UPDATE: The Canadian Securities Administrators (CSA) announced on March 13, 2024 that it anticipates seeking comment on a revised rule setting out climate-related disclosure requirements once the CSSB consultation is complete and its standards are finalized. The CSSB standards must be incorporated into a CSA rule in order to become mandatory under Canadian securities legislation.
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The Canadian Sustainability Standards Board (CSSB) today announced the release of exposure drafts for the proposed Canadian Sustainability Disclosure Standards (CSDS), which include:
- CSDS 1, General Requirements for Disclosure of Sustainability-related Financial Information (CSDS 1); and
- CSDS 2, Climate-related Disclosures (CSDS 2).
The International Sustainability Standards Board (ISSB) published IFRS S1 and IFRS S2 in June 2023. Those disclose standards served as the baseline for the development of CSDS 1 and CSDS 2, respectively. The CSSB also published a consultation paper on criteria for modifying the IFRS Sustainability Disclosure Standards when formulating Canadian standards based on them. The CSSB has proposed to make the new standards effective as of annual reporting periods beginning on or after January 1, 2025.
Comments on the proposed standards are due June 10, 2024. CSSB will host a webinar on the exposure drafts on April 10, 2024. This bulletin provides a brief summary of the objectives and key conceptual foundations / core content of CSDS 1 and CSDS 2, as well as the Canadian changes as compared to the ISSB standards.
CSDS 1: General Requirements for Disclosure of Sustainability-related Financial Information
Objective. The objective of CSDS 1 is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the entity. An entity would be required to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term.
Conceptual foundations. CSDS 1 is based on the conceptual foundation that, for sustainability-related financial information to be useful, it must be relevant and faithfully represent what it purports to represent. In addition, the usefulness of sustainability-related financial information is enhanced if the information is comparable, verifiable, timely and understandable. The usefulness of sustainability-related financial information is enhanced if the information is comparable, verifiable, timely, and understandable.
Changes as compared to IFRS S1. The CSSB has proposed the following changes specific to the Canadian standard:
- The proposed effective date has been extended by one year (paragraph E1).
- CSDS 1 would become voluntarily effective for annual reporting periods beginning on or after January 1, 2025.
- The proposed transition relief for disclosures beyond climate-related risks and opportunities has been extended from one year granted by the ISSB to two years (paragraph E5).
- If an entity with a calendar year-end applies the proposed standard for the first time in the reporting period beginning on January 1, 2025, it will be required to disclose information on all sustainability-related risks and opportunities from the reporting period beginning on January 1, 2027.
- The proposed requirements to disclose comparative information have been changed to align with the modification made to paragraph E5 (paragraph E6).
- If an entity with a calendar year-end applies the proposed standard for the first time in the reporting period beginning on January 1, 2025, and applies the relief in paragraph E5, to delay reporting about its sustainability-related risks and opportunities (other than disclosure of information on only climate-related risks and opportunities), an entity will be required to disclose comparative information on all sustainability-related risks and opportunities from the reporting period beginning on January 1, 2028.
CSDS 2: Climate-related Disclosures
Objective. The objective of CSDS 2 is to require an entity to disclose information about its climate-related risks and opportunities that is useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the entity. An entity would be required to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term.
Core content. CSDS 2 would require disclosure in the areas of governance; strategy; climate-related risks and opportunities; business model and value chain; strategy and decision-making; financial position, financial performance and cash flows; climate resilience; and climate-related metrics and targets.
Changes as compared to IFRS S2. The CSSB has proposed the following changes specific to the Canadian standard:
- The proposed effective date has been extended by one year (paragraph C1).
- CSDS 2 would become voluntarily effective for annual reporting periods beginning on or after January 1, 2025.
- The proposed transition relief for disclosure of Scope 3 GHG emissions has been extended from one year granted by the ISSB to two years (paragraph C4).
- If an entity with a calendar year-end applies the proposed standard for the first time in the reporting period beginning on January 1, 2025, it will be required to disclose its Scope 3 GHG emissions from the reporting period beginning on January 1, 2027.
Future Canada-specific Considerations
The CSSB has indicated that it will consider whether future additional requirements should be introduced to reflect Canadian circumstances. The CSSB may also decide to issue interpretive guidance.
The CSSB also notably included the following statement on the rights of Indigenous Peoples: “The rights of First Nation, Métis and Inuit Peoples are inherent and specific in Canada. In collaboration with Indigenous Peoples, the CSSB will explore how best to address these rights in the context of CSDSs. All interested and affected parties are impacted when Indigenous Peoples’ rights are not respected. Therefore, the Board will consider this in the development of its multi-year strategic plan.” The CSSB also indicated that it intends to use its influence to help inform international sustainability disclosure standards in a manner respectful of Indigenous Peoples’ rights as defined by UNDRIP.
For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.