategy
RiskManagement

Metrics
and Targets

Governance
The organization’s governance around climate-related risks
and opportunities
Strategy
The actual and potential impacts of climate-related risks andopportunities on the organization’s businesses, strategy, andfinancial planning
Risk Management
The processes used by the organization to identify, assess,and manage climate-related risks
Metrics and Targets
The metrics and targets used to assess and manage relevant
climate-related risks and opportunities
TCFD Final Report, 2017 62

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The TCFD has recommended that annual public filings provide disclosure on climate-related material risks,financial impacts, and governance processes; and such disclosures should have been carefully reviewed by theaudit committee and then the board. The CSA has used examples from the TCFD framework to provide issuers withinformation on types of risks to consider, but notes that there are both similarities and differences between the
TCFD recommendations and the requirements of Canadian securities laws.63
Canadian companies, in deciding whether to adopt the TCFD framework, should note that as of September 2020,
support for the framework has grown to over 1,440 organizations, representing a market capitalization of US$12.6
trillion.64 TCFD reporting on the governance and risk management indicators is now mandatory for signatories tothe United Nations’ Principles for Responsible Investment (UN PRI) network.65 In the United Kingdom (UK), large
asset owners and listed companies are expected to report in accordance with TCFD requirements by 2022,66 andthe UK Financial Conduct Authority has consulted on proposals to make TCFD reporting mandatory for premium
listed issuers on the London Stock Exchange on a comply or explain basis. The UK Government is making TCFDaligned disclosures mandatory across the economy by 2025, with a significant portion of mandatory requirements
in place by 2023. In November 2020, it issued a roadmap towards comprehensive and high-quality information on
how climate-related risks and opportunities are being managed across the UK economy.67 The Roadmap sets out
a coordinated strategy for seven categories: listed commercial companies, UK-registered companies, banks andbuilding societies, insurance companies, asset managers, life insurers and FCA-regulated pension schemes, andoccupational pension schemes. The European Commission’s 2019 guidelines on reporting climate change-related
information integrate the recommendations of TCFD.68
The Canadian government has signaled the importance of reporting to TCFD standards in its 2019 budget. It is
requiring TCFD-based disclosure as a condition of companies receiving credit assistance under the COVID-19
Large Employer Emergency Financing Facility.69 Canada’s five largest banks and six of its largest pension funds haveendorsed the TCFD framework.The Ontario Capital Markets Modernization Taskforce has recommended that theOntario government, through the Ontario Securities Commission, require enhanced disclosure of material ESG
information by TSX issuers compliant with the TCFD or SASB recommendations for issuers, or where feasible,
both.70

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There is therefore considerable momentum supporting this framework. As market practice evolves, investors
will likely expect a similar level and quality of disclosure from their investee companies, in order to distinguishoutperformers from laggards. Failure to adequately address these expectations may impact the company’s access tocapital or may increase its cost of capital. The TCFD framework is discussed in further detail in the Appendix.
Other frameworks include the International Integrated Reporting Council (IIRC) framework, which is aimed at
integrated thinking and reporting on protection of the planet and value creation within mainstream businesspractice as the norm in the public and private sectors.71 Another framework, published in September 2020 by theWorld Economic Forum in partnership with prominent accounting firms, Deloitte, EY, KPMG, and PwC, sets out acore set of ‘Stakeholder Capitalism Metrics’ and disclosures that can be used by boards to align their mainstream
reporting on performance against ESG indicators, including climate change, and track their contributions towards
the United Nations’ Sustainable Development Goals on a consistent basis.72
The CDP, which is a not-for-profit organization that focuses on investors, companies, and municipal and state
governments, is a rating system rather than a framework.73 Its goal is to ‘focus investors, companies and cities ontaking action to build a truly sustainable economy by measuring and understanding their environmental impact’.74
It believes that improving corporate awareness through measurement and disclosure is essential to the effective
management of carbon and climate change risk.75
One indication of convergence is that in 2020, the leading voluntary framework and standard-setters – the CDP,
SASB, Climate Disclosure Standards Board (CDSB),76 the Global Reporting Initiative (GRI), and the IIRC committed
to work towards a joint disclosure framework under a comprehensive corporate reporting system.77

2.

VOLUNTARY AND BEST PRACTICE REPORTING STANDARDS AND GUIDANCEIn addition to the legal requirements for Canadian audit committees, there are also best practice reporting
standards or guidance. The SASB standards are designed for reporting to investors on financially material ESG
issues through metrics and disclosures for 77 sub-industries, complementary to the core elements of the TCFD
framework.78 The SASB advises that the audit committee should review the effectiveness of the company’s internal
controls over sustainability information gathering and reporting to ensure it is comfortable with the quality andreliability of the data.79 This task is complement to the audit committee’s responsibility to review the internal

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controls over financial reporting and disclosure that apply to the financial statements, MD&A, and investor reports.
The SASB and CDSB have produced a joint ‘TCFD Good Practice Handbook’ demonstrating how their accounting
guidance can be used for the reporting of climate-related performance and risk in mainstream corporate reports
in line with the TCFD framework.80
The GRI standards were developed to support best practice sustainability reporting, aimed at creating a common
language for organizations – large or small, private or public – to report on their sustainability impacts in aconsistent and credible way.81 GRI’s goal is to enhance global comparability, transparency, and accountability
by helping organizations understand and disclose their impacts in a way that meets the needs of multiple
stakeholders, including policymakers, capital market participants, and civil society.82
In September 2020, the International Federation of Accountants (IFAC) issued a call that the IFRS Foundation, withan enhanced remit, should create an International Sustainability Standards Board, leveraging the independence
and success of IFRS governance to develop global standards and rationalize the current fragmented ecosystem.83
It believes such a board is necessary to building and coordinating a coherent global system of interconnected andcomparable corporate reporting. Also, the IFRS Foundation recently released a consultation paper, asking for views
on creation of a new Sustainability Standards Board to develop and maintain a global set of sustainability reporting
standards, initially focused on climate-related risks.84 It observes that ‘a set of comparable and consistent standards
will allow businesses to build public trust through greater transparency of their sustainability initiatives, which
will be helpful to investors and an even broader audience in a context in which society is demanding initiatives tocombat climate change’.85
Another global initiative, the Science-Based Targets Initiative, has proposed a foundation for credible, sciencebased net zero targets for the corporate sector, building on the work of the TCFD.86 It recommends that companies
set targets to reduce greenhouse gas (GHG) emissions, noting that such targets are considered science-based if they
are in line with what the latest climate science says is necessary to meet the goals of the Paris Agreement or a goalof net zero emissions.87 It suggests companies and their audit committees can use different types of science-basedtarget setting approaches, specifically:o a sector-based approach, where the global carbon budget is divided by sector and then emission reductions
are allocated to individual companies based on its sector’s budget;

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o an absolute-based approach, where the per cent reduction in absolute emissions required by a given
scenario is applied to all companies equally; ando the economic-based approach, whereby a carbon budget is equated to global gross domestic product (GDP)and a company’s share of emissions is determined by its gross profit, given that the sum of all companies’ grossprofits worldwide equate to global GDP.88
Whether companies adopt science-based targets or not is voluntary. One challenge is that some companies are
setting net zero targets that are not science based and therefore, from a financial perspective, it is difficult todetermine the capital cost. For example, even without science-based targets, companies can choose to purchaseoffsets; yet it is very difficult to determine what the cost of offsets will be with increased demand as an increasing
number of countries transition towards net zero emissions. Thus, transparency is needed on the pathway to
reduction, including associated costs that have a material impact on the financial stability of the company.
The relationship between science-based net zero targets and financial impacts is not yet entirely clear. The
corporate board should be setting GHG emissions reductions targets, based on advice from management andexternal expertise. The audit committee’s role is to oversee calculation of the cost to meet the targets and assess anddisclose the risks associated with the failure to act. It may use scenario analysis to paint a fuller picture of different
values at risk, such as reported balance sheet asset value or fair value of all tangible and intangible assets, whether
included in the financial statement or not; risk of loss on a portfolio of financial assets of the company or of aninvestment over a specified period of time; and the potential size of the opportunities based on different scenarios
related to the pace and trajectory of global warming.
Also of note in terms of companies raising capital, the Canadian Standards Association, in coordination with
Canada’s major banks and pension funds, is developing a Canadian taxonomy on transition finance, aimed attransparency and consistency in financing terminology so that debt and equity investors can see how companies
will deploy the capital they are raising.89 However, as of October 2020, it has not yet published a document for
consultation and the process has stalled somewhat. In the interim, the European Union (EU) has adopted botha green and transition sustainable finance taxonomy that can serve as a helpful reference guide in identifying
or describing how capital is being used to decarbonize the activities of the company.90 The EU’s Technical Expert
Group on Sustainable Finance considers the taxonomy tool to be ‘one of the most significant developments insustainable finance’.91 From a practical perspective, it provides general-use definitions for sustainable investment
and details industry-specific metrics for companies to achieve targets of the Paris Agreement.

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IV.		 The Evolution of		 the Audit Committee’s Role

The role of the audit committee is evolving as expectations regarding the company’s approach to climate risk
management mature.92 The audit committee’s responsibility for the financial reporting process, combined withthe potentially significant financial impact that unmitigated climate risks could have on an organization, makes it
imperative that the audit committee acts as a catalyst on appropriate climate risk management.
A number of considerations go into the audit committee’s understanding, embedding, and disclosure of climaterelated financial risks in the financial statements:

material risks andopportunities,
including physicalrisks (acute andchronic) and economictransition andlitigation risks

debt investor,
equity investor,and consumer
expectations
regulatory
requirements andlegal and bestpractice guidanceor standards

climate-related
financialdisclosure,including metrics
and targets

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The audit committee’s role, at various times in an organization’s maturation, may include:
Setting the stage for integrating accountabilities around climate change and the overall maturation ofclimate risk management.
uInitiating the identification of financial risks that arise as a result of physical and transition risks, which
will facilitate comprehensive valuation of financial risk.
uIncorporating a climate change lens across the three lines of defense: business ownership, risk
management, and oversight of internal audits.
uValidating and incorporating climate-related financial disclosures within the suite of corporate
disclosure.93 Accurate and complete climate-related data are key to ensuring that disclosure standards are met.
u

The board must take a leadership role in management and oversight of climate-related financial risks andopportunities. The audit committee also has an opportunity for a leadership role - it has deep skills in overseeinginternal financial controls and reporting. Audit committees can play a role by understanding the methodologies
and policies used to develop the metrics, as well as the internal controls in place to ensure accuracy, reliability,
and consistency of the metrics period over period.94 It is important to measure the right things, and the audit
committee should satisfy itself that management has the expertise or has hired the appropriate external expertise
to determine which metrics are most appropriate to the company’s sector and its circumstances.
The audit committee does not need members with climate science backgrounds; rather, it should apply its
financial expertise to presentation and reporting of climate risks once the board has determined which metrics areappropriate to measure, record, and report. The board should be satisfying itself that the company understands thepotential financial impacts of climate change on its operations and long-term strategy, and be assessing whether
the planning horizon is long enough.
The audit committee members can take the lead on becoming climate competent directors, given the importanceof climate impacts on the financial status of the company. The audit committee is also best placed to assess thequality and accuracy of the climate-related financial disclosures, bringing any concerns directly to the board.

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V.		 Guide to Audit Committee
		 Best Practices in Climate
		GovernanceCertain strategies that can help companies better address climate risk may include the following:o The board of directors is responsible for oversight of climate-related risks and it may assign assessment of
those risks to one or more board committees or to the board as a whole. Once the material risks, targets, andmetrics are identified, the mandate of the audit committee is to ensure that the internal controls over reporting
the financial effects are in place, and to work with internal auditors on accuracy and transparency.
o The audit committee should regularly report to the board of directors on compliance with internal
policies and progress in remedying any material deficiencies related to ESG (including climate) policies andenvironmental risk management systems.
o The audit committee should have at least one meeting annually focused on ESG issues, including climaterelated risks, and/or the board should authorize the audit committee to retain outside expertise to assist withrisk assessments and year-end audit and impairment assessments.
o The audit committee can identify and implement audit best practices related to significant/material risks
and opportunities to the business from climate change, measuring climate-related risks and opportunities
through the use of metrics, scenario testing, and taxonomies.
o The audit committee can work with the board to develop a credible climate plan to transition the businesstowards net zero emissions within a timeframe consistent with limiting global average warming to 1.50C. This
plan would include financial metrics, short-, medium-, and long-term targets, measuring progress in meeting
goals, and effective disclosure of strategies.

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identifying
significant/material risks andopportunities

disclosure ofstrategies, financial
metrics, targets andprogress in meeting
goals

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measuringclimate-relatedrisks andopportunities

These practices are interactive, rather
than linear, each feeding into better
developing the others. They mirror
the existing core functions of financial
reporting regarding the risks that arereflected in the financial statements
and MD&A.

audit committee
supporting theboard indevelopment andimplementation ofa climate strategy,
including a risk
mitigation strategy

Canadian securities regulators have advised that climate change risk is now a mainstream business issue andthat companies must disclose material climate risks and how they are addressing them.95 It has given notice thatthe board and management should assess their expertise with respect to sector-specific climate-related risks,
and augment that expertise, as necessary.96 The CSA Staff Notice 51-358 Reporting of Climate Change-related
Risks indicates that discussion and analysis of whether the board is provided with appropriate orientation andinformation to help members understand sector specific climate change-related issues may be helpful in evaluating
and preparing appropriate climate change-related disclosure.97 It suggests that the board ask itself whether directors
have been provided sufficient information, including management’s materiality assessments in respect of theissuer’s climate-related risks, to appropriately oversee and consider management’s assessment of these risks.98

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If the board does not have this expertise among its directors, it will need outside expertise in order to properly
evaluate management’s judgment, or insist that management has already consulted outside experts and that advice
has been incorporated.

1.

IDENTIFY SIGNIFICANT/MATERIAL RISKS TO, AND OPPORTUNITIES FOR, THE BUSINESSThe first step is for the board and its audit committee to develop an understanding of the types of climate risks
and how they might impact the company’s business, identifying significant financial risks and assessing climate
impacts on the company’s supply and value chains.99 It is equally important to identify the upside opportunities.
Reporting ‘materiality’ in relation to climate change is still evolving. For financial reporting, the term ‘material’ isquite technical, and while it may seem to refer to the shorter term for purposes of currenting financial reporting,
the CSA warns that companies should not limit materiality assessment to near-term risks.100
Climate risks may be significant even if the directors do not think they are, and it is important to remember thatsignificance and materiality are assessed from a stakeholder’s perspective, often referred to as an ‘outsiders’perspective by accounting firms.101 Under Canadian securities laws, materiality is a dynamic process and there isno uniform quantitative threshold at which a particular type of information becomes material. The materialityof certain information may vary between industries and between issuers within an industry according to their
particular circumstances. An event that is significant for a smaller issuer may not be material to a larger issuer.
Therefore, companies should always consider both quantitative and qualitative factors in determining materiality.
A key question in determining whether particular information is material is if a reasonable investor’s decision
whether to buy, sell, or hold securities of the issuer would likely be influenced or changed if the information isomitted or misstated.
An assessment of materiality in relation to climate-related risks may require issuers to adapt their existing
approaches to consider the longer time horizon associated with these types of risks, and how to effectively quantify
them. The IASB/IFRS briefing note observes that the industry in which the company operates, and investor
expectations, may make such risks ‘material’ and warrant disclosures in the financial statements, regardless of theirnumerical impact.102

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Materiality can also be assessed by the board through the lens of the changing perceptions of consumers andenvironmental stakeholders regarding how companies should be meeting goals to decarbonize, particularlybusinesses that are consumer-facing. Companies must identify the principal climate-related material risks andopportunities facing the company, how these risks and opportunities are developing over time, and how thecompany is responding, including quantifying, to the extent possible, the financial impacts. The TCFD cautionsorganizations against prematurely concluding that climate-related risks and opportunities are not material basedon perceptions of the longer term nature of some climate-related risks.103
The World Economic Forum defines ‘material’ as information that is important, relevant, and/or critical to longterm value creation.104 This definition is more expansive than the securities law definition of information thatwould be reasonably expected by investors in order to make decisions to buy, sell, or hold. It is important toremember that the CSA’s legal disclosure requirements and the SASB standards and practice guidance are aimed
specifically at capital markets disclosure, which audit committees need to take careful note of. Yet the corporateboard may also be concerned with what is material to a broader group of stakeholders, such as consumers,
employees, and broader community interests. Such climate impacts may be financial or non-financial. The board
should clearly decide whether oversight of these broader material impacts belongs with the audit committee or
elsewhere within the board’s corporate governance structure.

i.

Physical Risks Due to Climate Change

The audit committee should oversee management’s process for identifying the financial impacts of physical risks
created by climate change. Physical climate risks now represent foreseeable financial risks to the business. Physicalrisks arising from more frequent and severe extreme weather events can cause direct damage to assets, economic
disruptions, and losses; can disrupt manufacturing operations and production capacity; can damage company
property or investments in real estate; and can impact the workforce from increased employee illness from heatwaves and pollution, affecting different regions in different ways.105 These risks can be acute, in terms of increased
frequency and intensity of wildfires or tropical storms, or they can be chronic, such as production decline due tobiodiversity loss, or longer term impacts from sea-level rise or inundation of sea water into freshwater sources.
Risks to businesses also include reduced revenue and/or increased operating costs arising from supply chain anddistribution network interruptions; increased capital expenditure to protect operations and supply chains, or

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repair damage caused by acute events; increased financial risk through higher cost of capital or cost of insurance inhigh-risk locations; and write-offs and early retirement of existing assets.106 These physical risks are interconnected
and compound across supply and distribution chains. In Canada, the real estate, agriculture, transportation,
carbon-intensive industrial, mining, and oil and gas sectors, all important to the Canadian economy, areimmediately or in the near term exposed to physical impacts of climate change, which in turn could affect debt
investors and insurers exposed to these sectors in terms of both their assets and liabilities.107
The board and its audit committee should be asking management how potential adverse physical effects fromclimate change create challenges for the company’s ability to operate successfully.108 Direct climate impacts may
be the most significant risk for many companies in the long term. However, there may be substantial uncertainty
in quantifying climate-related financial risks to the company, as acute events such as flash floods or damage tobusiness from wildfires can arise suddenly and are usually not possible to predict based on historic data or toestimate in terms of their ultimate financial impact. It can be difficult to determine whether there is capacity forcosts to be borne by consumers through repricing of goods or services. Chronic physical risks may be easier to
identify; for example, is the company operating in a flood prone zone or are there longer term risks to buildings
and property due to rising sea levels?

The Bank of Canada reports that:
The physical risks of climate change will likely imply increases in the frequency and severity of negative
supply shocks (eg, destruction of capital stocks, disruptions to labour supply, disruptions to supply
chains) and demand shocks (eg, damage to household and corporate balance sheets that result in
reduced consumption and investment).
							. . .
Extreme weather events could cause damage to physical assets, including real estate, capital andinfrastructure, and loss of life with consequent property and casualty (P&C) insurance losses, damage
to balance sheets of both households and firms, increases in defaults, and potential financial sector
distress.109

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Understanding the direct and indirect impacts of physical climate risks on the firm’s operations and third-party
relationships is essential to accurate disclosure. The audit committee has an important responsibility to assist theboard in understanding and disclosing how physical climate risks can affect the company’s business plan, value
chains, and stakeholders, and in advising the board how to effectively oversee and manage the risks.

ii.

Transition Risks

Transition risks cover a wide range of risks, including market risk, regulatory risk, technological risk, social
risk, and litigation risk, all of which are interconnected. Transition risks can affect physical, natural and humancapital stock, labour supply, and productivity.110 The Bank of Canada reports that a ‘late and abrupt transition toa low carbon economy could lead to a sudden repricing of climate-related risks and stranded assets, which could
negatively affect the balance sheets of financial market participants, with potential consequences to financial
stability’.111 It is important to note the dynamic,
interconnected nature of physical and transition risks.
For example, in a high carbon future, the physical risks
will be extreme and likely uninsurable; yet in a lower
technologicalcarbon future, the transition risks will be significant, in
risk
addition to the physical risks already being manifested.

marketrisk

Climate-related
economictransition risks

litigationrisk

regulatoryrisksocialrisk

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Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORSThe transition risks are discussed briefly in turn, but
audit committees are advised to consult the increasingly
broad number of resources on the CCLI knowledge
portal and the TCFD knowledge hub.112
A. Market risk
Market risks arise from shifts in supply and demand forcertain commodities, products, and services as climaterelated impacts are increasingly considered in decisionmaking. Examples include increased market demand
for low carbon and renewable energy, and changes in
conditions of debt financing due to climate risks.

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Stakeholders have higher expectations of how businesses are responding to climate change issues. Market risks may
crystallize with little advance warning. Changing preferences of investors that support decarbonization can impact
the company’s access to capital, in addition to the market for its products and services. For example, institutional
investors are increasingly committing to investment portfolios that require investee companies to achieve net
zero carbon emissions by 2040 or 2050. Failure to be responsive to these market risks can result in damage to thecompany’s reputation.
The Bank of Canada has observed that changes in market preferences are expected to lead to significant changes inrelative prices, which in turn could lead to the reallocation of resources across sectors and comparative advantages
in trade.113 When applied regionally, the economic impact of climate policies depends strongly on interactions withother regions. Lasting shifts in the energy mix are also expected to persistently change energy prices, creating
inflationary pressures.114

Former Bank of Canada and Bank of England Governor Mark Carney has observed that to hold global
warming to even 2°C means that 80 per cent of coal assets, 50 per cent of gas assets, and one third of oil
assets are un-burnable and will be stranded.
Mark Carney, ‘Presentation to UK House of Lords Financial Affairs Sub-Committee’, 2020115

There is also risk of stranded assets through unanticipated write-downs in carbon-intensive industries due tofluctuations in price and demand from trade partners.116 The Bank of Canada observes:
Maintaining the warming below 2.0 degrees Celsius implies that some of the existing fossil fuel reserves
will become stranded assets, ie, unusable, in the absence of potential cost-effective technologies for carbon
dioxide capture and storage and carbon dioxide removal. The assets that could be affected are not limited
to the oil and gas sector; they include other carbon-intensive sectors such as transportation (including
aviation and shipping), real estate, electricity generation (eg, coal plants), heavy industry and agriculture.

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These transition risks are of particular significance for Canada given its endowment of carbon-intensive
commodities, the current importance of some of these carbon-intensive sectors for the Canadian economy,
and the energy needs for cooling and heating.117
KPMG notes that a poor climate response by a company may reduce the supply of capital or availability of insurance
cover and create an inability to meet business customers’ qualifying thresholds for environmental matters.118
B. Technological risk
New technologies that support the transition to a low carbon economy can impact the demand for existingproducts and displace or disrupt existing production. The cost of developing low emissions technologies orsubstituting processes and products with lower emissions alternatives can be high. There may be costs associatedwith having to write-off the expense of unsuccessful innovations.119 Failure to transform technologies used in
production may lead to loss of market share.
There are also opportunities. The rapid growth in the solar energy sector is increasing demand for aluminum,
copper, lithium, and cobalt.120 The shift from oil and gas to electrification will increase the demand for mineralssuch as silver.121 New and innovative technologies to support the transition to lower carbon usage, such as battery
storage and other renewable energy storing technologies, and electric vehicle infrastructure, also present newopportunities. Similarly, technological innovations to retrofit of buildings or required in new construction ofresidential, office, and industrial buildings to meet new net zero building codes has opened up many opportunities
for products and services.
C. Regulatory risk
Government policy actions may tighten regulation, cap the use of resources, and introduce carbon taxes or othercarbon pricing mechanisms, which can reduce demand for products and services or increase operating costs.122
Canada’s carbon pricing legislation is a good example of policy aimed at internalizing the cost of emissions andencouraging companies to lower carbon-emitting production and services. Its constitutional validity will be
determined in the coming months by the Supreme Court of Canada. There may also be increased costs of enhanced
disclosure requirements or regulatory action as a result of non-compliance with existing climate-related disclosure
requirements.123 Canadian companies are also financially affected by governmental policy in other jurisdictions

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in which they operate. More than 40 countries have now enacted some form of carbon pricing, including many ofCanada’s trading partners. Deloitte observes that the audit committee may need to recognize new obligations of
their subsidiaries operating in other countries, such as fines levied for failing to meet climate-related targets.124
The UN PRI’s recent publication, ‘Inevitable Policy Response, preparing financial markets for climate-related
policy/regulatory risks’, reports that a forceful policy response to climate change within the near term is not priced
into today’s markets, and that it is inevitable that governments will be forced to act more decisively than they haveso far, leaving investor portfolios exposed to significant risk.125 It concludes that current reductions in carbon
emissions are not sufficient to limit global warming to a 1.5˚C target.126 Analyzing momentum-based drivers and lesspredictable, but equally high impact, triggers, it reports that the longer the delay, the more disruptive and abrupt
regulatory policy will inevitably be.127 Delays in regulatory responses in many jurisdictions are likely to result in
disruptive and disorderly transition, and thus transition risks related to climate are unlikely to be linear.
D. Social risk and changing stakeholder preferences
Stakeholder expectations of companies are shifting as the urgency of global warming becomes increasingly evident.
‘Social risk’ is a broad catchall of risks to many types of stakeholders and society at large, including consumers,
employees, pension beneficiaries, financial services advisors, credit rating agencies, and debt and equity investors’
policies and preferences in terms of social license to operate.
There are new intergenerational social alliances that are calling on companies to be accountable for their past,present, and future GHG emissions. International investors are increasingly assessing companies’ climate actionplans against the United Nations’ Sustainable Development Goals, which are expressly aimed at tackling climatechange in a manner that works towards ending structural inequality, racism and poverty; improving health andeducation; creating clean water; promoting economic growth and sustainable cities; and working to preserve
oceans and forests.128 The World Economic Forum reports that the transition to a low carbon economy raises
profound issues in respect of the future job market and the broader fate of communities, with serious concerns
regarding how transition will occur in a way that is fair and equitable.129
EY has observed that public demonstrations such as the global climate strike have been some of the strongest
forces driving companies to make better disclosures regarding their resilience to climate-related transition and

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physical risks.130 Its 2020 report card suggests that companies have made limited progress in addressing the quality
and coverage of climate-related financial disclosures, problematic when companies face increased scrutiny andpressure on their actions to mitigate climate change.131 It means that there is heightened risk of negative publicity inrelation to companies’ failure to have meaningful mitigation and adaptation plans.
Institutional investors are also increasingly incorporating ESG factors into investment decisions and practicing
active ownership and engagement on climate-related issues and larger social concerns such as impact on the rights,
well-being and interests of people and communities.132 The Institutional Investors Group on Climate Change
discussion paper, ‘Voting for better climate risk reporting: the role of auditors and audit committees’, emphasizes
how shareholders can hold audit committee directors and auditors to account for inadequate climate risk
reporting, including using engagement, refusing to vote for audit directors during reelection, and voting against
renewal of external auditor contracts.133

The rise of technology has ensured that stakeholders, not just shareholders, are now able to challengebusinesses on how they behave. As a result, transparent measurement and disclosure of sustainability
performance is now considered to be a fundamental part of effective business management, andessential for preserving trust in business as a force for good.
SASB, CDSB, CDP, GRI and IIRC, Statement of Intent to Work Together Towards Comprehensive
Corporate Reporting, 2020134

E. Litigation risk
There are numerous liability risks, but in terms of potential liability in Canada, the risk is primarily one relating toregulatory orders and/or fines to cure disclosure deficiencies, or lawsuits by investors alleging failure to disclosematerial climate-related risks to stakeholders. Under corporate law, courts will defer to the business judgmentsof directors in their decisions and actions, if they have acted with care and due diligence.135 That means that duly
diligent directors that adopt proactive approaches to climate mitigation and adaptation, drawing on external
advice and expertise as required, are unlikely to be found liable in hindsight for errors of judgment.

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However, as Hansell has observed, directors should be aware that their decisions about disclosure under securities
law are not protected by the business judgment rule.136 Davé et al observe that risk identification requires granularanalysis of customers and clients by region and sector, including identifying conduct and compliance risks.137
Litigation is a risk, as evident by the number of lawsuits pending globally on climate-related disclosure and alleged
failure of directors’ to meet their fiduciary duties and duty of care.138 While there are not yet lawsuits against
Canadian companies, the Canadian government is currently facing two lawsuits from Canadian youth regarding
the government’s failure to protect them from climate change. Lawsuits globally initiated by states, cities, private
investors, and members of society are seeking monetary damages from the major carbon emitting companies fortheir historic and current contributions to global warming. Similarly, social or legal action can be expected against
Canadian companies that fail to act to mitigate climate change.

2.

QUESTIONS FOR THE AUDIT COMMITTEE TO ASKManagement of climate-related risks is a responsibility of the corporate board. It is important that the directors
recognize that there is uncertainty in respect of climate financial impacts because the trajectory of global warming
will be determined by the complex interplay of government policy, business decisions, litigation outcomes, andpressures by civil society. Failure to meaningfully decarbonize may result in financial impacts being seriously
under-estimated. Climate change presents issues that affect business strategy, risk oversight, and financial
performance in the short, medium, and long term. In order to discharge their oversight responsibilities, audit
committees need to satisfy themselves that appropriate processes are in place to facilitate the flow of informationneeded for informed decision making. In this regard, best practice gathered from multiple sources suggests theaudit committee should consider asking itself the following questions.

i.

Oversight – Capability, Robust Process, and Methodology
o Do the board and audit committee have the appropriate skills and expertise needed for a robust assessmentof the climate-related financial risks and opportunities and their relevance to accounting and financial
statements, including how our business strategy should adapt?
o How do management, the audit committee, and the board gain and maintain an appropriate level ofunderstanding of the foreseeable risks and opportunities associated with climate change for a company
operating in our market(s), sector(s), and geographical region(s)?

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o How does the company determine which of these foreseeable risks may have a material impact on our
financial position, performance, and prospects, and how do we assess the potential impact of these issues on
our key drivers of risk and opportunity?
oWhat is our materiality threshold – both for management accounting and disclosure purposes?
oOn what basis are risk appetites set and these issues prioritized and managed?
o How do we set appropriate metrics for the assessment of relevant climate-related issues in the context ofour business? What are appropriate targets for our management of those risks within short-, medium-, andlong-term time horizons – and on what basis do we consider that these targets are credible? How do we verify
our progress against the targets?
o Have the potential risks and opportunities been stress-tested across scenarios representing the plausible
range of climate futures? On what basis have we determined that the scenarios are appropriately robust andinternally consistent?
oSpecifically, do our scenarios include a transition stress scenario that is Paris Agreement-aligned – iescience-based targets consistent with limiting global warming to well-below 2°C? What is our ‘central’ case?
oWhat are the strategic signposts that we continue to monitor in the face of considerable uncertainty?
oHave we considered whether the expected timing of the replacement of existing assets may be
accelerated?
o Climate change issues are extremely dynamic. What governance processes are in place to ensure thatemerging risks and opportunities are captured, assessed, and verified?
o

How is executive remuneration linked to the company’s achievement of its climate-related targets?

o Has external expertise been applied to analysis of climate-related issues? If so, how has the appropriatenessof their expertise been ascertained? If not, how are we satisfied that our internal capabilities are robust?
o Are the board and audit committee aware of how their investors, creditors, and other capital providers arefactoring climate-related risks into their investment and voting decisions?139

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o To what extent has the audit committee engaged in dialogue with the external auditor to evaluate
audit quality of climate-related risk and performance disclosure and to enhance the audit oversight by thecommittee?140 Has the audit committee discussed the likelihood of the external auditor raising climate-relatedrisks as a ‘key audit matter’?

ii.

Reporting – MD&Ao Does the MD&A describe our approach to climate-related risk governance, strategy, risk management, andmetrics and targets in a manner that is decision-useful for a reasonable investor? Do these disclosures addressrisks and opportunities for both our business model and value chain, and our approach to their management(exploitation) – over defined short-, medium-, and long-term time horizons? Do our disclosures include
progress against our targets? How have those statements been verified?
o Do our disclosures have regard to the TCFD recommendations, including stress-testing and scenarioplanning across the plausible range of climate futures? If we do, how has our report been reconciled against
the TCFD requirements? If not, why not?
o Are the relevant risks and opportunities, and our approach to their management, described with anappropriate degree of specificity? In particular, do our disclosures describe why the issue is important orsignificant to the company’s ongoing financial prospects, whether it is expected to increase or decrease in
relevance or materiality in the foreseeable future, and how we are approaching its management?
o Is the audit committee satisfied that the company is appropriately reporting key climate-related targets
such as targets related to GHG emissions, water and energy usage, and climate-related biodiversity impacts,
including for the full upstream and downstream value chain, where appropriate, in line with financial goals
and financial loss tolerances?141
o Has the audit committee asked management to give its best estimate of any forecasted changes in
consumer, supplier, and competitor behaviour expected to result in positive or negative changes in the volume
or price of future sales?

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o Is the audit committee confident that management has factored expected government action, such ascarbon pricing, standards to decarbonize activities, or income tax related changes, into estimates of future
cash flows and the discount rate? If management’s best estimate is that, while the exact nature of the regulatory
action is not certain, there will nonetheless be an effect on the company’s cash flows, it may be appropriate for
expected changes to be included in value-in-use calculations and stress tested.142
o Is the board, on advice of the audit committee, confident that the MD&A, financial statements, and othercontinuous disclosure documents integrate climate-related assumptions in the accounting estimates anddisclose management’s assessment of material climate-related risks and opportunities to current standards
required by Canadian securities regulators, corporate law, and stock exchange listing requirements?

iii.

Reporting – Financial Statementso What assessment has been undertaken to ensure that relevant and material matters disclosed in the MD&A
are consistently integrated across our financial statements?
o Which climate change-related variables are material to the accounting estimates in our financial
statements? How have these variables been considered and applied in determining these estimates? Have
relevant assumptions been applied consistently?
o
For example, how have relevant variables and assumptions been integrated into balance sheet
accounting estimates, including asset useful lives, fair values, impairments, provisions for onerous
contracts, and/or bad and doubtful debts?
o
Are we assessing how climate-related risk may impact the measurement of fair value or impairment
tests of assets?143
o Which material climate-related variables are a matter of significant accounting judgments and estimationsof uncertainty? Are there other reasonable assumptions that, if applied, would lead to materially different
accounting estimates?
o
For example, is the audit committee confident that management has appropriately considered theneed to modify cash flow forecasts to incorporate the anticipated timing, profile, and magnitude of theeffects of climate change?144

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o Does the audit committee have sufficient information to satisfy itself of the robustness and appropriatenessof the climate-related assumptions in management’s base case used in the preparation of the financial
statements?
oWhen climate change is a significant factor in a value-in-use calculation, is the disclosure providing
an explanation of the key assumptions used in impairment testing, depreciation rates, decommissioning,
restoration liabilities, and forecast effects on the company’s future cash flows?145
o Which material climate-related assumptions (and associated uncertainties) are material to investors’reasonable understanding of our financial statements, and thus warrant disclosure in the notes to the financial
statements – even where there is no quantitative impact on the relevant accounting estimate?
o Has the audit committee considered whether existing contracts may become onerous or unviable due tothe increased performance costs or due to decreasing benefits from fulfilling the contract?146
o Have any climate-related issues been raised as ‘key audit matters’ by our external auditors? Were any
climate-related matters subject of disagreement between management and our external auditors?
o Is the audit committee assessing and reporting the company’s disclosure of avoided-GHG-emissions
through the entire product life cycle, addressing whether the target is absolute or intensity based, time frames
over which the target applies, base year from which progress is measured, and key performance indicators used
to assess our progress against targets?147
Part 1 of the Appendix suggests more detailed sub-questions that can offer guidance on information, financial
processes and analysis, not all of which will be relevant to all audit committees.

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VI.		 Key Takeaways

Climate change and its impacts are a growing financial risk and all the company’s directors have a duty toidentify and manage material climate-related risks and opportunities in the best interests of the company andits stakeholders in the short, medium, and long term.
Uncertainty in respect of climate impacts and the trajectory of global warming does not mean that audit
committees can ignore the potential foreseeable financial impacts. It is critically important that climate
scenarios are considered and integrated into financial models for scenario planning and stress testing theresilience of the company’s business model.
The audit committee’s responsibility for oversight of the company’s financial statements includes ensuringthat relevant climate risks and opportunities are integrated into the assumptions underlying accounting
estimates and disclosed appropriately in the notes. It should also include a mandate to oversee and ensure theintegrity of identifying and reporting the financial effect of material climate risks, but the board as a whole is
responsible for oversight of climate strategy, risk management, and performance against goals and targets.
Climate risks and opportunities are likely to be increasingly raised by external auditors and audit committees
will need to be ready to engage.
Climate risk disclosure is not a check-the-box-exercise that can be satisfied with generic and vague risk
disclosure. Companies must ensure that public disclosure meaningfully reflects their estimate of climaterelated regulatory, physical, and operational trends and uncertainties.
While there is no one-size-fits-all model, the board and its audit committee should ensure that reviews ofclimate risks and opportunities are reflected in different organizational processes and that they are provided
with adequate information and expertise (internal and external) to make informed decisions.
There are a growing number of disclosure frameworks and best practice guidance that audit committees candraw on to meet their responsibilities; and the questions in this guide can facilitate the audit committee’s pathto effective oversight and disclosure.

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VII.		 Appendix

This appendix provides some additional insights that can guide audit
committees in their identification, management, and disclosure ofclimate-related risks and opportunities. They are drawn from existing
frameworks and accounting firm guidance. However, audit committees
should seek legal and accounting advice for complete guidance.

1.

DRILLING DOWN FURTHER – ADDITIONAL QUESTIONSFOR AUDIT COMMITTEESIn addition to the high-level questions above, the following supplementaryquestions might assist the audit committee at various stages of theassessment and reporting process. They are drawn from guidance issuedby CPA Canada, IFRS, Canadian Securities Administrators, and major
accounting firms. Not all questions will apply to all companies.
Ensuring the appropriate information is before the audit committee:oIs the audit committee provided with appropriate orientationand ongoing learning support to help members to gain and maintainan appropriate depth of understanding of sector- and market-specificclimate-related issues, and their potential relevance to the company’s
financial position, performance, and prospects?148o
Are the board and its audit committee knowledgeable about,and comfortable with, the methodology used by management to capture
the nature of climate-related financial risks and to assess the materialityof such risks, and their potential relevance to the company’s financial
position, performance, and prospects?149 Has the board clarified who is
responsible for which tasks?

Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORSoDoes the audit committee have sufficient data and information to
be satisfied that management is appropriately assessing the current andfuture financial impacts of material climate-related risks on the company’s
assets, liabilities, revenues, expenses, and cash flows over the short,medium, and long term?
Reviewing processes and technologies for continually assessing risks andopportunities:oIs the audit committee confident that the processes and resultsfrom internal audits of climate-related risks, programs, initiatives, andperformance are reported and monitored internally on an ongoing basis
to ensure priority action items are addressed in a timely fashion?
oHave the board and its audit committee asked management how
the company has deployed analytical tools and technologies to identify
patterns and correlations in company data to identify potential risks
regarding business processes, operations, and regulatory and security
issues?150
oWhat are the management projections regarding adjustments tothe timing and cost of assets as a result of climate change? Has the audit
committee considered disclosure of any acceleration of required cash
outflows for liabilities and asset retirement obligations linked to climatechange?151o
Has the audit committee reviewed the effectiveness ofmanagement’s enterprise risk management programs in relation to
identifying climate risks and opportunities, and has it assessed theeffectiveness of the organization in adjusting its risk appetite in responseto changes in the climate risk landscape?

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oIs the audit committee assessing whether the risk assessment
includes quantitative and qualitative considerations, and incorporates
adequately long-term perspectives regarding climate risks associated withcorporate objectives, growth strategies, new products, and climate-related
regulatory changes?152oWhat processes do the board and audit committee have in place
for monitoring regulatory updates in relation to climate change, and is theaudit committee sufficiently engaged in dialogue providing and soliciting
views and input as needed on regulatory consultations?153
Setting goals for the company in relation to climate-related risks and opportunitiesoHas management identified climate-related risks andopportunities for the business over the short, medium, and long term, andrecommended targets and actions to the board; and once approved by theboard, is the audit committee providing support and advice to the board in
its ongoing assessment of the financial resilience of the company’s businessplan, taking into consideration different climate-related scenarios?154oIs management reporting climate-related risks and opportunities
to the board using a consistent data-centric framework that enables theboard to effectively set goals and targets and integrate them into thecompany’s strategic plan to build resilience and long-term sustainability,
and is the audit committee recommending approval of management’s
financials on these climate risks to the board?155o
Has the audit committee engaged with management on thedevelopment of scenario analysis, and recommended key scenarios forfurther review at the board level, in order to identify options for increasing
the organization’s strategic and financial resiliency?156

Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORSo
To what extent has the audit committee engaged with managementon the appointment of external experts or consultants to assist in
the identification of climate change-related risks and opportunities,
assessments, valuation, and internal audit to support its recommendations
to the board on setting goals, targets, and an overall climate action plan,
including reviewing management projections and confirming that theassumptions on which the projections are based are reasonable andappropriate?
Developing the metrics for reporting progress towards goals and targets:oWhat frameworks are being used by management to measure,manage, and disclose climate-related risks and opportunities? Has
management developed relevant metrics that demonstrate governanceand performance related to climate change risks and opportunities?
oIs the audit committee satisfied that the disclosure frameworks
adopted by management are consistent with current best practices formeasuring and managing climate-related risks and opportunities, inparticular, with the recommendations of the TCFD?
o
Has the audit committee evaluated the company’s risk taxonomy
and existing processes and standards to determine whether it adequatelyreflects climate-risk-related materiality assessments.
o
Are these metrics linked to existing portfolios and exposure
thresholds and limits, and do they align with the firm’s disclosures on
climate-related risks and commitments, enabling appropriate audit
committee and board oversight?157

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oIs the board verifying that enterprise-wide risk assessments
capture all categories of climate-related risk — strategic, operational,
reputational, financial, and compliance — on a continuous basis, and havethe audit and other board committees provided the board with advice onthese decisions?158
Reporting material climate-related information in the financial disclosures:o
Are the audit committee and the board satisfied that the company
is adequately and sufficiently disclosing its processes for identifying,assessing, and managing climate-related risks and how the organization’s
overall risk management is reported in the financial statements?159oIs the audit committee ensuring that the company is disclosing
assumptions used in impairment testing, depreciation rates,
decommissioning, restoration, and other similar liabilities and financial
risk where they are material?160oIs the climate-related disclosure relevant, clear, understandable,
and entity-specific, including, where practicable, quantifying anddisclosing the potential magnitude and timing of financial and otherimpacts of such risks?161oDoes the disclosure identify any executive compensation programs
aimed at incentivizing management or directors to decarbonize?162o
Has the audit committee considered the costs and benefits ofobtaining independent, third-party assurance of the company’s climaterelated disclosure, including data associated with performance metrics
reporting?

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2.

DIRECTION FROM CANADA SECURITIES REGULATORSON DISCLOSURE OF CLIMATE-RELATED RISKSThe CSA has advised that audit committees and boards of publicly-listedcompanies should provide relevant, clear, and understandable entityspecific disclosure that will help investors understand how the issuer’s
business is specifically affected by all material risks resulting from climatechange, avoiding boilerplate disclosure.163 Where practicable, companies
should quantify and disclose potential financial and other impacts of suchrisks, including their magnitude and timing.164 The CSA recommends
that the board consider the effectiveness of the disclosure controls andprocedures in place in relation to climate change-related risks.165
In CSA Staff Notice 51-358 Reporting of Climate Change-related Risks,
Canadian securities regulators have advised that despite the potential
uncertainties and longer time horizon associated with climate changerelated risks, boards and management should take appropriate steps tounderstand and assess the materiality of these risks to their business.166
Certifying officers must certify, among other things, that the issuer’s
financial statements and the other financial information included in
the issuer’s MD&A, and if applicable, AIF, fairly present, in all material
respects, the issuer’s financial condition, financial performance, and cash
flows.167
In general, issuers should disclose material information relating toclimate change-related risks in an AIF, including risk factors relating
to the issuer and its business that would be most likely to influence aninvestor’s decision to purchase the issuer’s securities, and the MD&A,
in terms of offering an analysis of the issuer’s operations for the mostrecently completed financial year, including commitments, events, risks,

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or uncertainties that the issuer reasonably believes will materially affectits future performance. The CSA requires, pursuant to Form 58-101F1
Corporate Governance Disclosure, that non-venture issuers disclose
the text of their board mandate or explain how they delineate roles andresponsibilities regarding climate-related issues, and requires all issuers to
identify and describe the function of any standing committees, including
environmental or other committees responsible for managing climatechange-related issues.168 Also in Staff Notice 51-354, the CSA specifies that
audit committees, boards, and certifying officers should consider, among
other things, the assessment that management has made regarding themateriality of climate-change-related matters, and whether the disclosure
made in securities regulatory filings is consistent with this assessment.
Using the CPA Canada, ‘Climate Change Briefing: Questions for Directors
to Ask’ and SASB, ‘Engagement Guide for Asset Owners & Asset Managers’
as a basis, the CSA advises that boards should ask the following questions:• Is the board provided with appropriate orientation and information
to help members understand sector specific climate change-related
issues?
• Has the board been provided sufficient information, including
management’s materiality assessments in respect of the issuer’s
climate change-related risks, to appropriately oversee and consider
management’s assessment of these risks?
• Is the board comfortable with the methodology used by management
to capture the nature of climate change-related risks and assess themateriality of such risks?
• Is the board aware of how their investors are factoring climatechange-related risks into their investment and voting decisions?
• Is oversight and management of climate change-related risks andAudit Committees and Effective Climate Governance
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opportunities integrated into the issuer’s strategic plan, and if so, towhat extent?
• Has the board considered the effectiveness of the disclosure controls
and procedures in place in relation to climate change-related risks?169
The CSA has also published questions for management, which audit
committees can use to consider whether management is identifying andmanaging the appropriate issues:• Does management have, or have access to, the appropriate expertiseto understand and manage material climate change-related risks that
may affect the issuer?
• Has management appropriately considered how each of the different
categories of climate change-related risks may affect the issuer (eg,physical and transition risks)?
• Has management considered which business divisions or units
have responsibility for identifying, disclosing and managing material
climate change-related risks and what their reporting lines are
to senior management? To what extent are these responsibilities
integrated with mainstream business processes and decision-making?
• Is management aware of current climate change-related litigationthat may pose a litigation threat to the issuer now or in the future?
• Has management implemented effective systems, procedures andcontrols to gather reliable and timely climate-related information for
purposes of management analysis, decision-making and disclosure toinvestors, regulators, and other stakeholders?
• Has management appropriately assessed the current and futurefinancial impacts of material climate-related risks on the issuer’s
assets, liabilities, revenues, expenses and cash flows over the short,medium, and long term?

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• Is this disclosure entity-specific? 170
The CSA advises that for purposes of the AIF and MD&A, ‘information is
likely material if a reasonable investor’s decision whether to buy, sell or
hold securities in an issuer would likely be influenced or changed if theinformation in question was omitted or misstated’.171 It notes that securities
legislation imposes a different test for materiality in certain othercontexts, and issuers should consider the applicable test when preparing
disclosure in respect of climate-related information or other information.
The CSA states that omitting or misstating material information in
an issuer’s required continuous disclosure documents can lead to theboard, management, and the issuer itself facing potential risks, including
litigation, enforcement, or other regulatory actions such as an order torefile continuous disclosure documents.172
The CSA advises that determining whether information is material is a
dynamic process that depends on the prevailing relevant conditions at
the time of reporting. In assessing materiality, an issuer should consider
whether the impact of an environmental matter might reasonably be
expected to grow over time, in which case early disclosure of the mattermight be important to reasonable investors. This issue is particularly
relevant where the issuer is in an industry with a longer operation or
investment cycle or where new technologies are going to be required.173
In terms of time horizon, the CSA advises that, as with other types of
disclosure, materiality in cases of a known environmental trend, demand,
commitment, event, or uncertainty turns on an analysis of the probability
that the trend, demand, commitment, event, or uncertainty will occur,and on the anticipated magnitude of its effect.174

Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORSThe CSA Staff Notice states that issuers may be required to adapt their
existing approaches to risk assessments in order to better understand thepotential impacts of climate change-related risks and their materiality, andto consider the longer time horizon associated with these types of risks andhow to effectively quantify them. An issuer should not limit its materiality
assessment to near-term risks.175 The CSA states:
If an issuer concludes that a climate change-related matter
would likely influence or change a reasonable investor’s decision
whether or not to buy, sell, or hold securities of the issuer, we
expect it to be disclosed, even if the matter may only crystallize
over the medium- or long-term or if there is uncertainty whether
it will actually occur. The timing of realization of the risk and theuncertainty of it occurring may impact the analysis of whether
the matter is material but not whether it needs to be considered
and analyzed as to materiality. Even if the likelihood of the risk
occurring diminishes the materiality of the matter, issuers shouldstill consider whether it is appropriate to disclose the matter as arisk factor.
As part of a materiality assessment, issuers should not only
consider the existence of material climate change-related risks,
but also, where practicable, quantify and disclose the potential
financial and other impact(s) of such risks, including theirmagnitude and timing. In certain instances, securities legislation
may require the quantification of these types of risks. For example,
Item 5.1(1)(k) of Form 51-102F2 requires an issuer to disclose thefinancial and operational effects of environmental protection
requirements in the current financial year and the expected effectin future years. In other cases, issuers should consider how toeffectively measure and quantify climate change-related risks as

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part of their broader risk assessment process. While acknowledging
that the precise impacts of climate change-related risks may bedifficult to quantify or measure, we are of the view that issuers
should consider both quantitative and qualitative factors in making
their materiality assessments and may consider using assumptions
and estimates which have a reasonable basis and are within areasonable range. External resources and benchmarking against
industry peers may also be appropriate in this regard.176

3.

AUDIT COMMITTEES AND GUIDANCEFROM THE TCFD FRAMEWORKThe TCFD framework is increasingly being endorsed by governments,
financial institutions, accounting firms, and institutional investors as an
appropriate framework for climate-related financial disclosure. Its coreelements of recommended climate-related financial disclosures are:governance, strategy, risk management, and metrics and targets. As thisguide goes to print, the TCFD’s 2020 Status Report, released 28 October
2020, reports that over 110 regulators and governmental entities fromaround the world now support the TCFD, with governments embedding
its recommendations in policy and guidance and moving to require
TCFD disclosures through legislation and regulation.177 The TCFD reportsthat central banks and supervisors globally, through the Network forGreening the Financial System, have encouraged companies issuing public
debt or equity to disclose in line with the TCFD recommendations; andreports that while disclosure of climate-related financial information
has increased since 2017, further progress is needed, particularly notingthat reporting by asset managers and asset owners to their clientsand beneficiaries appears to be insufficient to ensure that clients andbeneficiaries have the right information to make effective financial
decisions. 177

Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORSThe TCFD ‘Implementation Guide’ observes that audit committees should
scrutinize climate-related financial information with the same rigour thatthey use for financial information. Applying the same process and quality
assurance to climate impact analysis will make a difference in the way
climate risks and opportunities are understood and communicated.178

i.

Governance

The TCFD recommends integrating climate change into key governanceprocesses, enhancing board-level oversight through audit and risk
committees. The TCFD notes that the ‘design, implementation, andmaintenance of a robust system of internal control over climate-related
information can enhance its utility for internal and external decision
makers’.179 The board should be describing the board’s oversight ofclimate-related risks and opportunities. It should describe management’s
role in assessing and managing climate-related risks and opportunities.180
The governance processes should be similar to processes used for existing
financial reporting and thus involve review by the chief financial officer
and audit committee.181 The TCFD recommends including a discussion of
the processes and frequency by which the board and/or board committees
are informed about climate-related issues; whether the board considers
climate-related issues when reviewing and guiding strategy, major plansof action, risk management policies, annual budgets, and business plans;
how it has considered climate-related issues in setting the organization’s
performance objectives, monitoring implementation and performance,
and in overseeing major capital expenditures, acquisitions, anddivestitures.182 The board should also disclose how it monitors and oversees
progress against goals and targets for addressing climate-related issues.
In describing management’s role, the TCFD recommends disclosure

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of how the company has assigned climate-related responsibilities tomanagement-level positions or committees; how these positions reportto the board, the audit or another committee of the board; processes bywhich management is informed about climate-related issues, and how
management monitors and is accountable for climate-related issues.183
The board should be disclosing any compensation programs aimed atincentivizing management to decarbonize.184

ii.

Strategy

The TCFD recommends that the company disclose the actual and potential
impacts of climate-related risks and opportunities on the organization’s
businesses, strategy, and financial planning where such information ismaterial, by describing the climate-related risks and opportunities theorganization has identified over the short, medium, and long term. It
should assess the resilience of the organization’s strategy and businessplan, taking into consideration different climate-related scenarios,
including a 2°C or lower scenario,185 taking account of valuation ofassets, assumptions used in impairment testing, depreciation rates,
decommissioning, restoration, and other similar liabilities and financial
risk.186 Scenario testing is an important tool to use in strategic planning, as
discussed below in part v below.
The audit committee should be verifying that enterprise-wide risk
assessments capture all categories of climate-related risk — strategic,
operational, reputational, financial, and compliance — on a continuous
basis.187 This assessment will help focus and recalibrate the key risks
directly linked to the organization’s overall strategy.188

iii.

Risk Management

Risk management is central to the role of the entire board. Corporate

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directors should be ensuring that there is accurate disclosure of thecompany’s processes for identifying, assessing, and managing climaterelated risks.189 The company should be disclosing how processes for
identifying, assessing, and managing climate-related risks are integrated
into the organization’s overall risk management.190
The TCFD recommends that the audit committee assess whether theenterprise’s risk assessment includes quantitative and qualitative
considerations and incorporates forward-looking perspectives regarding
climate risks associated with corporate objectives, growth strategies, newproducts, and environmental, social, and regulatory changes.191
Generally, results from internal audits are reported to the audit committee
and are monitored on a quarterly basis to ensure priority action items are
addressed in a timely fashion. The audit committee should be attentive tothe reporting of climate-related risks from these audits, ensuring that they
are being assessed internally on an ongoing basis.
Clarity in the information the audit committee needs to have, andin how it analyses and then reports oversight and management ofclimate-related risks and opportunities in the financial reporting is key.
The TCFD recommends a description of what is considered to be therelevant time horizons, taking into consideration the useful life of theorganization’s assets or infrastructure and the fact that climate-related
issues often manifest themselves over the short, medium and longer
term. It recommends a description of the specific climate-related issues
for each time horizon that could have a material financial impact on theorganization.192
The TCFD also recommends that for certain climate-related risks andopportunities, the company’s internal audit should extend to key

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suppliers, such as due diligence on third-party capabilities to shift toenergy efficiency, in order for the audit committee to more effectively
assess risks and monitor the effectiveness of associated responses.193
External assurance can support the business by identifying significant
issue assessment processes and, where practical, involve internal teams incharge of sustainability measurement, valuation, and reporting, as well asinternal audit, risk management, and related functions.194
The TCFD recommends that the audit committee should understandand describe how climate-related issues serve as an input to financial
planning, the time periods used, and how these risks and opportunities
are prioritized.195 They should describe the impact on businesses andstrategy, on products and services, supply chain and/or value chain,
adaptation and mitigation activities, and investment in research anddevelopment. They should describe any climate-related scenarios used to
inform the organization’s strategy and financial planning on operations,operating costs and revenues, capital expenditures and capital allocation,acquisitions or divestments, and access to capital.196

iv.

Metrics and Targets

The TCFD recommends that the board and its audit committee provide
the key metrics used to measure and manage climate-related risks andopportunities, including metrics related to water, energy, land use,
and waste management.197 Metrics should allow for trend analysis, andinclude a description of the methodologies used to calculate or estimate
the metric; describe whether and how related performance metrics areincorporated into remuneration policies; provide internal carbon prices
applied, if applicable; and provide climate-related opportunity metrics
such as revenue from products and services designed for a lower carbon
economy.198

Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORSThe audit committee should be getting information from management
on Scope 1 and Scope 2 GHG emissions and, if appropriate, Scope 3 GHG
emissions and the related risks.199 Scope 1 emissions are direct GHG
emissions of the company; Scope 2 emissions refer to indirect GHG
emissions such as from consumption of purchased electricity, heat,or steam; and Scope 3 emissions refer to other indirect emissions notcovered in Scope 2 that occur in the value chain of the reporting company,
including both upstream and downstream emissions.200 The TCFD
recommends that GHG emissions should be calculated in line with the
GHG Protocol methodology to allow for aggregation and comparability
across organizations and jurisdictions.201
The audit committee should ensure that management has performedinternal audits of GHG emissions data and systems, and that it is reportingto the committee and the board.202 Internal company auditors can assist
the audit committee in ensuring the integrity of information systems
and performance data related to key organizational risks, as both aid tointernal reporting purposes and for external reporting to stakeholders.203
External auditors can provide independent assurance on metrics andinternal controls over financial and other regulatory reporting.204
The company needs to describe key climate-related targets related to GHG
emissions, water usage, energy usage, etc, in line with financial goals andfinancial loss tolerances.205 It needs to calculate avoided GHG emissions
through the entire product life cycle; and assess net revenue goals for
products and services designed for a lower carbon economy, with thecompany addressing whether the target is absolute or intensity based, timeframes over which the target applies, base year from which progress ismeasured, and key performance indicators used to assess progress against

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targets.206 It is important to be able to communicate the methodologies
used to calculate targets and measures.
The TCFD framework provides flexibility for setting metrics and targets,but recommends that an emissions target be set using the risk analysis
under the business’ relevant climate scenarios, with companies setting
meaningful science-based targets in line with achieving net zero. 207
In June 2020, countries representing more than one half of global GDP
set or committed to set ‘net zero by 2050’ targets, and more than 900
companies have published science-based targets consistent with the Paris
Agreement. As such, defining emissions targets that are at least consistent
with meeting the goal of the Paris Agreement is fast becoming theminimum expectation for businesses.208v.

of scenarios.212 Using this assessment, the board should be identifying
options for increasing the organization’s strategic and business resiliency
to plausible climate-related risks and opportunities through adjustments
to strategic and financial plans.213 The TCFD recommends an iterative
approach to scenario analysis, noting that while some larger organizations
and investors are making use of scenario analysis, it is still developing, andexperiences should be shared to reduce costs.
Setting metrics and targets to address climate change effectively requires
the audit committee to assess the assumptions used in cash flow projections
that underpin recognition and measurement; the underlying assumptions
used in the preparation of the financial statements; ensuring thatclimate change information in narrative reports is ‘clear, balanced, andmeaningful’. The board should be assessing the readiness of the company tomake disclosures in line with reporting recommended by TCFD.214

Scenario Analysis under the TCFD Framework

The TCFD recommends scenario analysis as an important and useful tool
for audit committees and boards to understand strategic implications ofclimate-related risks and opportunities.209 Scenario analysis evaluates arange of hypothetical outcomes by considering a variety of alternativeplausible future scenarios under a given set of assumptions andconstraints.210 Scenarios are hypothetical constructs; they are not forecasts
or predictions, nor are they sensitivity analyses; rather, they are used tohighlight important elements of a possible future and draw attention to
the key factors that will drive future developments.211
The TCFD recommends that companies include scenario analysis as partof their strategic planning and/or enterprise risk management processes
by identifying a range of scenarios, including a 2°C or lower scenario,
that provide a reasonable diversity of potential future climate states;
evaluating the potential resiliency of their strategic plans to the range
Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORS

Building on the TCFD framework, PwC urges audit committees tosituate climate-related financial reporting within the broader mandateof sustainability, specifically, ESG risks and opportunities that could
impact a company’s ability to create long-term value.215 Sustainability
disclosures should include qualitative discussions and ESG metrics and key
performance indicators that are material to the business operations, anddisclosed information needs to be reliable and consistent.216 PwC reminds
audit committees that public disclosure of these data requires appropriate
policies, processes, and controls around the development of disclosures
to support the accuracy of the data.217 It observes that as ESG reporting
evolves and companies disclose more ESG metrics, the audit committee
needs to ensure these metrics are prepared with the appropriate rigour forinvestor use and can hold up to regulatory scrutiny.218
Also building on the TCFD framework, Deloitte points to a number ofCanada Climate Law Initiative I L’initiative canadienne de droit climatique
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other important considerations for audit committees:o Modify cash flow forecasts to incorporate the anticipated timing,
profile, and magnitude of the effect of climate change.
o Consider any restructuring or capital expenditure plans needed toaddress climate-related risks.
o If an asset is expected to be replaced due to climate-related
factors by an asset that does not significantly change the manner ofoperations, but instead is a technological upgrade fulfilling the samefunction, then the expenditure on the replacement and resultant
continuation of cash inflows should be included in a value-in-use
calculation. Conversely, if the replacement asset enhances the
economic output of the asset or cash-generating unit, the expenditureon the replacement and resultant continuation of cash inflows should
not be included in a value-in-use calculation.
o Consider whether expected timing of the replacement of existing
assets may be accelerated.
o When climate change is a significant factor in a value-in-use
calculation, disclosure should provide an explanation of the key
assumptions, but also of its forecast effects on the company’s future
cash flows. New contingencies may need to be disclosed for possible
obligations, or due to existing contingencies previously consideredremote becoming possible.219
Disclosures in the financial statements need to be consistent withstatements and strategies outlined in the company’s climate plan and otherstrategies.220 KPMG observes that each climate risk that is disclosed should
be described in its context as to why the risk is important or significant,and its potential impact on the entity’s financial prospects; and disclosure
should include any relevant associated analytical comments such aswhether the risk is expected to increase or decrease in the foreseeable
future and how these factors will be controlled or managed by the entity.221

4.

DEALING WITH UNCERTAINTY IN FINANCIAL REPORTING

It is important that the board and its audit committee recognize that there
is uncertainty in respect of climate financial impacts; however, the TCFD
and the CSA recommend disclosure of material climate-related risks,even where there is some uncertainty in projections. The Bank of Canada
observed that:
Assessing the impacts of physical and transition risks of climatechange on the financial system is one of the most urgent andprominent issues. However, uncertainties around the courseof climate change itself, the breadth and complexity of thetransmission channels, the direct and indirect impacts, and theneed to consider, in aggregate, some combination of both physicaland transition risks make it particularly challenging. Given thesensitivity of results to these underlying assumptions, hypotheticalclimate and transition scenarios can be used to explore thedirection and broad scale of outcomes.222
Deloitte has summarized some of the uncertainty issues that audit
committees may face and how they can address them:223
There is significant uncertainty around how much the global

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temperature will increase, what the impact of different climatechange scenarios on a company’s business might be, and how thesefactors may result in changes to cash flow projections or to the levelof risk associated with achieving those cash flows. It is therefore
necessary for companies to make assumptions about the impact ofclimate change when preparing cash flow projections that underpin
measurement and recognition in the financial statements, includingin the following areas:oCash flow forecasts for determining value-in-use to assess
impairments of assets, cash-generating units, and goodwill.
o
Forecasts of future availability of taxable profits in assessing
recoverability of deferred tax assets.
oGoing concern assessment over a period of at least twelve
months from the date of signing the financial statements.
oViability statement over a longer period, typically three tofive years.
The assumptions should be consistent with:orisk management, strategy, and business model disclosure;ocommitments made by the company to investors and otherstakeholders; andocommitments made by governments of jurisdictions inwhich the company operates, eg, the Paris Agreement or more
specific commitments like the UK Government’s commitment to

Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORS‘net zero by 2050’.
In line with investor and regulatory demand for transparency,
disclosures of assumptions made in the preparation of the financial
statements should be clear, balanced, and meaningful.224
KPMG advises material climate-related assumptions and associateduncertainties should be disclosed even if there are no quantitative impacts
on recognized balances.225 The UK Financial Reporting Council (FRC), in an
open letter to audit committee chairs in 2019, also addressed the issue of
uncertainty:226
In times of uncertainty, investors and other stakeholders expect
greater transparency of the risks to which companies are exposed
and the actions they are taking to mitigate the impact of those
uncertainties. The FRC expects companies to think beyond the period
covered by their viability statement and identify those keys risks thatchallenge their business models in the medium to longer term andhave a particular focus on environmental issues . . . companies should,
where relevant, report on the effects of climate change on theirbusiness (both direct and indirect). Such reporting should cover how
the Board has taken account of the resilience of the company’s businessmodel and its risks, uncertainties and viability in the immediate andlonger term in light of climate change. It should also consider the
impact on the financial statements, in particular in relation to asset
valuation and impairment testing assumptions.227
Deloitte gives the following advice to audit committees on reporting
impairment of non-financial assets:

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The uncertainties in relation to climate change may result in changes
to management’s cash flow projections or to the level of risk associatedwith achieving those cash flows, in which case they form part of avalue-in-use assessment. For instance:o
Revenue streams and growth forecasts may need to change
to reflect changing customer preferences, technology, andmarket trends.
oIncreased cost of resources and production, and costsof compliance with new policies or legislation may need to befactored in.
oAvailability of finance and net impact of availability andcost of insurance on cost of finance should be considered.228
All of these insights highlight that the board’s development of a climate
action plan is essential. The audit committee needs to support the board indeveloping and implementing a climate strategy based on its science-based
financial analysis.

5.

HOW THE WORLD ECONOMIC FORUM 2020 METRICSALIGN WITH THE TCFD AND OTHER FRAMEWORKS

As noted earlier, in September 2020, the World Economic Forum, incooperation with the four major global accounting firms, issued guidanceon ‘Stakeholder Capitalism Metrics’. The guidance can be used by boards toalign their mainstream reporting on performance against ESG indicators,
including climate change, and track their contributions towards theUnited Nations’ Sustainable Development Goals on a consistent basis.229
The World Economic Forum core metrics are primarily quantitative

Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORS

metrics for which information is already being reported by many firms or
can be obtained with reasonable effort.230 There are also expanded metrics
that represent a more advanced way of measuring and communicating
sustainable value creation. The core set of metrics is organized underfour pillars, principles of governance, people, planet, and prosperity. Italigns with the TCFD framework, but has materiality considerations thatencompass a broader set of stakeholders and a long-term consideration ofsustainability of the planet. Only the pillar of ‘planet’ is discussed here.
Under the planet pillar, the goal is to protect the planet from degradation,
including through sustainable consumption and production, sustainably
managing the company’s natural resources, and taking urgent action
on climate change in order to support the needs of present and future
generations.231 The report acknowledges that challenges remain in theaccurate quantification of Scope 3 emissions, but notes that companies
across all major sectors of the economy already report on Scope 3
emissions, and, in the context of the transition to a low carbon economy,material Scope 3 emissions may have a significant bearing on a company’s
potential for long-term value creation.232
The World Economic Forum recommends disclosure of GHG emissions
for all relevant GHG,233 reporting in metric tonnes of carbon dioxide
equivalent (tCO2e) GHG Protocol Scope 1 and Scope 2 emissions; andestimating and reporting material upstream and downstream (GHG
Protocol Scope 3) emissions where appropriate.234 The audit committee
should be considering generally accepted industry-specific GHG efficiency
ratios. Also, disclosure of GHG emissions metrics should allow for trend
analysis, with the audit committee ensuring that the disclosures include
a description of the methodologies used to calculate or estimate themetrics.235

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As part of the planet pillar, the World Economic Forum recommends
fully implementing the TCFD recommendations, including whether
the board has set, or has committed to setting, GHG emissions targets
in line with the Paris Agreement goals to limit global warming to well
below 2°C above preindustrial levels, pursuing efforts to limit warming
to 1.5°C, and goals to achieve net zero emissions before 2050.236 It notesthat the TCFD recommendations are already established as the primary
framework for disclosure of information on the management of climaterelated risks and opportunities in main annual filings, and it recommends
that a key objective is to elevate disclosure of metrics relating to people,
planet, prosperity, and principles of governance into main annual
filings.237 It observes that the TCFD framework provides a structure to helporganizations develop a climate strategy and governance arrangements tomitigate risk and take action on opportunities.238
Another core metric recommended by the World Economic Forum,
Deloitte, EY, KPMG and PwC is to report nature loss. It reports:
Nature underpins our economies and societies. A 2020 report by
the World Economic Forum and PwC concluded that $44 trillion of
economic value generation – over half of the world’s total GDP – ismoderately or highly dependent on nature and the services it provides.
The ongoing destruction of biodiversity worldwide and the consequentloss of nature’s many benefits to people – including protection
from floods and storms, regulation of climate and water resources,
pollination of crops, as well as aesthetic enjoyment and spiritualenrichment – present material risks to businesses and a major threat
to future living standards and overall human well-being. Reflecting
the severity and global scale of the problem, “biosphere integrity”(specifically the rate of biodiversity loss) is among two of the nine
planetary boundaries deemed to have been breached.239

Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORSThe World Economic Forum thus recommends using land use andecological sensitivity to report the number and area of sites owned, leased,or managed in or adjacent to protected areas and/or key biodiversity
areas;240 reporting water consumption and withdrawal in water-stressed
areas, including, where material, megalitres of water withdrawn and/or
consumed and the percentage of each in region with high or extremely
high baseline water stress;241 and estimating and reporting the same
information for the full upstream and downstream value chain, whereappropriate.242
The World Economic Forum encourages boards to consider the full setof recommended metrics and disclosures, and report on all metrics thatare material or relevant to the organization. However, in cases where a
specific metric is not material for a company’s long-term value creation,a ‘disclose or explain’ approach would help ensure companies explain
specific information omitted and the reasons for those omissions.243 It
recommends that the metrics reflect not only financial impacts, but prefinancial information that may not be strictly material in the short term,
yet is material to society and the planet and therefore may become material
to financial performance over the medium or longer term. The disclosure
should capture the impacts of their operations on nature and society acrossthe full value chain, including the monetary value of impacts.244
The World Economic Forum’s overall message is that boards and audit
committees have a significant opportunity to take a leading role in thedevelopment and execution of long-term business strategies – aimed at
effective climate-change mitigation and adaptation and protection of theplanet.

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REFERENCES‘Ibid’ refers to the reference immediately preceding; ‘note #’ refers to the earlier full reference.
The Intergovernmental Panel on Climate Change (IPCC) reported in 2018 that human-induced global
warming has already reached approximately 1°C above pre-industrial levels, and is increasing at 0.2°C per
decade. If the current warming rate continues, the world could reach human-induced global warming of
1.5°C as early as ten years from now, with serious consequences for economic activity, water and food security,and the health and well-being of countless individuals. See Intergovernmental Panel on Climate Change, M
Allen, O Dube, W Solecki, F Aragón- Durand, W Cramer, S Humphreys, M Kainuma, J Kala, N Mahowald, Y
Mulugetta, R Perez, M Wairiu, and K Zickfeld, ‘Framing and Context’ (hereafter IPCC, ‘Framing’) in V MassonDelmotte, P Zhai, H O Pörtner, D Roberts, J Skea, P Shukla, A Pirani, W Moufouma- Okia, C Péan, R Pidcock, S
Connors, J B R Matthews, Y Chen, X Zhou, M I Gomis, E Lonnoy, T Maycock, M Tignor, and T Waterfield (eds),
Global Warming of 1.5°C: An IPCC Special Report on the Impacts of Global Warming of 1.5°C above Pre-industrial Levels andRelated Global Greenhouse Gas Emission Pathways, in the Context of Strengthening the Global Response to the Threat of Climate
Change, Sustainable Development, and Efforts to Eradicate Poverty (IPCC 2019) at 51, https://www.ipcc.ch/site/assets/
uploads/sites/2/2019/06/SR15_Full_Report_High_Res.pdf. See generally IPCC, ‘Frequently Asked Questions’(2018), <https:// www.ipcc.ch/ site/ assets/ uploads/ sites/ 2/ 2018/ 12/ SR15_ FAQ_ Low_ Res.pdf>.
IPCC, AR5 Synthesis Report: Climate Change 2014, https://www.ipcc.ch/report/ar5/syr/.
3
See for example, the appellate judgments in Reference re Greenhouse Gas Pollution Pricing Act, 2019 ONCA 544 atparas 3, 104, and Reference re Greenhouse Gas Pollution Pricing Act, 2019 SKCA 40;
4
Miguel Molico, ‘Researching the Economic Impacts of Climate Change, Implications for monetary policy
and financial stability’, Bank of Canada (19 November 2019), at 1; https://www.bankofcanada.ca/2019/11/
researching-economic-impacts-climate-change/ (hereafter Bank of Canada).
5
Ibid at 1.
6
World Economic Forum, Global Risks 2020, An Unsettled World, (15 January 2020), https://www.weforum.
org/reports/the-global-risks-report-2020. It reports that worldwide economic stress and damage fromnatural disasters in 2018 totalled US$165 billion, and 50 per cent of that total was uninsured. Humans rely on
biodiversity in many ways, pollinating crops to curing diseases. ibid at 12, 31, 47.
7
Taskforce on Climate-related Financial Disclosures (TCFD), ‘Final Report, Recommendations of the Taskforce
on Climate-related Financial disclosures’, (2017) at iv, https://www.fsb-tcfd.org/wp-content/uploads/2017/06/
FINAL-2017-TCFD-Report-11052018.pdf (hereafter TCFD Final Report).
8
Deloitte, ‘A closer look - Climate change’, (2019), https://www.iasplus.com/en-gb/publications/uk/a-closerlook-climate-change (hereafter Deloitte).
9
Nick Anderson, ‘IFRS Standards and climate-related disclosures’ (November 2019), International Financial
Reporting Standards and International Accounting Standards Board, https://www.ifrs.org/news-andevents/2019/11/nick-anderson-ifrs-standards-and-climate-related-disclosures/ (hereafter IFRS Standards andClimate-related Disclosures).
10
Ibid.
11
SASB Standards, (2020), https://www.sasb.org/standards-overview/download-current-standards/.
12
NI 52-110 Audit Committees, (17 November 2015), https://www.bcsc.bc.ca/securities-law/law-and-policy/
1

Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORS

instruments-and-policies/5-ongoing-requirements-for-issuers-insiders/current/52-110/52110-auditcommittees-ni1. If no audit committee exists, the entire board of directors of the issuer must carry out thesefunctions.
13
There are some time-limited exceptions and exceptions for directors of affiliated companies in a corporategroup; Ibid, ss 3.2, 3.3.
14
Ibid, s 1.6.
15
Ibid, s 2.3(5).
16Part 6, NI 51-102 Continuous Disclosure Obligations, (6 June 2018), https://www.bcsc.bc.ca/securities-law/
law-and-policy/instruments-and-policies/5-ongoing-requirements-for-issuers-insiders/current/51-102/51102continuous-disclosure-obligations-ni1. Form 51-102F2 Annual Information Form or, in the case of an SEC
issuer, a completed Form 51-102F2 or an annual report or transition report under US securities law.
17
NI 51-102 Continuous Disclosure Obligations, ibid. See also the companion policy, 51-102CP - Continuous
Disclosure Obligations, (30 June 2015), https://www.bcsc.bc.ca/-/media/PWS/Resources/Securities_Law/
Policies/Policy5/51102CP-CP-June-30-2015.pdf (hereafter 51-102CP).
18
Companion Policy 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (hereafter 52109CP). There are also sector-specific disclosure instruments, such as NI 51-101 Standards of Disclosure for Oiland Gas Activities.
19
Government of Canada, ‘International Financial Reporting Standards (IFRS)’, (2020), https://www.canada.
ca/en/revenue-agency/services/tax/businesses/topics/international-financial-reporting-standards-ifrs.html(hereafter Government of Canada, IFRS). If the foreign company is also a US SEC issuer, it may use US GAAP,IFRS Foundation, ‘Canada’, (2020), https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-byjurisdiction/canada/.
20
Including a domestic or foreign stock exchange or an over-the-counter market, including local and regional
markets; Government of Canada, Publicly accountable enterprises, (2020), https://www.canada.ca/en/
revenue-agency/services/tax/businesses/topics/international-financial-reporting-standards-ifrs/publiclyaccountable-enterprises-paes.html.
21
Government of Canada, IFRS, note 19.
22
The IASB follows an extensive process to develop or revise each of the IFRS standards, including a workplan, a public and expert comment period, technical enquiries guidelines and due process, IASB, ‘How IFRS
standards are set’, (2020), https://www.ifrs.org/about-us/how-we-set-standards/
23
CPA Canada, ‘Accounting standards for private enterprises’, (2020), https://www.cpacanada.ca/en/businessand-accounting-resources/financial-and-non-financial-reporting/accounting-standards-for-privateenterprises-aspe/publications/aspe-general-adoption-faqs.
24
Canadian Accounting Standards Board, ‘About the AcSB’, (2020), https://www.frascanada.ca/en/acsb/about.
25
Canadian Securities Administrators, Staff Notice 51-358 Reporting of Climate Change-related Risks, (1August 2019), https://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20190801_51-358_reporting-of-climate-changerelated-risks.htm (hereafter CSA Staff Notice 51-358).
26
Ibid.
27
Often the company is registered in the province, territory or federally in which it is incorporated, but
companies can, and do, shift their registration jurisdiction over time.
28
See for example, the Canada Business Corporations Act, RSC 1985, c C-44, as amended 2020, ss 155-172.

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Ibid, s 171(1) and (3). There is a limited exception to having an audit committee set out in s 171(2).
Canada Business Corporations Act, note 28, s 122(1), and its sister provincial and territorial corporations statutes.
31
Peoples Department Stores Inc (Trustee of) v Wise, 2004 SCC 68, [2004] 3 SCR 461; BCE Inc v 1976 Debentureholders,2008 SCC 69 at para 39, [2008] 3 SCR 560.
32
For a discussion, see Janis Sarra, Fiduciary Obligations in Business and Investment: Implications of Climate Change(CCLI, 2018) at 1, https://ccli.ubc.ca/publications/ (hereafter Sarra, Fiduciary Obligations).
33
Carol Hansell, ‘Putting Climate Change Risk on the Boardroom Table’, (June 2020), https://law-ccli-2019.
sites.olt.ubc.ca/files/2020/06/Hansell-Climate-Change-Opinion-1.pdf?file=2020/06/PUTTING-CLIMATECHANGE-RISK-ON-THE-BOARDROOM-TABLE.pdf.
34
Ibid at 15, 22, and 23.
35
NI 52-102, s 1.1 and Part 7, note 16. See also Form 51-102F3 Material Change Report.
36
NI 52-102 Parts 4A and 4B, ibid.
37
NI 52-102, s 4.11(2) Change of Auditor, ibid. 51-102CP, note 17 provides additional guidance on materiality at s
4A.3.
38
NI 52-102, ibid.
39
52-109CP, note 18.
40
National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, s 4.1 (hereafter
NI 52-109). See also ss 2.1 and 5.1. In the case of an issuer that does not have a chief executive officer or a chief
financial officer, each individual performing similar functions is to certify the interim and annual financial
statements.
41
Ibid.
42
M Condon, A Anand, J Sarra ad S Bradley, Securities Law in Canada¸ 3rd ed Emond, 2017 at 282 (hereafter
Securities Law in Canada).
43
Québec Securities Act, 1982, c 48, 2001, c 38, s 1, as amended, s 5. Section 5.3 states that ‘material change’
for companies, ‘means a change in the business, operations or capital of the issuer that would reasonably be
expected to have a significant effect on the market price or value of any of the securities of the issuer, or adecision to implement such a change made by the directors or by senior management of the issuer who believethat confirmation of the decision by the directors is probable’. It also also states: ‘When used in relation to an
investment fund, “material change” means a change in the business, operations or affairs of the investment
fund that would be considered important by a reasonable investor in determining whether to subscribe for,purchase or continue to hold securities of the investment fund, or a decision to implement such a change
made by the directors of the investment fund or its investment fund manager, by senior management of
the investment fund who believe that confirmation of the decision by the directors is probable, or by senior
management of the investment fund manager who believe that confirmation of the decision by the directors of
the investment fund manager is probable.’44
IAS 1 Presentation of Financial Statements, 1.7, Clarified by Definition of Material (Amendments to IAS 1
and IAS 8), effective 1 January 2020, https://www.iasplus.com/en/standards/ias/ias1. IAS 1 sets out the overallrequirements for financial statements, including how they should be structured, the minimum requirements
for their content and overriding concepts such as going concern, the accrual basis of accounting and thecurrent/non-current distinction. The standard requires a complete set of financial statements to comprise astatement of financial position, a statement of profit or loss and other comprehensive income, a statement of
29

30

Audit Committees and Effective Climate Governance
A GUIDE FOR BOARDS OF DIRECTORSchanges in equity and a statement of cash flows.
45
TMX and CPA Canada, A Primer for Environmental & Social Disclosure August 2020, at 3, https://www.tsx.
com/resource/en/2388.
46
Ibid.
47
Ibid at 18.
48‘IFRS Standards and Climate-related Disclosures’, note 9; IASB, IFRS Practice Statement 2, Making
Materiality Judgments (March 2019), https://www.iasplus.com/en-ca/projects/ifrs/completed-projects-2/
principles-of-disclosure.
48‘IFRS Standards and Climate-Related Disclosures’, note 9.
49
Ibid.
50
IFRS, ‘Effects of climate-related matters on financial statements’ (20 November 2020), at 1, effects-ofclimate-related-matters-on-financial-statements.pdf (ifrs.org).
51
US Securities and Exchange Commission, SEC Staff Accounting Bulletin: No. 99 – Materiality, https://www.
sec.gov/interps/account/sab99.htm, which states: ‘The use of a percentage as a numerical threshold, such as5%, may provide the basis for a preliminary assumption that – without considering all relevant circumstances– a deviation of less than the specified percentage with respect to a particular item on the registrant’s financial
statements is unlikely to be material. The staff has no objection to such a “rule of thumb” as an initial stepin assessing materiality. But quantifying, in percentage terms, the magnitude of a misstatement is only the
beginning of an analysis of materiality; it cannot appropriately be used as a substitute for a full analysis of all
relevant considerations. Materiality concerns the significance of an item to users of a registrant’s financial
statements.’
52‘IFRS Standards and Climate-Related Disclosures’, note 9 at 3.
53
Ibid at 3.
54
The International Standards on Auditing (ISA) require that the auditor identifies and assesses the risks ofmaterial misstatement of the financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide abasis for the auditor’s opinion. Depending on the facts and circumstances of an entity, climate-related events
or conditions may contribute to the susceptibility to misstatement of certain amounts and disclosures in an
entity’s financial statements; International Auditing and Assurance Standards Board (IAASB), ‘Staff Audit
Practice Alert, The Consideration of Climate-related risks in an audit of financial statement’, (1 October 2020),
https://www.iaasb.org/publications/consideration-climate-related-risks-audit-financial-statement (hereafterInternational Auditing and Assurance Standards Board).
55
Ibid at 2. See also the Australian Accounting Standards Board and Auditing and Assurance Standards Board
joint bulletin, ‘Climate-related and other emerging risks disclosures: assessing financial statement materiality
using AASB/IASB Practice Statement 2’ (April 2019), https://www.aasb.gov.au/admin/file/content102/c3/AASB_AUASBJointBulletin.pdf.
56
International Auditing and Assurance Standards Board, note 54 at 3.
57
Bank of Canada, ‘Bank of Canada and OSFI launch pilot project on climate risk scenarios’ (16 November2020), Bank of Canada and OSFI launch pilot project on climate risk scenarios - Bank of Canada.
58
Victoria Gill, ‘Mark Carney: ‘We can’t self-isolate from climate change’, BBC News (7 May 2020), https://www.
bbc.com/news/science-environment-52582243.

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Stefan Mihailovich, CPA Canada, ‘Key Performance Indicators, Tool for Audit Committees’, (2017) CPA
Canada, at 12, https://www.cpacanada.ca/en/business-and-accounting-resources/strategy-risk-andgovernance/corporate-governance/publications/kpis-a-tool-for-audit-committees
60
TCFD Final Report, note 7; TCFD ‘Implementation Guide’ (June 2017), https://www.tcfdhub.org/resource/
tcfd-implementation-guide/.
61
TCFD Final Report, ibid at v.
62
TCFD Implementation Guide, note 60.
63
CSA Staff Notice 51-354 Report on Climate change-related Disclosure Project (5 April 2018), at 10-11, 29, CSA
Staff Notice 51-354 Report on Climate change-related Disclosure Project - (gov.on.ca).
64
TCFD, ‘TCFD Supporters’, (September 2020), https://www.fsb-tcfd.org/tcfd-supporters/ (hereafter TCFD
Supporters). TCFD, ‘Implementing the Recommendations of the Taskforce on Climate Related Financial
Disclosures’ (June 2017), at 3, FINAL-TCFD-Annex-Amended-121517.pdf (bbhub.io).
65
UN PRI, ‘TCFD-based reporting to become mandatory for PRI signatories in 2020’, (18 February 2019), https://www.unpri.org/tcfd-based-reporting-to-become-mandatory-for-pri-signatories-in-2020/4116.article.
66
UK Financial Reporting Council, ‘Letter to audit committee chairs and finance directors’, (30 October2019), https://www.frc.org.uk/getattachment/1cd740cd-f5b8-416c-b9b8-bebbddd4eaa3/Year-end-letter.pdf(hereafter FRC).
67
UK joint regulator and government TCFD Taskforce: Interim Report and Roadmap, (9 November 2020),
https://www.gov.uk/government/publications/uk-joint-regulator-and-government-tcfd-taskforce-interimreport-and-roadmap#:~:text=The%20UK%20has%20announced%20its,pathway%20to%20achieving%20that%20ambition.UK Government, A Roadmap towards mandatory climate-related disclosures (9 November2020), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/
file/933783/FINAL_TCFD_ROADMAP.pdf.
68European Commission, ‘Guidelines on reporting climate-related information’, (2019), Brussels, 17.6.2019 C(2019) 4490 final, https://ec.europa.eu/finance/docs/policy/190618-climate-related-information-reportingguidelines_en.pdf
69
The Large Employer Emergency Financing Facility is a Government of Canada program to provide shortterm liquidity assistance in the form of interest-bearing term loans to large Canadian employers affected by
the COVID-19 pandemic. The borrower must publish an annual climate‑related financial disclosure report,
highlighting how corporate governance, strategies, policies, and practices will help manage climate-relatedrisks and opportunities; and contribute to achieving Canada’s commitments under the Paris Agreement andgoal of net zero by 2050; https://www.cdev.gc.ca/leeff-factsheet/.
70
Ontario Capital Markets Modernization Taskforce, Consultation Report, (July 2020) at 27, https://files.
ontario.ca/books/mof-capital-markets-modernization-taskforce-report-en-2020-07-09.pdf.
71
The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors,
companies, standard setters, the accounting profession, academia, and non-governmental organizations(NGO) whose ‘purpose is to promote prosperity for all and to protect our planet’ (2020), https://
integratedreporting.org/the-iirc-2/.
72
World Economic Forum, in partnership with Deloitte, EY, KPMG and PwC, “Measuring Stakeholder
Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation”, White Paper,(22 September 2020), at 6, https://www.weforum.org/reports/measuring-stakeholder-capitalism-towards59

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common-metrics-and-consistent-reporting-of-sustainable-value-creation (hereafter World Economic
Forum). It includes 21 core and 34 expanded metrics and disclosures, which the project recommends to theInternational Business Council of the World Economic Forum (IBC) members and non‑IBC companies for
adoption.
73
CDP, ‘What we do’. CDP’s vision is: ‘We want to see a thriving economy that works for people and planet in thelong term (2020), https://www.cdp.net/en/climate. CDP was called the Carbon Disclosure Project until the endof 2012,74
Ibid. It requests information on climate risks and low carbon opportunities from the world’s largest
companies on behalf of over 515 institutional investor signatories with a combined US$106 trillion in assets and
147 major purchasers with over US$4 trillion in procurement spend.
75
Ibid.
76
Climate Disclosure Standards Board (CDSB), https://www.cdsb.net/. The CDSB has a framework that provides
guidance, principles and content elements on reporting to investors in financial disclosures regarding climate,natural capital, and other environmental issues, aligned to TCFD’s recommended disclosures. This framework
is often referenced for green bond issuance and may be less relevant for audit committees of corporate entities.
77
Impact Management Project, World Economic Forum and Deloitte, ‘Statement of Intent to Work Together
Towards Comprehensive Corporate Reporting, Summary of alignment discussions among leading
sustainability and integrated reporting organizations CDP, CDSB, GRI, IIRC and SASB’, (September 2020),
https://29kjwb3armds2g3gi4lq2sx1-wpengine.netdna-ssl.com/wp-content/uploads/Statement-of-Intent-toWork-Together-Towards-Comprehensive-Corporate-Reporting.pdf (hereafter Statement of Intent to Work
Together Towards Comprehensive Corporate Reporting).
78
SASB Standards, note 11. The SASB is a US-based independent standard setting board that has developed avoluntary set of globally-applicable, industry-specific standards that identify the minimal financially material
sustainability topics and their associated metrics recommended for a typical company in an industry.
79
SASB, ‘Connecting Business and Investors on the Financial Impacts of Sustainability’, (February 2020),
https://www.sasb.org/wp-content/uploads/2020/04/About-SASB-Sheet-ForBoD-022020.pdf.
80
SASB and CDSB, ‘TCFD Good Practice Handbook’ (September 2019), https://www.sasb.org/wp-content/
uploads/2019/09/TCFD-GoodPracticeHandbook-sm.pdf (hereafter TCFD Good Practice Handbook).
81
Global Reporting Initiative Standards, https://www.globalreporting.org/standards/.
82
Ibid.
83
International Federation of Accountants (IFAC), ‘Enhancing Corporate Reporting: The Way Forward’ (11September 2020), https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/
enhancing-corporate-reporting-way-forward.
84
IFRS Foundation, ‘Consultation Paper on Sustainability Reporting’, (30 September 2020), at 8, https://www.
ifrs.org/news-and-events/2020/09/ifrs-foundation-trustees-consult-on-global-approach-to-sustainabilityreporting.
85
Ibid at 4.
86
Science-based Targets Initiative, ‘Foundations for net-zero target-setting in the corporate sector’, https://sciencebasedtargets.org/
87
Ibid.
88
Science-based Targets Initiative, ‘Approaches and methods’, (2020), https://sciencebasedtargets.org/

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methods/.
89
Canadian Standards Association Group, Developing a Transition Finance Taxonomy as part of a National
Standard of Canada for Transition Finance (February 2020), https://www.csagroup.org/news/definingtransition-finance-in-canada/.
90
European Union, Taxonomy Regulation, (22 June 2020), in force 12 July 2020, Regulation (EU) 2020/852 of
the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitatesustainable investment, and amending Regulation (EU) 2019/2088, https://eur-lex.europa.eu/legal-content/
EN/TXT/?uri=CELEX:32020R0852.
91
European Union, Taxonomy: Final report of the Technical Expert Group on Sustainable Finance (March
2020), at 2, https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/
documents/200309-sustainable-finance-teg-final-report-taxonomy_en.pdf.
92
Roopa Davé, Meghan Harris-Ngae, and Ravipal Bains, webinar presentation, ‘Audit Committees and Climaterelated Financial Risk: Do you know your role as an audit committee member?’ (23 July 2020), view at https://www.youtube.com/watch?v=QQ3WcUiP_kU (hereafter Davé et al).
93
Ibid.
94
PwC, Sustainability/ESG Reporting—Why Audit Committees Need to Pay Attention’, (2020), at 2, https://www.
pwc.com/us/en/governance-insights-center/publications/assets/pwc-sustainability-esg-reporting-why-auditcommittees-need-to-pay-attention.pdf (hereafter PwC).
95
CSA Staff Notice 51-358, note 25.
96
Ibid.
97
Ibid.
98
Ibid.
99
KPMG, note 50.
100
CSA Staff Notice 51-358, note 25.
101
Ibid.
102
‘IFRS Standards and Climate-related Disclosures’, note 9.
103
TCFD Final Report, note 7 at 33-34.
104
World Economic Forum, note 72 at 13.
105
TCFD Final Report, note 7; Canadian Climate Governance Experts, (2019), https://ccli.ubc.ca/speakersbureau/.
106
Deloitte, note 8 at 5.
107
Bank of Canada, note 4.
108
KPMG, note 50 at 11.
109
Bank of Canada, note 4.
110
KPMG, note 50 at 11.
111
Bank of Canada, note 4.
112
Canada Climate Law Initiative, https://ccli.ubc.ca/; TCFD Knowledge Hub, https://www.tcfdhub.org/.
113
Bank of Canada, note 4.
114
Ibid.
115
Mark Carney, ‘Presentation to UK House of Lords Financial Affairs Sub-Committee’, (18 March 2020), https://committees.parliament.uk/committee/337/eu-financial-affairs-subcommittee/news/111646/mark-carney-

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questioned-on-green-finance-and-cop26/.
116
Canadian Climate Governance Experts, note 105.
117
Bank of Canada, note 4 at 2.
118
KPMG, note 50 at 11.
119
Deloitte, note 8.
120
World Bank Group/International Bank for Reconstruction and Development, ‘Minerals for Climate
Action: The Mineral Intensity of the Clean Energy Transition’, (2020), http://pubdocs.worldbank.org/
en/961711588875536384/Minerals-for-Climate-Action-The-Mineral-Intensity-of-the-Clean-Energy-Transition.
pdf.
121
Ibid.
122
TCFD Final Report, note 7; Deloitte, note 8 at 5.
123
CSA Staff Notice 51-358, note 25 at 11.
124
Deloitte, note 8 at 9.
125
UN PRI, ‘Inevitable Policy Response, Preparing financial markets for climate-related policy/regulatory risks’,(2020), at 2, https://www.unpri.org/download?ac=9833.
126
Ibid at 17.
127
Ibid at 2-3.
128
United Nations, Sustainable Development Goals, https://sdgs.un.org/goals.
129
World Economic Forum, note 72 at 32.
130
EY, ‘2019 EY Global Climate Risk Disclosure Barometer’, EY Inc, (27 April 2020), https://www.ey.com/en_gl/
climate-change-sustainability-services/how-can-climate-change-disclosures-protect-reputation-and-value.
131
Ibid. The report examines disclosures from over 950 companies across a range of sectors in 34 markets
during the 2018–19 reporting period.
132
See for example, University of Toronto Asset Management Corporation, ‘Responsible Investing’ (2020),
https://www.utam.utoronto.ca/responsible-investing/.
133
IIGCC, ‘Voting for better climate risk reporting: the role of auditors and audit committees’, https://www.
iigcc.org/download/iigcc-2018-voting-and-climate-risk/?wpdmdl=917&refresh=5dee6f5b13c1a1575907163.
134
SASB, CDSB, CDP, GRI and IIRC, Statement of Intent to Work Together Towards Comprehensive Corporate
Reporting, (September 2020), https://29kjwb3armds2g3gi4lq2sx1-wpengine.netdna-ssl.com/wp-content/
uploads/Statement-of-Intent-to-Work-Together-Towards-Comprehensive-Corporate-Reporting.pdf.
135
See the lengthy discussion in Sarra, Fiduciary Obligations, note 32.
136
Hansell, note 33.
137
Davé et al, note 92.
138
See also, CCLI, “Bracing for the Storm’, (February 2020).
139
CSA Staff Notice 51-358, note 25.
140
Ibid.
141
Ibid, in line with SASB.
142
Ibid.
143
Ibid at 10.
144
Deloitte, note 8 at 8 - 10.
145
Ibid.

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Ibid at 9.
Ibid.
148
EY Center for Board Matters, ‘What Canadian audit committees need to know at the end of 2019’, (22 January2020), https://assets.ey.com/content/dam/ey-sites/ey-com/en_ca/topics/assurance/what-canadian-auditcommittees-need-to-know-at-the-end-of-2019/ey-audit-committee-issues.pdf (hereafter EY Center for Board
Matters).
149
CSA Staff Notice 51-358, note 25.
150
Ibid at 9.
151
Deloitte, note 8 at 9.
152
EY Center for Board Matters, note 148.
153
Ibid at 23.
154
Ibid.
155
Ibid.
156
TCFD, The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities, TechnicalSupplement, (June 2017), at 4, https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-TechnicalSupplement-062917.pdf.
157
Ibid.
158
EY Center for Board Matters, note 148.
159
TCFD Final Report, note 7 at 14.
160
Deloitte, note 8 at 7.
161
CSA Staff Notice 51-358, note 25.
162
Deloitte, note 8 at 10.
163
CSA Staff Notice 51-358, note 25.
164
Ibid.
165
Ibid.
166
Ibid at 4.
167
Part 2 of NI 52-109, note 40.
168
CSA Staff Notice 51-354 Report on Climate change-related Disclosure Project (5 April 2018), at 5, CSA Staff
Notice 51-354 Report on Climate change-related Disclosure Project - (gov.on.ca).
169
Ibid at 5.
170
Ibid at 6.
171
Ibid.
172
Ibid at 7.
173
Ibid at 8.
174
Ibid.
175
Ibid at 9.
176
Ibid.
177
Task Force on Climate-related Financial Disclosures 2020 Status Report (28 October 2020), https://assets.
bbhub.io/company/sites/60/2020/09/2020-TCFD_Status-Report.pdf at 2-4
178
TCFD ‘Implementation Guide’, note 60 at 8.
179
Ibid at 10.
146
147

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Ibid.
TCFD Final Report, note 7 at 18.
182
Ibid.
183
Ibid.
184
Deloitte, note 8 at 9.
185
Ibid.
186
Ibid at 7.
187
EY Center for Board Matters, note 148.
188
Ibid.
189
TCFD Final Report, note 7 at 14.
190
Ibid.
191
EY Center for Board Matters, note 148.
192
TCFD Annex, (June 2017) at 27, https://www.fsb-tcfd.org/wp-content/uploads/2017/12/FINAL-TCFD-AnnexAmended-121517.pdf (hereafter TCFD Annex).
193
TCFD ‘Implementation Guide’, note 60 at 40.
194
Ibid at 10.
195
TCFD Annex, note 192 at 15-17.
196
Ibid.
197
Ibid.
198
TCFD Guidance, https://www.fsb-tcfd.org/publications/.
199
TCFD Annex, note 192.
200
Ibid at 79-80. For example, Scope 3 emissions could include: ‘the extraction and production of purchasedmaterials and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity,
electricity-related activities (eg, transmission and distribution losses), outsourced activities, and waste
disposal.’ Ibid.
201
Ibid.
202
CPA Canada, ‘A Primer for CPAs on Greenhouse Gas Emissions Management Systems’ (August 2018),
file:///C:/Users/sarra/Downloads/01718-RG-Primer-on-GHG-Emissions-Management-Systems-August-2018.
pdf.
203
CPA Canada, ‘How Chartered Professional Accountants Can Help Organizations Adapt to Climate Change’,
March 2016, file:///C:/Users/sarra/Downloads/Climate-Change-Mitigation-Adaptation-Brief-3-HowChartered-Professional-Accountants-Can-Help-Organizations-Adapt-February-2016.pdf.
204
Ibid.
205
Ibid.
206
Ibid.
207
TCFD Guidance, note 199.
208
World Economic Forum, note 72 at 59.
209
TCFD, ‘The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities’, https://www.
fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Technical-Supplement-062917.pdf
210Ibid at 2.
211
Ibid at 3.
180
181

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Ibid at 4.
Ibid.
214
Ibid at 3.
215
PwC, Sustainability/ESG Reporting—Why Audit Committees Need to Pay Attention, https://www.pwc.com/us/
en/governance-insights-center/publications/assets/pwc-sustainability-esg-reporting-why-audit-committeesneed-to-pay-attention.pdf.
216
Ibid at 2.
217
Ibid.
218
Ibid.
219
Ibid.
220
KPMG, note 50 at 5.
221
Ibid at 20.
222
Bank of Canada, note 4.
223
Deloitte, note 8 at 7.
224
Ibid.
225
KPMG, note 50 at 5.
226
UK FRC, note 66.
227
Ibid at 2.
228
Deloitte, note 8 at 7.
229
World Economic Forum, note 72.
230
Ibid at 6.
231
Ibid at 12.

Ibid at 56.
Such as carbon dioxide, methane, nitrous oxide, and F-gases, ibid at 9.
234
Ibid at 9, as recommended by TCFD, GRI and the GHG Protocol. The ‘people’ pillar urges companies todisclose information on diversity, dignity, and inclusion; the ‘prosperity’ pillar on employment and wealthgeneration, including employment, economic contribution, and financial investment contribution.
235
TCFD Annex, note 192 at 27.
236
Ibid.
237
World Economic Forum, note 72 at 56.
238
Ibid at 57.
239
Ibid at 27.
240
Ibid.
241
Ibid, according to WRI Aqueduct water risk atlas tool.
242
Ibid, in line with SASB.
243
Ibid at 13-14.
244
Ibid at 14. Other resources include: SASB Climate Risk Technical Bulletin https://library.sasb.org/
climate-risk-technical-bulletin/; SASB Implementation Guide for Companies https://library.sasb.
org/implementation-guide/; CDSB, ‘Uncharted Waters: how can companies use financial accounting
standards to deliver on the TCFD’s recommendations?’ http://cdsb.cdnf.net/sites/default/files/
tcfdandfinancialaccountingrecommendationsv.1.pdf; Deloitte, ‘Climate Change – Planet Earth does not havetime for excuses!’; Deloitte Financial Reporting Brief August 2019, https://www2.deloitte.com/uk/en/pages/
impact-report-2019/stories/climate-change.html.

212

232

213

233

Endnotes

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