On December 18, 2024, the Canadian Sustainability Standards Board (CSSB), which has been working since June 2023 to advance the adoption of sustainability standards in Canada, released its inaugural Canadian Sustainability Disclosure Standards: CSDS 1 – General Requirements for Disclosure of Sustainability-related Financial Information (CSDS 1) and CSDS 2 – Climate-related Disclosures (CSDS 2, collectively with CSDS 1 referred to as the Standards), which are effective for annual reporting periods beginning on or after January 1, 2025.
The Standards establish a set of sustainability and climate-related disclosure standards for Canadian companies that are modelled on those developed by the International Sustainability Standards Board (ISSB). While voluntary and non-binding, the Standards offer a sustainability-related disclosure framework aimed at bringing consistency, comparability and transparency to sustainability and climate-related reporting, allowing investors and other interested parties timely access to decision-useful information.
The publication of the Standards is a significant development in the Canadian sustainability disclosure landscape, as they are expected to influence the development of sustainability and climate-related reporting obligations for Canadian public companies, in particular, proposed National Instrument 51-107 – Disclosure of Climate-related Matters and its Companion Policy (the Proposed Instrument).
Highlights of CSDS 1 and CSDS 2
The objective of CSDS 1 is to require an entity to disclose information about its sustainability-related risks and opportunities. The objective of CSDS 2 is to require an entity to disclose information about its climate-related risks and opportunities, including climate-related physical risks and climate-related transition risks. For further information regarding the development of the Standards, please see our March 2024 Blakes Bulletin: New Developments in the Sustainability Disclosure Landscape.
As the Canadian Securities Administrators (CSA) have stated that they anticipate taking a “climate-first approach,” the content of CSDS 2 is most relevant to Canadian public companies looking to assess the potential breadth and depth of their future disclosure obligations. Three aspects of CSDS 2 should be of particular interest to such companies: Scope 3 emissions disclosure, scenario analysis and transitional relief.
(1) Scope 3 Emissions Disclosure
CSDS 2 requires companies to disclose not only their absolute Scope 3 greenhouse gas (GHG) emissions (which must be measured in accordance with the Greenhouse Gas Protocol) but also more detailed information regarding, among other things, the specific categories of Scope 3 GHG emissions that comprise their overall Scope 3 GHG emissions.
(2) Scenario Analysis
CSDS 2 also requires companies to use climate-related scenario analysis and disclose the results from such analysis in a manner that enables investors to understand the resilience of their strategy and business model to climate-related changes, developments and uncertainties, taking into consideration their climate-related risks and opportunities.
(3) Transitional Relief
The Standards provide issuers who adopt CSDS 2 with a three-year transitional relief period during which they are not required to disclose Scope 3 GHG emissions or the quantitative aspects of climate-related scenario analysis. This is notable as the initial draft of the Standards provided for only two years of transitional relief in relation to Scope 3 GHG emissions disclosure and no transitional relief in respect of the use and disclosure of climate-related scenario analysis.
Implications for Climate-Related Disclosure Rules in Canada
The Standards, specifically CSDS 2, now provide a clear framework for Canadian companies to consider in preparing climate-related disclosure, but, as they are not legally binding, there are no legal consequences for non-compliance. However, the publication of the Standards should still be regarded as significant for Canadian public companies because the Standards are expected to be influential on the CSA in their efforts to finalize the Proposed Instrument.
The Proposed Instrument, which would introduce specific disclosure requirements regarding climate-related matters for most public companies in Canada, was initially published in draft form in October 2021. The Proposed Instrument subsequently underwent an extensive public comment period during which 131 comments were provided and currently remains under consideration by the CSA.
The Standards are expected to have a considerable impact on the timing and content of the Proposed Instrument.
With respect to timing, the publication of the Standards provides the impetus for the CSA to advance the development of the Proposed Instrument. In particular, immediately following the publication of the Standards, the CSA issued a press release in which it advised that it now intends to publish a revised version of the Proposed Instrument for public comment.
In terms of content, the Standards are also expected to be persuasive in the CSA’s efforts to finalize the Proposed Instrument. As such, public companies should take particular note of the inclusion of Scope 3 GHG emissions disclosure and scenario analysis in CSDS 2, which were not contemplated by the initial draft of the Proposed Instrument. However, recent comments from Canadian securities regulators indicate that they are mindful of the additional burden that such disclosure will entail and are seeking opportunities to mitigate such burden.
In particular, in the Alberta Securities Commission’s (ASC) recent 2024 Corporate Finance Disclosure Report, the ASC emphasized that challenges faced by smaller reporting issuers, liability concerns, competitive international considerations and international trends – particularly those in the United States – are among the many factors that must be considered in the development of the Proposed Instrument. Similarly, in the press release noted above, the CSA discussed the need 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.”
It remains to be seen how the CSA will seek to address such considerations in the next iteration of the Proposed Instrument.
Looking Ahead
The introduction of the Standards is the latest national effort to bring the consistency, comparability and transparency of Canadian sustainability reporting in line with the global baseline standards developed by the ISSB, while appropriately contextualizing such rules for Canada. The potential broad applicability of the Proposed Instrument means that public companies across industries and sectors should take notice of the Standards (in particular, CSDS 2) and their expected influence on the CSA.
