So, You Want to Start a (ESG) Revolution: Proposed CSSB Sustainability Disclosure Standards and What They Mean for Canadian Corporations

On March 13, 2024, the Canadian Sustainability Standards Board (“CSSB”) released its proposed Canadian Sustainability Disclosure Standards (the “CSD Standards”) for public comment. The CSD Standards comprise two drafts: (i) General Requirements for Disclosure of Sustainability-related Financial Information (“CSDS 1”), and (ii) Climate-related Disclosures (“CSDS 2”). The CSSB was created in June 2023 by the Financial Reporting & Assurance Standards Canada and comprises representatives from both public and private Canadian corporations. The CSSB is working in conjunction with the International Sustainability Standards Board (“ISSB”) to support the implementation of the disclosure standards in Canada issued by the ISSB in June 2023 (the “ISSB Standards”).

The ISSB Standards set out the ISSB’s sustainability-related and climate-related disclosure standards and are meant to serve as the international baseline for comprehensive and comparable climate-related disclosure. Under the CSD Standards, the CSSB has made minor modifications to the ISSB Standards in order to address the Canadian context. These modifications provide for extended timelines for compliance with CSDS 1 and CSDS 2, and a longer phase-in period for greenhouse gas (“GHG”) emissions-related disclosure requirements.

Once finalized, the CSD Standards will not be mandatory disclosure requirements but provide a voluntary standard of disclosure for Canadian corporations. However, while voluntary, the CSD Standards will provide an influential reference point for Canadian securities regulators when implementing mandatory rules relating to sustainability-related disclosure.

Similarities to the ISSB Standards

The CSD Standards mirror the ISSB Standards in substance, requiring Canadian corporations to disclose information regarding both sustainability-related and climate-related opportunities and risks. The CSD Standards will require disclosure regarding governance, strategy, business model and value chain, financial performance and cash flows, climate-related risk and opportunities, climate resilience and climate-related metrics and targets – areas of disclosure that are also required under the ISSB Standards.

Amendments to the ISSB Standards

In their amendments to the ISSB Standards, the CSSB has opted to implement a relief-based approach, aiming to provide Canadian corporations with time to adjust and comply with the new standards as follows:

Effective Date: The suggested effective date for the CSD Standards is January 1, 2025, over a year later than the effective date of the ISSB Standards. The CSSB hopes this delayed implementation will give Canadian corporations enough time to prepare for the additional disclosure requirements imposed by the CSD Standards.

Relief from Broad Sustainability Disclosure: For the first year of application under the ISSB Standards, Canadian corporations are allowed to focus solely on climate-related disclosure, instead of the broader sustainability-related disclosure required under the ISSB Standards. Under the CSD Standards, this relief period will be extended to two years.

Comparative Information: The requirement for Canadian corporations to disclose comparative information has also been extended by a year under the CSD Standards, with the disclosure requirement taking effect in the third annual reporting period as opposed to the second under the ISSB Standards.

Scope 3 GHG Emissions: The relief period for the requirement to disclose GHG emissions has also been extended for an additional year, allowing Canadian corporations who choose to adopt the CSDS 2 standards to omit GHG emission-related disclosure for the first two annual reporting periods.

The CSD Standards are open for comment until June 10, 2024, with the CSSB seeking feedback on the following issues:

1. Timing of Reporting: The ISSB Standards currently require Canadian corporations to provide sustainability reports concurrently with the disclosure of any related financial statements. Canadian respondents highlighted concerns regarding this disclosure timing during the ISSB consultation period, and the CSSB is seeking additional feedback on the timing of disclosure under its standards.

2. Climate Resilience Disclosure: Under the ISSB Standards, climate resilience assessments are required to provide information to investors on the Canadian corporation’s exposure and response to its specific climate-related risks and opportunities. The CSSB has recognized that scenario-analysis methodologies are novel to Canadian corporations and is therefore querying whether transition relief or guidance regarding preparing climate resilience-related disclosure would be helpful to Canadian corporations choosing to conduct scenario analysis.

3. Disclosure of Indirect GHG Emissions: The CSSB is also requesting feedback on the requirement to disclose indirect Scope 3 GHG emissions along an Canadian corporation’s supply chain. Canadian corporations have expressed concerns relating to uncertainty around measuring GHG emissions across supply chains, and the CSSB is seeking input on whether the 2-year relief period is an adequate amount of time for Canadian corporations to develop the necessary skills to report GHG emission levels.

While the current proposed amendments to the ISSB Standards are minimal, the CSSB has indicated that it is open to further amendments to reflect the Canadian context, particularly amendments that reflect the needs and interests of First Nation, Métis and Inuit Peoples. To facilitate the involvement of Indigenous Peoples in the creation of the CSD Standards, an initial consultation is tentatively scheduled to begin in late 2024.

Interplay with SEC and CSA Disclosure Requirements

Despite closely mirroring the ISSB Standards, the proposed CSD Standards take a more meticulous approach to climate-related disclosures compared to the Canadian Securities Administrators (“CSA”) proposed disclosure framework and the climate-related financial disclosure regulations recently implemented by the US Securities and Exchange Commission (“SEC”).

The SEC climate-related disclosure rules focus on the disclosure of climate-related risks that have financial materiality, including risks that may occur in the corporation’s value chain, but do not compel Scope 3 GHG emissions reporting.

The CSA have also allowed for more discretion around environmental, social and governance (“ESG”) related disclosure in their proposed National Instrument 51-107 Disclosure of Climate-related Matters (“NI 51-107”). Under NI 51-107, Canadian corporations would only be required to disclose direct GHG emissions, with the choice to omit reporting GHG emissions if justified by the reporting corporation.

While the implementation of NI 51-107 has been temporarily paused, the CSA are hoping to gain insight from CSSB’s consultation on the CSD Standards to inform revisions to the CSA’s proposed climate-related disclosure rules.

Canadian corporations should be aware that despite the “voluntary” nature of the CSD Standards, they will still play a significant role in determining the disclosure requirements under future mandatory CSA standards. It is also likely that, much like the widespread adoption of several voluntary IFRS financial disclosure standards, the proposed CSD Standards will become “de facto” corporate disclosure standards due to their close alignment with the ISSB Standards. With these considerations in mind, Canadian corporations may want to consider preparing to meet the level of sustainability-related disclosure required under the CSD Standards.

Moving Towards a More Sustainable Future

The CSSB intends to finalize the CSD Standards by the end of 2024 and proposes an effective date for both CSDS 1 and CSDS 2 of January 1, 2025. With increasing pressure for globally consistent sustainability standards, the CSSB hopes that by implementing the CSD Standards within the year, Canada will be able to remain at the forefront of global sustainability reporting efforts and meet the growing demand for sustainability-related financial disclosures.

If you have any questions with respect to the matters discussed above, please contact Peter Volk by email at pvolk@wildlaw.ca or Bronwyn Newell by email at bnewell@wildlaw.ca.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.

If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.