Canada sustainability standard-setters embrace strong international reporting rules

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The group charged with developing Canada’s rules for how companies will disclose sustainability risks said Wednesday it has fully embraced new international standards – in contrast with the United States, where the national securities regulator scaled back its proposals in the face of opposition earlier this month.

The Canadian Sustainability Standards Board’s decision to adopt the International Sustainability Standards means that companies will likely need to do a full range of disclosures, including tallying all of their emissions. This includes what are called Scope 3 emissions – those that stem from companies’ value chains and from the end use of their products.

The proposed Canadian standards are much tougher than what emerged from work by Canada’s securities regulators in October, 2021. Through its umbrella group, the Canadian Securities Administrators, the regulators’ proposed rules included an option where only Scope 1 emissions – carbon emissions from a company’s own operations – would have to be disclosed. Another option might have allowed a company to disclose no emissions data if it provided an explanation why. The CSA put those proposed rules, which would apply only to public companies, on hold as the CSSB made its choices.

The CSSB had the option of scaling back the international rules, but did not, said chair Charles-Antoine St-Jean.

“We do take into account to see what the various regulators, including and especially our American friends, come up with, but we do have the flexibility to issue the standards that we feel are in the best public interest for Canada,” he said. “Our position that was very clear, unanimous from the board, was that we should be disclosing Scope 3.”

CSA chair Stan Magidson, who is also chief executive officer of the Alberta Securities Commission, said in a statement his group is “interested in the feedback the CSSB receives generally and specific to certain questions, as it may help inform revisions to our proposed climate-related disclosure rule.”

The CSA said its proposal “will consider the final CSSB standards and may include modifications appropriate for the Canadian capital markets.” The CSA said it will “seek public comments on a number of matters, including the scope of application and the need for additional time and/or guidance for reporting issuers to comply with certain disclosure requirements.”

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Earlier this month, the U.S. Securities and Exchange Commission introduced rules for climate-related disclosure that did not require U.S. companies to disclose Scope 3 data. In its rules’ announcement, the SEC said it “believed it was necessary to balance the importance of Scope 3 emissions with the potential relative difficulty in data collection and measurement.” (The United States has its own accounting rules and does not adhere to the International Financial Reporting Standards.)

The only departure for the CSSB in the adoption of the international standards is the timing: While the international rules are already in place and call for adoption for most companies’ current fiscal years, the Canadian standards would start in 2025.

Both for the international and Canadian standards, companies have “transition relief” to ease into the disclosures, eventually arriving at the full standard. The Canadian standards give companies an extra year of transition, meaning the full rules won’t be in place until 2027.

Companies not only have to expand disclosure, but they will also need to have the systems in place to collect data and be sure it’s sufficiently accurate for a securities disclosure, Mr. St-Jean said. And that will take time. “We feel that that’s a reasonable estimate of when we can start doing that in Canada.”

The CSSB will take comments from the public until June 10. And a robust response is expected: When the international standards board released its request for feedback in 2022, 10 per cent of the 735 responses came from Canada.

Mr. St-Jean said the CSSB will review the feedback and aim to issue the final rules in mid-September.

In addition to the CSA’s response, the Office of the Superintendent of Financial Institutions will make the determination on how the standards will apply to federally regulated financial institutions and pension plans. OSFI released its Climate Risk Management “Guideline B-15″ in March, 2023.”OSFI will monitor the CSSB consultation closely and has every intention to update Guideline B-15 to align with the CSSB standards once finalized,” OSFI spokesperson Shane Diaczuk said in an e-mail Wednesday evening.

CSSB consulted CSA and OSFI along the way, Mr. St-Jean said. “We do have regular discussions on the development of our standard. But you know, they will do what they must do once we’ve issued our standards.”