Climate and sustainability disclosure rules? Hurry up and wait

The International Sustainability Standards Board (ISSB) recently issued its first two sustainability standards, IFRS S1 and IFRS S2, which deal with general requirements for sustainability disclosure and climate-related disclosure, respectively. Although there has been general support from a range of Canadian stakeholders for the actions taken by ISSB in developing a comprehensive financial sustainability reporting framework, there are a number of hurdles before the ISSB standards move from being voluntary to having the force of law in Canada.

Canadian Sustainability Standards Board

Under the auspices of Financial Reporting & Assurance Standards Canada, the Canadian Sustainability Standards Board (CSSB) has been struck to work with the ISSB in supporting the uptake of the ISSB standards in Canada. In addition, the CSSB will highlight any key issues to be considered from a Canadian context and facilitate interoperability between the ISSB standards and any standards ultimately issued by the CSSB.

The Canadian Securities Administrators (CSA) have indicated that they intend to engage and collaborate with the CSSB on a review of the ISSB standards. Although it is relatively clear that the CSSB will start with the ISSB standards, it is unknown whether or to what extent any final CSSB standards will differ from those issued by the ISSB.

Canadian Securities Administrators

In October 2021 the CSA published a consultation paper on proposed National Instrument 51-107 – Disclosure of Climate-related Matters (51-107). Despite a robust round of public comments, 51-107 remains a proposed national instrument. Following issuance of the ISSB standards, the CSA issued a press release stating that, “CSA staff intend to conduct further consultations to adopt disclosure standards based on ISSB Standards, with modifications considered necessary and appropriate in the Canadian context. A further market update from the CSA will follow in the coming months.” As noted above, the CSA also intends to work with the CSSB on developing Canadian standards.

The CSA could take a number of approaches including incorporating, either by reference or directly into a national instrument, all or part of the ISSB/CSSB standards or referring to the ISSB/CSSB standards as a source of guidance for complying with whatever final form 51-107 takes.

The United States Securities and Exchange Commission (SEC) has also not issued final climate-related disclosure rules although there is an expectation they may be published in the fall. Presumably the CSA has an interest in seeing what approach the SEC decides upon to ensure that Canadian issuers with US listings are not subject to incompatible sets of rules.

Office of the Superintendent of Financial Institutions

The Office of the Superintendent of Financial Institutions (OSFI) published Guideline B-15 Climate Risk Management (B-15), applicable to federally regulated financial institutions, in March 2023. Although B-15 is not necessarily incompatible with the ISSB standards, OSFI will likely be faced with the same choices as the CSA in terms of incorporating ISSB/CSSB concepts into its existing rules, should it wish to adopt them in some form.

Conclusion

Although disclosing in accordance with the ISSB rules is not yet mandatory in Canada there does appear to be convergence around the ISSB standards and it is likely they will form a component of any sustainability disclosure regime developed in Canada. Entities who are engaged in sustainability disclosure, either as part of their continuous disclosure obligations or on a voluntary basis, would do well to acquaint themselves with the ISSB standards.