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HomeMy WebLinkAboutDraft Template Letter1 [This draft template letter may be used as a basis for written submissions to the CSSB. Please rephrase and customize the letter to your position on the proposed standards] Chair, Charles-Antoine St-Jean Canadian Sustainability Standards Board (CSSB) 277 Wellington St W Toronto, Ontario M5V 3H2 Submitted via FRAS Canada Internet Portal [Your Name Your Address Your Town Your Postcode] [Date goes here] Feedback on CSSB CSDS 1 (Sustainability) and CSDS 2 (Climate-related) Financial Disclosures Dear Chair St-Jean, Thank you for the opportunity to provide stakeholder comment on this proposed accounting standard. [or some other nicety] We are a xxx organization operating in xxx. [introduce yourselves in a sentence or two] We strongly disagree with the objective and entire rationale of the Canadian Sustainability Disclosure Standards – General Requirements for Disclosure of Sustainability-related Financial Information (CSDS 1) and Climate-related Disclosures (CSDS 2). This is another layer of expense that will be added throughout the value chain, down to small operations, with little gain for larger companies, investors, or consumers. Furthermore, as a matter of principle, these standards violate the core of a free enterprise and free-market system that Canada is supposed to embody because they skew the playing field and distort investor decision-making. Scope 3 Emissions Accounting The requirement of Scope 3 emissions in CSDS 2 will trickle down to non-publicly listed companies and operations. This is a costly and complicated undertaking to try to figure out all the emissions in all that a business does. We are concerned that Scope 3 emissions accounting will be filled with uncertainty. It requires further development and a more consistent methodology and process which is currently lacking because there will be multiple counting of the same emissions that will distort investors’ perspectives. We ask that Scope 3 emissions accounting be optional. Industry-based Guidance In both CSDS 1 and CSDS 2 the SASB or ISSB Industry-based Guidance on Implementing Climate-related Disclosures is required. The Industry-based Guidance does not treat all industries equally, and it uses or relies on Aqueduct, the World Resources Institute (WRI) Water Risk Atlas Tool, which is inappropriate for this purpose. Unfair Treatment Wind developers receive preferential treatment in the Industry-based Guidance particularly when compared to solar panel production and the oil and gas industry. For example, under “materials efficiency” wind developers must disclose the top five materials consumed in greatest amounts excluding “materials consumed in production (for example waste), freight, 2 storage and installation (for example, foundation).” The largest emissions footprint of a wind project is the foundation and transport of the wind turbines from manufacturer to installation. By excluding the foundation and transport, wind projects receive an unfair accounting of emissions that puts them at a competitive advantage over other forms of energy production. In addition, under materials optimization, a wind developer can get credit for designs that reduce materials consumed in the installation of wind turbines such as the foundation even though it does not have to account for the foundation in its top 5 materials. Whereas solar developers must account for the energy required in the production of the solar panels, there is no energy accounting requirement for wind turbine production. Oil and gas exploration and production companies must report not only the Scope 3 emissions from others using their products, they also must report the gross potential emissions embedded in a company’s hydrocarbon reserves. This will be counted against a company as part of its overall emissions. It is not right that reserves will now be considered a liability rather than an asset, while wind projects and developers get a pass on the most emissions intensive aspect of their production and operations. Water Risk and Aqueduct Tool The use of the WRI Aqueduct tool is a problem because it was never designed for this purpose. Investors will likely believe that the Aqueduct information has pulled together and analysed local and regional data to provide a reliable assessment. But the WRI offers a disclaimer on the tool and states itself that “Aqueduct remains primarily a prioritization tool and should be augmented by local and regional deep dives.”1 For the 29 industries that Aqueduct is used, it is a binary question asking whether or not an operation is taking place in or is sourcing ingredients or livestock from areas of high to extreme-high water stress. This binary choice does not provide adequate and decision useful information for investors and actually could undermine investor decision-making, meaning Albertan livestock – because of the Aqueduct tool – could very well be disqualified from purchase by large processors or purchasers that are publicly listed. One of the water metrics only asks for absolute water drawn and doesn’t differentiate between fresh or brackish water. Given these severe but little-known limitations of the Aqueduct program and its data, and the unfair treatment between different industries within the SASB standards, we request that the Industry-based Guidance be optional. Climate Scenario Analysis There are serious problems with mandating climate scenario analysis such as its evolving applicability to climate as well as compliance cost. It has not yet been demonstrated that climate scenario analysis is actually helpful or beneficial to an entity and we are concerned that publicly listed companies may curtail operations in our region due to inaccurate predictions from climate scenario analysis. Although the standards provide a two-year relief from this requirement, there are significant costs for conducting climate scenario analysis that other competing jurisdictions are not mandating. We request that climate scenario analysis be voluntary. Liability There are many sections of the CSSB standards that expose companies, and those reporting to them like small or individual operations, to potential liability and litigation. There is a great deal of forward-looking or future-casting or reporting of information outside the direct control of a company, such as transition planning and Scope 3 emissions accounting. We notice that a safe harbour for uncertainties of statements, data, and projections is not included within CSDS 1 or CSDS 2 even though other jurisdictions like Australia and the US provide a safe harbour for statements concerning Scope 3 emissions, climate scenario analysis, and transition plans. 1 https://www.wri.org/data/aqueduct-global-maps-40-data. 3 We request that a safe harbour for reporting on indirect data, subjective, and forward-looking information, such as Scope 3 emissions, climate scenario analysis, and transition plans is included in the standards. Cost of Compliance All of the above and more within the standards add up to significant costs of compliance. In researching these standards and trying to figure out how much all of this will cost to comply, we were pointed to the Australian government’s cost impact analysis. Converted into Canadian dollars, for publicly listed companies with at least 100 employees and $50 million in annual turnover, the average initial transitional cost of compliance is about $1.1 million with annual recurring costs of $641,000.2 That is money that could otherwise go to improving products and services or paying profits to investors. That money is lost from the company; it is not an investment in the company, but rather it goes towards climate consulting firms – all of whom, by the way, seem to be cheering the standards for obvious reasons. We request that the extent and breadth of requirements be reconsidered in order to lower the cost of compliance or Canadian companies will be at a competitive disadvantage with our biggest trading partners. Competitive Disadvantage As a member of the US-Canada-Mexico trading agreement (formerly NAFTA), Canada ought to be more in alignment with our USCMA trading partners than others in the international community with whom we conduct very little trade. These standards seem to align Canada with the European Union – only 8% of our export trade goes to the EU, whereas 78% of our export trade goes to the US. We understand that the US Securities and Exchange Commission (SEC) introduced a climate rule, but it is before the courts. However, even if the courts uphold the rule, the SEC rule does not require Scope 3 emissions accounting (it is optional); Climate scenario analysis is voluntary; there is no mandatory water risk assessment because industry-based guidelines are voluntary; transition plans are voluntary; and there are safe harbour provisions that will lower legal and liability costs. Our understanding is that Mexico is not considering any climate-related financial disclosures. Mexican manufacturers and food producers will not have this added financial or regulatory burden, which will put Canadian producers at a competitive disadvantage. The standards being considered in Canada at the moment are so significantly different from what the US and Mexico are doing, that once mandatory, Canadian companies will be put at a competitive disadvantage with our continental trading partners. We request that reporting requirements be in alignment with our main trading partners rather than the EU. Please accept and seriously consider our above suggestions. Sincerely, xxx xxx 2 https://oia.pmc.gov.au/sites/default/files/posts/2024/01/Impact%20Analysis_0.pdf.