As anyone can attest, the focus on climate change-related issues in Canada and internationally has gathered momentum in recent years. Now, amidst the global health crisis presented by COVID-19, governments, action groups, and citizens are reflecting on how to address these twin crises.

One proposed strategy is to leverage the pandemic into an opportunity by tying government stimulus packages to efforts to reach the Paris Agreement targets, thereby encouraging businesses to transition away from a fossil-fuel-based economy, rather than blocking these goals.

On May 11, 2020, as part of Canada's COVID-19 Economic Response Plan, Prime Minister Justin Trudeau announced the Large Employer Emergency Financing Facility (LEEFF), a program meant to provide short-term loans to large Canadian employers who have been affected by the COVID-19 outbreak. Employers who can demonstrate a significant impact on Canada's economy and who commit to certain terms and conditions are eligible to apply for assistance under the program. In line with global calls for sustainable stimulus packages, the program's terms and conditions require companies that receive government assistance to publish an annual climate‑related financial disclosure report. The report must highlight how the company's corporate governance, strategies, policies, and practices will help manage climate-related risks and opportunities, and contribute to achieving Canada's commitments under the Paris Agreement and the goal of net-zero emissions by 2050.

The new disclosure obligations under LEEFF add to public companies' existing disclosure obligations under Canadian securities legislation, which require reporting issuers to disclose the material risks affecting their business and, where practicable, the financial impacts of such risks. They also add to existing voluntary disclosure mechanisms, such as the Task Force on Climate-related Financial disclosures which has already received major support from the world's leading banks, asset managers, pension funds and insurers, credit rating agencies, accounting firms, and shareholder advisory firms, all together representing a fifth of global GDP.

As the evidence mounts regarding climate change's impact on physical risks, such as forest fires, floods, and storms, and the transitional risks inherent to an eventual shift away from a fossil-fuel-based economy, the government's decision to double down on mandatory disclosure obligations is in line not only with citizen calls to action, but also with investors' and insurers' increasing interest in the material risks, opportunities, financial impacts and governance processes related to climate change. With this in mind, companies must take their reporting obligations seriously if they are to avoid an uptick in securities litigation related to failure to disclose climate change risks and related D&O claims.

As Canada begins to re-open its economy, the government's announcement of LEEFF adds one more pressure point to incentivize Canadian companies to engage in more responsible corporate behavior, and signals that response measures to Covid-19 and climate change can go hand in hand.  For insurers, LEEFF is one more signal that even as the world moves into the “new normal,” there will be ever-growing demand for D&O coverage tailored to respond to climate change-related risks.

Originally published by Clyde & Co, August 2020

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