On June 26, 2023, the International Sustainability Standards Board (“ISSB”) released its first two sustainability disclosure standards (the “ISSB Standards”), IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (“IFRS S1”) and IFRS S2 Climate-related Disclosures (“IFRS S2”). The Canadian Sustainability Standards Board (“CSSB”) will work with the ISSB to support the uptake of the ISSB Standards in Canada, while the Canadian Securities Administrators (“CSA”) also conduct further consultations to determine the appropriate adoption framework for Canadian reporting issuers, modified as necessary for the Canadian context.

Background

The ISSB was formed in November 2021 by the International Financial Reporting Standards Foundation to develop a comprehensive global baseline of sustainability disclosure standards to meet investors’ information needs. The ISSB published drafts of the ISSB Standards for public review in March 2022 and received over 1,400 comment letters. Following an extensive consultation process, final versions of the ISSB Standards were released on June 26, 2023.

The ISSB Standards require entities to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s cash flows, access to finance or cost of capital over the short, medium or long term.

Adoption in Canada

The adoption of the ISSB Standards is voluntary, and it is up to the various global regulators to determine whether their jurisdiction will mandate them. To the extent that they are adopted in their current form, the ISSB Standards apply to annual reporting periods beginning on or after January 1, 2024. Therefore, the first reports to address the ISSB Standards will likely be published in 2025, although earlier application is permitted.

While Canadian entities are not currently required to comply with the ISSB Standards, there has been broad support in Canada and globally for the development and adoption of consistent and comparable sustainability disclosure requirements.

The CSSB will work with the ISSB to support the uptake of the ISSB Standards in Canada and facilitate the interoperability between the ISSB Standards and any forthcoming CSSB standards and rules adopted by Canadian securities regulators.

On July 5, 2023, the CSA announced that they welcome the publication of the ISSB Standards and commend the ISSB for developing a global framework for investor-focused disclosure that is responsive to market demand for more consistent and comparable disclosures. The CSA also noted that they welcome the June 26 announcement by the CSSB that it is now operational and look forward to engaging and collaborating with the CSSB with respect to the ISSB Standards.

ISSB Standards

The ISSB Standards are designed to ensure that entities provide sustainability-related information alongside financial statements in the same reporting package and for the same reporting period. Entities are also required to disclose comparative information in respect of a prior period for all amounts disclosed.

IFRS S1

IFRS S1 requires disclosure of all material sustainability-related risks and opportunities. More specifically, disclosure is required in respect of:

• governance: the governance processes, controls and procedures an entity uses to monitor and manage sustainability-related risks and opportunities;
• strategy: the approach an entity uses to manage sustainability-related risks and opportunities;
• risk management: the processes an entity uses to identify, assess, prioritize and monitor sustainability-related risks and opportunities; and
• metrics and targets: an entity’s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set or is required to meet by law or regulation.

IFRS S2

IFRS S2 requires disclosure of climate-related risks and opportunities that could reasonably be expected to affect an entity’s prospects while building on the more general requirements in IFRS S1. Climate-related risks include both physical risks (i.e., risks that arise from weather-related events such as storms, floods or droughts) and transition risks (i.e., policy, legal, technological, market or reputational risks that arise from efforts to transition to a lower-carbon economy).

In addition to prescribed information on governance, strategy and risk management, entities are required to disclose the following metrics and targets:

• absolute greenhouse gas (“GHG”) emissions, including Scope 1, Scope 2 and Scope 3 GHG emissions;
• the amount and percentage of assets or business activities that are: (i) vulnerable to climate-related transition risks; (ii) vulnerable to climate-related physical risks; and (iii) aligned with climate-related opportunities;
• the amount of capital expenditures, financing or investment deployed towards climate-related risks and opportunities;
• the price for each metric tonne of GHG emissions an entity uses to assess the costs of its GHG emissions and how the entity is applying a carbon price in its decision making;
• the percentage of executive management remuneration recognized in the current period that is linked to climate-related considerations and how those considerations are factored into executive remuneration; and
• comprehensive information on all quantitative and qualitative climate-related targets an entity has set and any targets it is required to meet by law or regulation.

Transition Relief

In the first annual reporting period in which the ISSB Standards apply, transition relief will be provided from certain disclosure requirements, including in respect of disclosure of metrics and targets under IFRS S2. An entity has the option to limit disclosure and report only on climate-related risks and opportunities (in accordance with IFRS S2) and to apply the requirements in IFRS S1 only to the extent that they relate to climate-related risks and opportunities. If an entity relies on such transition relief, it must disclose that fact.

Entities are also permitted to: (i) continue using a measurement other than the Greenhouse Gas Protocol 2004 to measure GHG emissions if they were using that other method in the prior period; and (ii) not disclose Scope 3 GHG emissions in the first year that the ISSB Standards apply.

Entities are also not required to disclose comparative information or make sustainability-related financial disclosures at the same time as they publish their financial statements in the first annual reporting period.

What’s Next?

The ISSB intends to form a Transition Implementation Group (the “TIG”) to support the implementation of the ISSB Standards. The TIG will:

• provide a public forum for the discussion of implementation questions; and
• inform the ISSB to determine what, if any, action will be needed to address those questions.

As noted above, timing and scope of implementation will continue to be considered by the CSSB for Canada.

In 2021, the CSA published their own consultation under CSA Notice and Request for Comment Proposed National Instrument 51-107 Disclosure of Climate-related Matters, which was put on hold in 2022, with the CSA noting that they will need to reconsider their approach in light of the ISSB proposals.

On July 25, 2023, the International Organization of Securities Commissions endorsed the ISSB Standards and called on its member jurisdictions to consider ways in which they might adopt or apply the ISSB Standards within the context of their jurisdictional arrangements.

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