CSSB Releases Draft Canadian-Specific Environmental-Related Disclosure Standards

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Since the release of the International Sustainability Standards Board's (ISSB) two international environmental-related disclosure standards last year (IFRS S1 and IFRS S2), the Canadian Sustainability Standards Board (CSSB) has been working to develop its own versions of the standards, tailored to address the specific interests of the Canadian public.

On March 13, 2024, the CSSB released two exposure drafts for public comment: CSDS 1, General Requirements for Disclosure of Sustainability-related Financial Information, which is modeled off IFRS S1, and CSDS 2, Climate-related Disclosures, which is modeled off IFRS S2. The CSSB also released a Consultation Paper, entitled Proposed Criteria for Modification Framework.

Consultation Paper

In the Consultation Paper, the CSSB acknowledges the potential value of having Canadian companies adhere to a global standard for sustainability reporting and suggests that Canadian regulators incorporate IFRS S1 and IFRS S2 "to the fullest extent possible",[1] with changes to the international standards being limited. The CSSB recommends that alterations should only be made to the international standards in instances where they are inconsistent with Canadian laws or regulations, where the ISSB has deemed certain requirements to be inappropriate for Canada, or where amendments are necessary to better serve the Canadian public interest and maintain a high quality of sustainability disclosure in Canada. With these considerations in mind, the CSSB proposes several important changes.

IFRS S1 versus CSDS 1

The objective of CSDS 1 is to require subject entities to disclose information about their sustainability-related risks and opportunities. CSDS 1 closely mirrors IFRS S1, with the only changes being to the timelines for implementation. While IFRS S1 mandates implementation as of January 1, 2024, CSDS 1 proposes an implementation date of January 1, 2025. Additionally, CSDS 1 proposes extending the phasing-in period of the new standard. IFRS 1 provides an initial one-year period during which subject entities must disclose only climate-related risks and opportunities; subsequently, disclosure requirements become more rigorous, necessitating the inclusion of comparative information about sustainability-related risks and opportunities.  In contrast, CSDS 1 proposes extending the transition period to two years, allowing for an additional year of reporting before the more stringent requirements take effect. Accordingly, a third modification is proposed, which would exempt issuers from having to provide the more comprehensive disclosure for the first three years of applying the new standard rather than two years.

IFRS S2 versus CSDS 2

The objective of CSDS 2 is to require subject entities to disclose information about their climate-related risks and opportunities. Similar to the discussion above, CSDS 2 closely mirrors IFRS S2, with the only changes being to the timelines for implementation. While IFRS S2 calls for the international standard to be implemented as of January 1, 2024, CSDS 2 proposes an implementation date of January 1, 2025, although issuers are permitted to voluntarily adhere to CSDS 2 prior to the January 1, 2025 implementation date provided such issuer disclose such fact and apply CSDS 1 concurrently.

Lastly, several of the prevalent concerns following the release of IFRS S1 and IFRS S2 were regarding whether Scope 3 greenhouse gas (GHG) emissions disclosure, scenario analysis, and quantitative disclosure would become mandatory in Canada. CSDS 2 does propose making Scope 3 GHG emissions disclosure mandatory, however it extends the timeline for certain issuers from that set out in IFRS S2. While IFRS S2 provides certain relief for the first annual reporting period in which an entity applies the new standard, proposed CSDS 2 provides certain relief for the first two annual reporting periods in which an entity applies the new standard. When it comes to requiring issuers to conduct scenario analysis to assess their climate resilience and provide quantitative disclosure with respect to climate change considerations, CSDS 2 has made no amendments to IFRS S2.

Canada's Specific Considerations

While the CSSB advocates for the adoption of sustainability disclosure standards within Canada that closely adhere to the global standards established by the ISSB, adhesion to the draft standards is not required in Canada – yet.

The CSSB acknowledges that Indigenous peoples in Canada (including First Nation, Métis, and Inuit peoples) have inherent and specific rights, which must be respected through the development and implementation of any new sustainability-related reporting standards.

Additionally, it is relevant to consider how the US Securities Exchange Commission (SEC) has determined how to adopt the international sustainability-related disclosure standards. On March 6, 2024, the SEC released its version of the rules following consideration of more than 24,000 comment letters.[2] These rules are significantly less onerous than the international standards. Notably, the new SEC rules do not require Scope 3 GHG emissions reporting and the complex "materiality" analysis for assessing certain risks and associated impacts has been simplified. They also provide that that Canadian filers using the MJDS system are not subject to the new SEC rules. Note, following the March 6, 2024 release of the SEC rules multiple parties filed legal challenges against the SEC on the grounds such rules are burdensome, unreliable and exceeds the SEC's authority. On April 4, 2024, the SEC temporarily stayed its rules to "facilitate the orderly judicial resolution" of such pending legal challenges.[3] Although it is unknown when and how these challenges will be resolved, the SEC has vowed to "continue vigorously defending the [rules'] validity in court and looks forward to expeditious resolution of the litigation".[4]

CSSB Request for Comments and Next Steps

The CSSB will collect feedback from the public on CSDS 1, CSDS 2 and the Consultation Paper, until June 10, 2024. Once the CSSB releases its final standards, which should occur before the end of 2024, the Canadian Securities Administrators (CSA) will begin its own consultation and drafting process to develop rules that will eventually become new requirements for reporting issuers in Canada.

The feedback that the CSSB and the CSA receive from the public will influence the development of the new CSA disclosure rules, and as such, we encourage issuers to submit comments accordingly. For additional information, or assistance drafting a response to the CSSB, contact any member of our Business Law Group.



[1] Consultation Paper, Proposed Criteria for Modification Framework, page 2.
[2] SEC.gov | SEC Adopts Rules to Enhance and Standardize Climate-Related Disclosures for Investors
[3] 33-11280.pdf (sec.gov)
[4] 33-11280.pdf (sec.gov)

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