A flare stack lights the sky from an oil refinery in Edmonton on December 28, 2018.JASON FRANSON/The Canadian Press
Barbara Zvan is the president and chief executive officer of University Pension Plan Ontario and was one of four members of Canada’s Expert Panel on Sustainable Finance.
Barbara Stymiest is an accountant and corporate director. She served as an executive in financial services for more than 20 years at Royal Bank, TMX Group and BMO Capital Markets.
Just as our athletes can only compete in the Paralympics and Olympics when they abide by international rules, Canadian companies can only be successful in the competition for global investment capital when we adopt rules that are globally aligned.
International accounting disclosure rules have long guided the way companies present their finances to ensure fair play. Canada is one of 164 jurisdictions to have adopted the International Financial Reporting Standards (IFRS) Accounting Standards.
The Canadian Sustainability Standards Board (CSSB) is now considering adopting globally aligned sustainability disclosure standards to guide the way a company discloses its performance on risks and opportunities related to sustainability and climate change.
Many companies or industry associations from sectors including energy, agriculture and utilities would have the CSSB remove significant sections of the standards related to greenhouse gas emissions and climate-risk scenarios, make all sustainability disclosures voluntary or add indefinite transition. It shouldn’t.
IFRS, as the global standard-setter, has long acknowledged the financial materiality of sustainability information. In 2023, following global consultation, its International Sustainability Standards Board (ISSB) issued guidance that provide the means for companies to report sustainability information alongside financial information in a format useful to those analyzing a company’s prospects.
Just five months after their launch, the ISSB standards had gained the support of almost 400 organizations globally, including stock exchanges, accounting bodies, companies and investors representing more than US$120-trillion in assets.
Countries representing more than half of global gross domestic profit (GDP) have either adopted or are in the process of adopting the ISSB standards including the European Union, United Kingdom, Japan, Australia and Brazil.
If it diverges from the global baseline, the CSSB would do the Canadian economy a disservice and undermine its own credibility as a standard-setting body.
For years, Canadian investors have been asking for the type of standardized comparable disclosures of material sustainability and climate information provided by the ISSB standards. Support for the ISSB standards was so strong that the ISSB set up one of its two offices in Montreal.
Watering down the ISSB standards could have an impact on Canadian companies’ opportunities for trade and investments from global investors and buyers who expect ISSB disclosures as standard business practice.
Without complete and comparable disclosures, investors and lenders see risk and make more cautious investments, smaller investments or don’t invest at all.
Although the U.S. has not yet taken up the ISSB standards, other major economies have. Canada is a small fish, and we need global capital. We don’t have the luxury of levelling down while everyone else is levelling up.
The CSSB should look to Australia for inspiration. The resource-heavy economy initially carved out huge chunks of the ISSB standards. After criticism from the Australian and global finance sector, Australian standard setters opted to align closely with the international framework so as not to “undermine the goal of global comparability.”
The CSSB wrapped up its consultation in June, and the market is eagerly awaiting the release of standards. As a reporting standard-setting body, the CSSB must follow standards of due process and receives oversight and input from the Reporting & Assurance Standards Oversight Council, a national body.
According to the two organizations’ governance and process documents, there is a high threshold for modifications or deletions of international standards.
The relevant guidance states that “each of Canada’s accounting and auditing boards and oversight councils operate in the public interest, and that present and potential investors, financial institutions and other creditors of private entities and public institutions, including government related bodies and not-for-profit organizations, have a prominence as stakeholders in our considerations.”
The CSSB must be vigilant against serving the self-interest of certain stakeholders, whose interests are misaligned with the needs and interests of the stakeholders that its oversight body make clear should be most prominent.
We urge the CSSB to follow its own due process and move to implement the ISSB standards without significant modifications as proposed in March.
The CSSB’s job is domesticating – not rewriting – the ISSB standards. Subtractions from the international framework will undermine Canada’s global competitiveness as a destination for investment.
It’s our best shot for a place on the podium.
The team winning Olympic gold for Canada in the men’s four-by-100-metre relay didn’t get there by modifying the rules. They did it by being the fastest on the track.