On December 18, 2024, the Canadian Sustainability Standards Board (CSSB) released its voluntary sustainability standards: CSDS 1 (general requirements for disclosure of sustainability-related financial information) and CSDS 2 (climate-related disclosures). These standards (the CSSB Standards) are now part of the CPA Canada Handbook – Sustainability and represent Canada’s inaugural generally applicable sustainability disclosure standards.

Canadian Sustainability Standards Board Standards

The CSSB Standards are substantively identical to the International Sustainability Standards Board’s (ISSB) standards (IFRS S1 and IFRS S2, respectively) (ISSB Standards) except for a few transitional matters:

1. The effective date of the CSSB Standards is for reporting periods beginning on or after January 1, 2025.
2. In each of the first three annual reporting periods in which an entity applies CSDS 2 (climate-related disclosures) it is not required to disclose Scope 3 emissions.
3. In each of the first three annual reporting periods in which an entity applies CSDS 2 (climate-related disclosures) it is not required to use quantitative climate-related scenario analysis to assess its climate resilience. It is contemplated that “simpler” qualitative scenario analysis would still be provided over the transitional period.
4. For Canadian public companies, sustainability reporting should be made at the same time as the entity’s second quarter interim financial reporting in the first year of reporting, and in the second and third years of reporting within six months of the end of the annual reporting periods. Note that thereafter, reporting is to be made with the regular annual financial reporting.

The Canadian Securities Administrators’ response

Following the release of the CSSB Standards, the CSA issued a press release indicating that:

1. It continues to work towards a revised climate-related disclosure rule that will consider the CSSB Standards and may include modifications considered appropriate for the Canadian capital markets.
2. As it develops a revised mandatory climate-related disclosure rule, it would consider the feedback received by the CSSB during its consultation on the CSSB Standards.
3. It would continue to work towards a balanced approach that supports the assessment of material climate-related risks, responds to requests for consistent, comparable and decision-useful climate-related disclosures and contributes to efficient capital markets, including considering the needs and capabilities of issuers of different sizes.
4. It will continue to monitor international developments related to climate-related disclosure. Given the interconnectedness of [the Canada and US] markets, the CSA will be carefully considering developments in the United States.

Climate-related disclosure scenario – Back to the CSA’s 2021 Proposal?

The CSA is expected to issue a new mandatory climate-related disclosure proposal in 2025. What it will say is unclear. However, consider a scenario (Scenario) based on the following three events and where that will place the CSA in assessing the appropriate regulatory approach to climate-related disclosure for Canadian public companies.

1. In the United States government changes mean the US Securities and Exchange Commission (SEC) revokes its mandatory climate-related disclosure rule so US public companies are not subject to a securities mandatory disclosure rule (for the purpose of this Scenario California’s climate-related disclosure rules are not considered here).
2. In Canada changes to the federal government mean that federal proposed amendments to the Canada Business Corporations Act to require larger private companies to make mandatory climate-related disclosure are not introduced.
3. The CSA focuses on capital markets rather than environmental or social policy, as they’ve indicated, with an emphasis on alignment with US capital markets.

In this Scenario, the CSA would find itself in a very similar position to where it stood in 2021. On October 18, 2021, the CSA was the first North American regulator to publish mandatory climate-related disclosure proposals when it published proposed National Instrument 51-107 Disclosure of Climate-related Matters (NI 51-107) and its proposed Companion Policy 51-107CP (the CSA 2021 Proposal). The CSA was the first mover at a time when the SEC was developing its own rule, but what that rule would say was uncertain. Under the Scenario, the CSA most likely would foresee no SEC climate-related disclosure rule being published for a number of years.

On this basis, its possible that any new CSA proposed mandatory climate-related financial disclosure rule could look a lot like the CSA 2021 Proposal, updated for account for consensus changes to disclosure items.  

The CSA’s 2021 Climate-related disclosure proposal – a refresher

When the CSA issued the CSA 2021 Proposal it indicated that the new climate-related disclosure requirements were intended to provide consistent, comparable and decision-useful disclosure by issuers, allowing investors to make more informed decisions regarding climate-related risks and facilitating an equal playing field for issuers. The CSA noted its proposal was intended to align Canadian disclosure standards with international markets, which would improve access to global capital markets, remove the costs of navigating multiple disclosure frameworks and reduce market fragmentation.

NI 51-107 would require issuers to disclose certain climate-related information in compliance with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) which were organized around 4 core elements: (1) governance, (2) strategy, (3) risk management, and (4) metrics and targets.

Climate-related governance disclosure

An issuer would be required to describe its board of directors’ oversight of climate-related risks and opportunities and management’s role in assessing and managing climate-related risks and opportunities. This requirement would not be subject to a materiality assessment and would be mandatory in all cases.

Climate-related risk management

An issuer would be required to describe its processes for identifying, assessing and managing climate-related risks and how these processes are integrated into its overall risk management. This requirement would not be subject to a materiality assessment and would be mandatory in all cases.

Climate-related strategy disclosure

An issuer would be required to describe any climate-related risks and opportunities identified over the short, medium and long term, and describe the impact of these risks and opportunities on its business, strategy and financial planning. An issuer would not be required to disclose information that is not material.

Climate-related metrics and targets

An issuer would be required to disclose its metrics used to assess climate-related risks and opportunities in line with its strategy and risk management process and would also be required to describe its targets used to manage these risks and opportunities and its performance against these targets. An issuer would not be required to disclose information that is not material.

GHG emissions

An issuer would be required to “comply or explain” with GHG emissions disclosure by disclosing Scope 1, Scope 2 and Scope 3 GHG emissions or providing an explanation if it chooses not to disclose that information. An issuer would also be required to disclose the reporting standard it uses to calculate GHG emissions. If an issuer does not use the GHG Protocol, an issuer would be required to disclose how the reporting standard it uses is comparable with the GHG Protocol.

Modifications from TCFD recommendations

While NI 51-107 generally aligned with the TCFD recommendations, the instrument departed from the TCFD recommendations in two key respects. First, NI 51-107 would not require an issuer to describe the resilience of its strategy, taking into consideration different climate related scenarios, including a 2°C or lower scenario. Second, NI 51-107 would not make GHG emissions disclosure mandatory and would instead adopt a comply-or-explain approach to GHG emissions disclosure. The CSA decided against adopting these two TCFD recommendations to minimize the regulatory burden and cost of disclosure for issuers.

Climate-related disclosure scenario – Updated CSA 2021 Proposal?

Based on the Scenario, the updated CSA climate-related disclosure proposal could account for and include the following:

1. The TCFD recommendations have been subsumed within the ISSB Standards and now the CSSB Standards.
2. Disclosure required around climate-related governance, climate-related risk management, climate-related strategy and climate-related metrics and targets could be by reference to the requirements of the CSSB Standards.
3. Requirements around scenario analysis could be updated to reflect the CSSB’s transitional requirement for only qualitative Scenario analysis.
4. Remaining climate-related disclosure requirements, including GHG emissions, would be as required by the CSSB Standards but only where the public company decides to make disclosure of the type referenced in the CSSB Standards.
5. The timing and location of climate-related disclosure would be as outlined in the CSSB Standards.

This approach would continue to allow public companies to be responsive to market differences and to their own stakeholders in developing their approach to climate-related disclosure.  It remains to be seen what the CSA actually does. The CSA has indicated there will be an opportunity to comment on its new proposals.

Form more information on this topic, please contact the author Bill Gilliland.