Sustainability reporting in Canada is evolving. In March 2024, the Canadian Sustainability Standards Board (CSSB) published its draft Canadian Sustainability Disclosure Standards with the aim of finalizing these new disclosure requirements by the end of the year.
The move marks another important milestone in Canada’s sustainability journey, following hot on the heels of the country’s mandatory disclosure rules relating to climate-related financial risks for federally regulated institutions, which also came into force this year.
Steps such as these will be key to achieving Canada’s 2030 Emissions Reduction Plan to cut greenhouse gas (GHG) emissions by 40% – 45% by 2030, and toward the country’s goal to transition to net-zero by 2050.
But what do these two disclosure requirements mean for businesses in Canada? Let’s take a look and find out.
what’s expected from the CSDS?
Developed by the Canadian Sustainability Standards Board (CSSB), Canada’s new sustainability disclosure standards closely follow the International Sustainability Standards Board’s (ISSB) IFRS S1 and S2, which we explain in detail here. This will have the effect of aligning Canadian entities with international reporting standards.
Just like the ISSB’s IFRS S1, CSDS 1 requires companies to disclose sustainability-related risks and opportunities. Meanwhile, similar to IFRS S2, CSDS 2 requires businesses to disclose climate-related risks and opportunities. Both standards also adopt the four pillars of the Taskforce for Climate-related Financial Disclosures (TCFD) framework which include: Governance, Strategy, Risk Management, and Metrics & Targets.
Although CSDS 1 and 2 largely mirror IFRS S1 and S2, there are some Canadian-specific modifications, which have been recommended:
Start date – the earliest voluntary adoption dates for CSDS 1 and CSDS 2 have been extended to January 1, 2025.
Extended transition relief – companies disclosing sustainability related risks and opportunities that go beyond climate risks will have a longer reporting period, extended from one year granted by the ISSB to two years.
Scope 3 timelines – transition relief for disclosure of Scope 3 GHG emissions has been extended from one year granted by the ISSB to two years.
will the CSDS be mandatory?
Although the CSDS are voluntary standards, they pave the way for mandatory disclosures in Canada. If the CSSB’s CSDS standards are to become mandatory under Canadian securities legislation, they must first be incorporated into a Canadian Securities Administrators (CSA) rule. This will determine exactly who the mandated disclosures will apply to, and over what timeframe.
Currently, the CSA is considering adopting only those sections of the sustainability standards that are necessary to support climate-related disclosures, however, in response to publication of the draft standards, the CSA states that once consultations on the CSDSs are complete, they may well revise their mandatory disclosure rule, which currently stipulates climate disclosure requirements.
Although the final version of the CSDS standards are not yet in play, they continue a clear global trend toward mandatory disclosure. It’s unlikely that your organization will be immune to some form of reporting requirements, so it’s wise to stay abreast of changes in the ESG landscape – even those you think will not impact your organization.
canada’s climate disclosures for federally regulated institutions
Perhaps one of those developments you may have overlooked is Canada’s climate disclosure requirements for federally regulated financial institutions, which came into effect at the beginning of 2024. Aimed at institutions such as banks and insurance companies, it requires them to provide disclosures on their climate-related risks and exposures.
To simplify things for reporting entities, Canada has elected to align this mandatory disclosure process with the TCFD framework, which we explain in more detail here. This was created to develop recommendations on the types of information that organizations should disclose to support stakeholders, lenders, and insurance underwriters in appropriately assessing and pricing risks related to climate change.
The TCFD framework has four Core Elements of Recommended Climate-Related Financial Disclosures:
- Governance – The organization’s governance around climate-related risks
- Strategy – The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning
- Risk Management – The processes used by the organization to identify, assess, and manage climate-related risks
- Metrics and Targets – These are used to assess and manage relevant climate-related risks and opportunities
This new reporting requirement means these institutions must collect and assess information on climate risks and emissions from their clients. For banks and insurers, this is a massive undertaking – one that involves gathering data from many organizations previously unfamiliar with ESG reporting.
The potential reporting requirements these institutions might have to track could range from the carbon footprint of large companies to the water consumption of everyday consumers.
what these changes means for canadian businesses
Together, the introduction of the CSDS and the new climate related reporting requirements for federally regulated institutions paint a clear picture.
Environmental disclosures are part of a broader movement by governments around the globe to monitor and regulate ESG performance more closely. As more countries make this type of reporting mandatory, more businesses and organizations will be required to start disclosing their climate-related risks and emissions.
This could mean additional work for a host of Canadian companies and organizations which previously fell outside the remit of mandatory reporting.
Even if you are not required to report to the CSSB, if you are a client of a financial institution – or you want to be – it may well be that you have to collect and supply this kind of climate-related information anyway.
Regulated institutions are now collecting and assessing climate risk and emissions data from their clients, which means businesses must share this information with their banks, insurers, or other regulated institutions, sooner rather than later.
AMCS can help you prepare
Using a tool like the AMCS Sustainability Platform helps future-proof your reports and reduces the amount of time you need to spend each year updating frameworks by keeping on top of approved methodologies and identifying new data gaps.
We have already tracked more than 2.5 billion metric tons of carbon emissions for our clients and we’re ready to help you get started.
Reach out to one of our AMCS experts to learn about our ESG Platform and how we can help your organization collect, calculate, and report on all your climate and sustainability-related data, risks, and exposures.