Investment

Climate change / sustainability planning and emergency funding mechanism of large employers

Key points to remember

  • Loan recipients will be required to publish an annual report in line with the recommendations of the Financial Stability Board Working Group on Climate-Related Financial Reporting (TCFD Recommendations).
  • Reports will be required as long as LEEFF loans remain outstanding.
  • The LEEFF terms and conditions as well as the TCFD recommendations require employers to identify climate-related opportunities that will help Canada meet its net zero commitments by 2050 under the Paris Agreement.
  • In summary, the LEEFF program will require companies not only to identify their climate-related risks, but also to develop forward-looking plans to promote sustainability and reduce their climate impact.

Context of the LEEFF

On May 11, 2020, the federal government announced the LEEFF, which will provide bridge funding to large Canadian employers. Generally, eligible employers are those who:

  • Have significant operations or staff in Canada.
  • Can demonstrate approximately CAD 300 million or more in annual revenue.
  • Require a minimum loan amount of CAD 60 million.

The Canada Development Investment Corporation (CDEV) will deliver the program. CDEV has announced that LEEFF loans will be subject to commercial terms. (Note: Companies found guilty of tax evasion are not eligible for LEEFF.)

Climate related reporting and planning

Mandated according to the terms and conditions of LEEFF

CDEV has published some of the main terms and conditions for LEEFF loans. These include the requirement to publish: “an annual climate financial reporting report, outlining how corporate governance, strategies, policies and practices will help manage the risks and opportunities associated with the climate. weather ; and contribute to meeting Canada’s commitments under the Paris Agreement and the goal of net zero by 2020. ”

This requirement will be in effect as long as the loan is current.

The federal government has indicated that these reports must comply with TCFD recommendations.

Reports according to TCFD recommendations include forward planning

The TCFD recommendations are a comprehensive set of disclosure standards developed by an industry-led task force at the request of G20 finance ministers. It formulates general and sectoral recommendations for effective climate reporting. He recommends reporting in four categories:

  1. Governance
  2. Strategy
  3. Risk management
  4. Metrics and targets.

Notably, the TCFD’s recommendations regarding the “strategy” strongly suggest that recipients of LEEFF loans will need to develop forward-looking plans to promote sustainability and reduce carbon emissions.

In its guidelines for all sectors, the TCFD recommends disclosure of “climate-related risks and opportunities, taking into account a transition to a low-carbon economy”. This includes “how [an organization’s] strategies could change to address potential risks and opportunities. The TCFD also provides extensive technical advice on scenario-based forward-looking analyzes to better identify and assess climate-related risks and opportunities.

The TCFD recommendations include many examples of sustainable development and climate related opportunities and their potential financial impact. For example:

  • Using low-emission energy sources can reduce operating costs.
  • R&D on low-emission products and services can lead to a better competitive position in light of changing consumer preferences.
  • Participation in renewable energy programs and adoption of energy efficiency measures can lead to increased market value through resilience planning.

Taken as a whole, the TCFD recommendations strongly suggest that companies don’t just disclose climate-related risks in order to respond. Disclosure in line with TCFD recommendations includes identifying opportunities to reduce climate-related risks and articulating how to implement more sustainable and climate-reduced strategies.

Conclusion

Although the TCFD recommendations are not drafted in legal and mandatory language, their inclusion in the LEEFF program requirements means that employers should be aware of the scope of the statement. TCFD recommendations go beyond disclosure and extend to planning. Loan recipients will need to assess the risks and opportunities, and describe how their business strategies will evolve in light of Canada’s commitments in the Paris Agreement.