The first draft of Canadian corporate reporting standards for sustainability and the climate has been opened for public consultation, with the aim of building a framework that matches Canada's needs.

The Canadian Sustainability Standards Board (CSSB) unveiled the first proposed Canadian Sustainability Disclosure Standards (CSDS) on March 13, adapting an international blueprint on sustainability reporting by the International Sustainability Standards Board (ISSB).

Presented as standards for sustainability (CSDS 1) and climate (CSDS 2), the documents lay out the expectations for reported information that is comparable, auditable and verifiable, according to Charles-Antoine St-Jean, the chair of the CSSB.

In its present form, CSDS 2 would be more ambitious than the U.S.’s recent regulations on climate pollution disclosure.

Opened for public consultation until June 10, St-Jean told Sustainable Biz Canada in an interview it will address issues specific to Canada such as Indigenous stakeholders, while tackling hazy sustainability reporting that is more storytelling than hard data backed by evidence.  

“By having a very standardized way of disclosing that is comparable from one company to the other, from one year to the other, that is only based on materiality so that you cannot obfuscate or obscure your story by throwing all sorts of irrelevant data points, having standards will favour this better disclosure and avoiding greenwashing,” he said.

Establishing sustainability and climate standards

The CSSB, an advisory board, proposes regulations for the Canadian Securities Administrators (CSA) and Office of the Superintendent of Financial Institutions.

Key to CSDS 1 is establishing a foundation for sustainability information that is comparable between years, auditable, verifiable and discloses material information, St-Jean said. It covers not just environmental reporting, but data pertaining to social issues and governance.

CSDS 2 focuses on disclosing a company’s climate risks and opportunities across governance, strategy, risks and metrics. The risks include transitional and material risks – the threats that could befall a company as the economy decarbonizes, or the peril facing a company’s physical assets such as buildings.

Critical to CSDS 2 is a proposal that Canadian companies disclose the full suite of greenhouse gas emissions: Scopes 1, 2 and 3. St-Jean said a company’s emissions profile should be fully reported: “We believe that is information that should be provided to all investors.”

Such an idea goes beyond the proposal set by the CSA in October 2021, which only included an option to disclose a company’s direct emissions – Scope 1 – or even no emissions reporting if the company could provide a justification. It would also exceed rules the U.S. Securities and Exchange Commission finalized for corporate emissions reporting that covered Scopes 1 and 2 but not Scope 3.

St-Jean argues for mandating the reporting of a company’s direct and indirect greenhouse gas emissions because it will encourage foreign direct investment.

“Investors around the world, when they want to look at the quality of the investment they’re making, they’re very much looking at all the risks and opportunities . . . For Canada to be attractive for foreign direct investment, being able to disclose this information will (help it) to attract capital.”

To ensure companies can smoothly adopt the new standards, the CSDS 1 and CSDS 2 proposal pushes back the starting date for annual reporting by one year to Jan. 1, 2025, compared to the International Financial Reporting Standards. Disclosures of Scope 3 emissions and sustainability-related risks and opportunities would be mandated starting Jan. 1, 2027.

How it applies to Canada

The two standards are designed for large public companies based in Canada, such as banks and hundreds of financial institutions, St-Jean said. But more profound is the effect on the value chain, impacting companies both big and small that are suppliers to large corporations.

To counter greenwashing, the sustainability and climate standards are designed to be clear, well-articulated and auditable at the same level of assurance as financial reporting, he said.

The CSSB will be open to suggested amendments from Canadians that match the country’s unique circumstances such as biodiversity, human capital and human rights. Indigenous rights are particularly emphasized.

“There’s not a single large infrastructure project in Canada that can be built or put in place without meaningful consultation with the Indigenous people of Canada,” St-Jean said. Poorly implementing the standard or waiting for the ISSB’s Indigenous rights recommendations could delay major initiatives such as power lines and rare-earth mineral mines. 

The CSSB expects to hear from Canadians from all industries. St-Jean suspects some may push to minimize the relief period for disclosures, demand greater relief for the disclosure period, or ask for a focus on just climate reporting and not all sustainability risks and opportunities.

"We're interested in the feedback the CSSB receives generally and specific to certain questions, as it may help inform revisions to our proposed climate-related disclosure rule,” Stan Magidson, the CSA’s chair and CEO of the Alberta Securities Commission, said in a statement.

The CSA has said it anticipates only adopting provisions to support climate-related disclosures. When it publishes its own revised rule, the CSA too will seek public consultation.

“We expect to hear from both sides of the equation. And that will be up to the board to assess and to debate and to opine what we think is in the best interest of the public . . . That is the north star of the work of the CSSB,” St-Jean concluded.