Fossil fuel companies pour on the pressure to weaken disclosure rules

Fossil fuel companies are pressuring a financial standards agency to weaken proposed rules to report on greenhouse gas emissions. If the board caves, it could threaten Canada’s economic position through the energy transition, experts say.

The Canadian Sustainability Standards Board (CSSB) is currently studying whether Canada should adopt an internationally recognized set of standards for emissions disclosure. The CSSB is not a federal body, but is an influential agency Canadian financial regulators are looking to in order to inform the rules they will set. The goal is to create a benchmark for emissions reporting to give investors a sense of how risky an investment is as the energy transition unfolds.

Simply put, the higher a company's emissions, the more vulnerable it is in a world increasingly focused on reaching net-zero emissions by mid-century. That’s why investors want to know how exposed companies are to the energy transition.

In March, the CSSB launched a consultation process to gather feedback on implementing the international standards, including whether fully adopting the standards, or constructing rules unique to Canadian companies would be useful. More than 20 countries representing over half of global GDP have already adopted the international rules.

This month, the CSSB published the submissions it received, revealing significant pushback from fossil fuel companies and industry associations.

Companies like Enbridge and TC Energy, alongside fossil fuel lobby groups including the Canadian Gas Association, the Canadian Fuels Association, the Mining Association of Canada, and the Canadian Association of Petroleum Producers, submitted recommendations to the CSSB calling for less stringent emissions reporting rules, according to an analysis of the submissions from U.K.-based think tank InfluenceMap.

Common to many of those submissions was an argument that Canada should align with the United States Securities and Exchange Commision (SEC) rules, which do not require companies to report their Scope 3 emissions. In the fossil fuel industry, Scope 3 refers to emissions when the product is ultimately burned, like what comes from a vehicle’s tailpipe. (Scope 1 and 2 emissions, which include a company’s other, more directly controlled, emissions, are already part of the reporting structure.)

“This would mean companies would not have to disclose the full picture of their contribution to climate change to investors or policymakers, and would mean Canadian regulation would fall out of step with the ‘global baseline’ of climate disclosures promulgated by the ISSB, said Cleo Rank, a senior policy analyst with InfluenceMap, in a statement.

Rank says following the SEC’s lead would mean making the same mistakes as the U.S. made in response to pressure from its own industries.

“The SEC’s rules were weakened following significant political and corporate pushback — Canada does not have to follow suit,” she said.

For fossil fuel companies, Scope 3 emissions represent the overwhelming majority of emissions related to their business (about 80 per cent). It is a compelling metric that helps investors understand, “more than almost any other piece of information, how exposed that investment is to transition risk,” said Adam Scott, executive director of Shift: Action for Pension Wealth and Planet Health, in an interview with Canada’s National Observer.

He says that is precisely why Canadian fossil fuel companies are fending off efforts to disclose this information.

“If you're Enbridge, and you're shipping oil, and your Scope 3 emissions are high, we [know we] have to transition away from the product,” he said. “What it signals to the investor is… this company is really likely to be disrupted as we transition.

“So of course, Enbridge is doing everything in its power to not have to disclose that to investors because investors will run away screaming from the company, because they don't want to be exposed to that climate risk.”

In its five-page submission to the CSSB, Enbridge said proposed new rules should address “Canadian-specific reporting needs.”

“Enbridge recommends that the requirement to report Scope 3 GHG emissions and scenario analysis be removed… which would align more closely with the SEC,” the gas giant said in its submission. If Scope 3 emissions are included, the company said it would need three to five years to begin reporting it, pushing full emissions disclosure off until close to 2030, or beyond depending on the pace of implementation.

Matt Price, executive director with Investors for Paris Compliance, told Canada’s National Observer the fossil fuel industry is going to fight any progress on emissions disclosures, and that he finds it concerning that there is such fierce pushback to “basic metrics,” let alone requiring companies actually act on the metrics by cutting emissions.

Enbridge has “two different things they say to two different audiences,” Price said.

“What they're telling investors is they made a commitment to improve their own Scope 3 emissions disclosure… Then they turn around and use the excuse that the Americans are dragging their feet to say we should drag our feet too.”

Price said the SEC rules are “a floor, not a ceiling,” and so Canadian companies could align with both international and American rules by adopting the stronger standard.

Emissions disclosures are just one part of emerging rules to help align global finance with efforts to limit global heating to 1.5C – the goal of the Paris Agreement. The U.K. has launched a transition plan task force to develop guidelines for credible transition plans, and it is expected other rules to standardize things like nature and biodiversity protection could materialize too.

As these rules develop, it’s crucial Canada stay in lockstep rather than going it alone, Scott said.

“A made-in-Canada approach is completely the wrong thing to do here,” he said. “These are about basic international standards and so going your own way is a signal to the market to avoid Canada.”

For global investors “it’s a big red flag” if Canadian companies are not transparently disclosing the risks they face in a less fossil fuel-reliant future.

“If the global oil market is going to go into decline, which experts on several fronts have told us is going to happen within the next couple of years, we're going to see a decline in global oil demand [and] that's going to have very material financial impacts on any company in that supply chain,” Scott said.

Fossil fuel companies like Enbridge “see the writing on the wall. They know they're exposed to those risks, [and] they know that big investors are going to treat them differently if they disclose those risks as they should.”

In a statement, Enbridge reiterated its position that it believes Canada should align with the United States because differing standards is “problematic.” The company did not explain why it would not support the more ambitious international standards that would also satisfy American disclosure rules.

“The tracking, measuring and reporting of scope 3 emissions from sources not owned or controlled by the company is extremely difficult – particularly after the product is refined and developed into thousands of products,” said Enbridge spokesperson Gina Sutherland. “This complexity is widely acknowledged by environmental and accounting organizations.”

“Despite the challenges around disclosing Scope 3 emissions, we have been continually improving our Scope 3 disclosures,” she added. “We continue to work with others to develop guidance for reporting scope 3 emissions in our sector and to work with regulators on the climate-related disclosure requirements in Canada and the U.S.”