Navigating Canada's proposed sustainability disclosures: An overview of CSDS 1 and CSDS 2
Like many other countries, Canada is taking significant steps toward mandatory sustainability disclosure when the Canadian Sustainability Standards Board (CSSB) unveiled two exposure drafts for public feedback: CSDS 1 and CSDS 2.
If this proposal is officially adopted, the Canadian regulation will join the SEC climate disclosure rule in the U.S., SFDR and CSRD in the EU, the UK's mandatory climate disclosures and others as the next in a line of evolving climate and sustainability reporting requirements. The latest announcement from the CSSB underscores that sustainability reporting is vital for transparency in business and aligns the country more closely with global trends.
Understanding CSDS 1 and CSDS 2
Established in June 2023, the CSSB aims to collaborate with the International Sustainability Standards Board (ISSB) to promote the adoption of sustainability disclosure standards in Canada. These proposed mandatory sustainability disclosures intend to furnish investors, lenders and stakeholders with pertinent information for informed decision-making.
Canadian companies adhering to CSDS 1 and CSDS 2 will align with ISSB’s inaugural standards to establish a global baseline for:
- Sustainability-related (IFRS S1) financial disclosures
- Climate-related (IFRS S2) financial disclosure
These standards integrate TCFD recommendations and consolidate existing reporting frameworks.
CSDS 1
CSDS 1 focuses on general requirements concerning sustainability-related financial information. It closely parallels the ISSB standards issued in June 2023, incorporating recommendations from the TCFD and consolidating existing sustainability reporting frameworks. Although it's currently voluntary, CSDS 1 serves as a benchmark for Canadian regulators, potentially influencing future mandatory rules on sustainability-related disclosure. The CSSB has tailored certain aspects to suit the Canadian context, ensuring relevance and practicality for Canadian companies.
CSDS 2
CSDS 2 mandates entities to disclose information on climate-related risks and opportunities, which is crucial for evaluating an entity’s cash flows, access to finance and cost of capital over various timeframes. The CSSB’s 90-day consultation period for CSDS 2 will be closely monitored by the Canadian Securities Administrators (CSA), potentially impacting their approach to climate-related disclosure. While the CSA’s focus is climate-related disclosure, the CSSB’s broader sustainability considerations could shape future mandatory reporting requirements.
How to prepare for Canada’s proposed mandatory sustainability disclosures
Adhering to CSSB standards can enhance a business’s reputation, attract socially responsible investors and mitigate risks associated with climate change and sustainability issues. Furthermore, voluntary adoption of these standards before they become mandatory can prepare businesses for future regulatory changes and align them with international best practices.
Companies must now invest time and effort into thoroughly understanding both existing and emerging frameworks and establish effective methods for accurately tracking their greenhouse gas (GHG) emissions. Carbon accounting technology can help meet audit standards more quickly than manual processes and has the ability to automatically collate your data and produce up to 80 different pre-configured audit-ready reports for a single source of truth throughout your entire organization.
Simultaneously, boards must ensure they possess the appropriate standards to evaluate climate-related matters. The Diligent Institute Climate Leadership Certification assists boards in connecting climate considerations to financial metrics, clarifying the fiduciary duties of directors and officers in relation to climate issues, offering guidance on structuring oversight of climate risk and aiding companies in determining how to disclose, report and engage with investors on climate-related issues.
CSDS 1 and CSDS 2 signify a significant stride toward mandatory sustainability reporting in Canada. As companies brace for potential regulatory shifts, voluntary adoption of these standards can keep them ahead of the curve. The CSSB’s collaborative efforts with the ISSB underscore a commitment to transparency, accountability and a sustainable future.
