Written By Radha Curpen, Bosa Kosoric, Sharon Singh, Abbas Ali Khan and Brienne Gloeckler

On March 13, 2024, the Canadian Sustainability Standards Board (CSSB) released exposure drafts of its first two proposed Canadian Sustainability Disclosure Standards (Proposed Standards). The Proposed Standards are based on the International Sustainability Standards Board (ISSB) IFRS Sustainability Disclosure Standards (IFRS Standards) that set a global baseline for companies to report sustainability and climate-related information.

In addition to the Proposed Standards, the CSSB also released its proposed “Criteria for Modification Framework” (Framework). The Framework sets out the basis upon which the CSSB could modify the ISSB IFRS Standards when adopting them in Canada.

Along with the introduction of the Proposed Standards and the Framework, the CSSB announced the opening of a public comment period in which it has invited feedback on the Proposed Standards and Framework from interested parties.

Background

In 2021, in response to increasing demands from stakeholders, the ISSB was formed to develop global baseline sustainability disclosure standards that aim to bring further transparency and comparability of sustainability-related risks and opportunities to global capital markets. On June 26, 2023, the ISSB released its first IFRS Sustainability Disclosure Standards: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS 1) and IFRS S2 Climate-related Disclosures (IFRS 2).

In 2022, the CSSB was created to coordinate with the ISSB and support the integration of ISSB standards in Canada.

The Proposed Standards and the Framework

The Proposed Standards are CSDS 1, General Requirements for Disclosure of Sustainability-related Financial Information (CSDS 1) and CSDS 2, Climate-related Disclosures (CSDS 2). The Proposed Standards are based on IFRS 1 and IFRS 2, respectively.

CSDS 1 requires an entity adopting it to disclose information about “all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium, or long term.” There are four areas of “core content” that adopting entities must provide disclosure about under CSDS 1: governance, strategy, risk management and metrics and targets.

CSDS 2 requires an entity adopting it to disclose information about “climate-related risks and opportunities that is useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the entity.” The climate-related risks include physical risks and transition risks to which the reporting entity is exposed. The “core content” that CSDS 2 requires to be disclosed is similar to that of CSDS 1 but focuses on the climate-related aspects of those content areas.

While the IFRS Standards were used as a baseline to develop CSDS 1 and CSDS 2, CSSB has applied the Framework to propose several adjustments to ensure that Canadian standards align with international standards while addressing Canadian public interest.  The Framework proposes to limit (current and future) amendments to an IFRS Sustainability Disclosure Standard to situations where (1) the application of the IFRS standard is not permitted by or would require amendment to be consistent with Canadian law; and (2) CSSB believes amendments are required to serve the Canadian public interest and maintain the quality of sustainability disclosure in Canada.

A summary of the proposed modifications is as follows:

• Pushing back the proposed effective dates: the effective dates of the Proposed Standards will be one year later as compared to the effective dates of the IFRS Standards. Under these amended dates, CSDS 1 and CSDS 2 would become voluntarily effective for annual reporting periods staring on or after January 1, 2025.
• Extending transition relief periods for certain reporting requirements:
  • Disclosure beyond climate-related information: the Proposed Standards provide a transition period in which adopting entities are permitted to disclose information on only climate-related risks and opportunities (in accordance with CSDS 2) in the first two annual reporting periods (rather than one under the IFRS Standards) and consequently apply the requirements in CSDS 1 only insofar as they relate to the disclosure of information on climate-related risks and opportunities. For example, if an entity applies the Proposed Standards for the first time in the reporting period beginning January 1, 2025, the entity will not be required to disclose information on all sustainability-related risks (i.e., more than climate-related risks) until the reporting period beginning January 1, 2027.
  • Disclosure of comparative information on all sustainability-related risks: as a corollary to the above transition relief period extension, an adopting entity will not be required to disclose comparative information on all sustainability-related risks and opportunities, other than its climate-related risks and opportunities, until the third reporting period after the entity adopted the Proposed Standards.
  • Disclosure of Scope 3 greenhouse gas (GHG) emissions: the Proposed Standards provide another transition relief period for the requirement of an entity to disclose its Scope 3 GHG emissions. This transition relief period has been extended from a one-year period under the IFRS Standards to a two-year period under the Proposed Standards. For example, an entity that applies the Proposed Standards for the first time in a reporting period beginning January 1, 2025, will not be required to disclose its Scope 3 GHG emissions until the reporting period beginning on January 1, 2027. Additionally, if, in the annual reporting period immediately preceding the date of initial application of the Proposed Standards, an entity used a method for measuring its GHG emissions other than the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004), the entity will be permitted to continue use that other method in the first annual reporting period in which the entity applies the Proposed Standard.

The Proposed Standards state that the CSSB will work with Indigenous communities to explore how the Proposed Standards can best address and respect the rights of Indigenous peoples (as expressed in section 35 of the Constitution Act, 1982 and in the United Nations Declaration on the Rights of Indigenous Peoples Act).

While the Proposed Standards will not be mandatory, their release could lead to the implementation by regulators of mandatory sustainability reporting requirements under applicable Canadian law. For instance, if the Canadian Securities Administrators (CSA) incorporate the Proposed Standards into a National Instrument, the Proposed Standards would become mandatory under Canadian securities law. On July 5, 2023, the CSA stated that they “intend to conduct further consultations to adopt disclosure standards based on ISSB Standards, with modifications considered necessary and appropriate in the Canadian context.”

Next Steps: Consultation

The CSSB has invited comments on all aspects of the Proposed Standards but has specifically requested feedback in relation to the scope of CSDS 1, the timing of reporting, the climate resilience content requirement and Scope 3 GHG emissions. More information about the CSSB’s focus for feedback can be found in the CSDS 1 and CSDS 2 exposure drafts.

Interested parties can provide comments through an online survey or an electronic response letter. Responses will be publicly posted after the comment period closes but respondents can request confidentiality when submitting their feedback.

Comments are due by June 10, 2024. CSSB aims to make a final pronouncement before the fourth quarter of 2024.

Bennett Jones has extensive knowledge and experience in sustainability-related reporting and public issuer disclosures and can help your business address any questions regarding the Proposed Standards. If you want to learn more, please contact the authors or a member of our Environmental, Social and Governance group.