On March 13, 2024, the Canadian Sustainability Standards Board (“CSSB”) released proposed Canadian sustainability disclosure standards (the “CSSB Standards”) that are modelled after the sustainability disclosure standards developed by the International Sustainability Standards Board (“ISSB”). The Canadian Securities Administrators (“CSA”) have welcomed the launch of the consultation on the CSSB Standards and the feedback that the CSSB receives could inform revisions to the CSA’s proposed climate-related disclosure rules (published in October 2021 but currently on hold).

Background

As we noted in a previous post, the ISSB released its first two sustainability disclosure standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (“IFRS S1”) and IFRS S2 Climate-related Disclosures (“IFRS S2” and together with IFRS S1, the “ISSB Standards”) on June 26, 2023. The CSSB was formed to develop Canadian sustainability disclosure standards that align with the global baseline standards developed by the ISSB with appropriate modifications to address considerations specific to Canada.

CSSB Standards

The CSSB has used IFRS S1 as a baseline to develop “Proposed Canadian Sustainability Disclosure Standard (CSDS) 1, General Requirements for Disclosure of Sustainability-related Financial Information” (“CSDS 1”) and IFRS S2 as a baseline to develop “Proposed Canadian Sustainability Disclosure Standard (CSDS) 2, Climate-related Disclosures” (“CSDS 2”) with certain modifications to reflect Canadian circumstances.

The CSSB has proposed that entities apply the CSSB Standards for annual reporting periods beginning on or after January 1, 2025 (which is one year later than the effective date of the ISSB Standards). In the first two annual reporting periods, Canadian entities:

• are permitted to disclose information that is limited to climate-related risks and opportunities in accordance with CSDS 2 and to apply the requirements of CSDS 1 only as they relate to the disclosure of climate-related risks and opportunities; and
• are not required to disclose their Scope 3 greenhouse gas (“GHG”) emissions

(entities are only exempt from these requirements in their first annual reporting period under the ISSB Standards). This transitional relief has been extended to grant Canadian entities more time to prepare for adoption.

In addition, the CSSB has prepared a consultation paper, “Proposed Criteria for Modification Framework” (the “Consultation Paper”), that describes the basis on which the CSSB would introduce changes to the ISSB Standards. The Consultation Paper provides that the CSSB will generally limit amendments to the ISSB Standards to requirements or guidance: (i) the application of which are not permitted by, or require addition, deletion or amendment to be consistent with, applicable Canadian law or regulation; and (ii) where the ISSB recognizes that different provisions or practices may apply in other jurisdictions and Canada is such a jurisdiction. Notwithstanding the foregoing, the CSSB may also make amendments to the ISSB Standards where it believes that such changes are required to serve the Canadian public interest and maintain the quality of sustainability disclosure in Canada.

What’s Next?

The CSSB plans to hold consultation sessions to identify potential implementation challenges and will continue to monitor global uptake and adoption of the ISSB Standards. It welcomes feedback on the CSSB Standards until June 10, 2024.

The adoption of CSDS 1 and CSDS 2 will be voluntary until required by Canadian securities regulators.

In response to the publication of the CSSB Standards, the CSA issued a statement on March 13, 2024 noting that “in order to become mandatory under Canadian securities legislation, the CSSB Standards must first be incorporated into a CSA rule. Once the CSSB consultation is complete and its standards are finalized, the CSA anticipate seeking comment on a revised rule setting out climate-related disclosure requirements. The CSA proposal will consider the final CSSB Standards and may include modifications appropriate for the Canadian capital markets. The CSA anticipate adopting only those provisions of the CSSB Standards that are necessary to support climate-related disclosures”.

U.S. Climate Disclosure Rules

The CSA continue to monitor and assess related international developments, including the United States Securities and Exchange Commission’s (“SEC’s”) final climate-related disclosure rules that were approved on March 6, 2024 (the “U.S. Climate Disclosure Rules”).

The U.S. Climate Disclosure Rules require registrants, including foreign private issuers, to disclose extensive climate-related information in their registration statements and annual reports, including but not limited to: (i) material climate-related risks; (ii) activities taken to mitigate or adapt to such risks; (iii) information about the board’s oversight of climate-related risks and management’s role in managing material climate-related risks; and (iv) information on any climate-related targets or goals that are material to the registrant’s business, results of operation or financial condition. Certain larger registrants must also disclose material Scope 1 and/or Scope 2 GHG emissions on a phased-in basis; however, the SEC has removed the requirement to disclose Scope 3 GHG emissions from the final rules. Whether the CSA follow the CSSB’s or the SEC’s approach with respect to the disclosure of Scope 3 GHG emissions remains to be seen.

Of note, the U.S. Climate Disclosure Rules do not apply to Canadian issuers that are eligible to report under the Multijurisdictional Disclosure System (MJDS).

While the SEC scaled back the final rules from the initial proposal significantly in a number of areas, many petitions have been filed either challenging the SEC’s authority to adopt the U.S. Climate Disclosure Rules or claiming such rules do not go far enough. It is therefore unclear whether registrants will be required to comply with these rules or if the timeline for adoption will be altered.

For more information, see The Enhancement and Standardization of Climate-Related Disclosures for Investors and the related SEC fact sheet.

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