Canada’s securities regulators have yet to set a timeline for making sustainability-related reporting mandatory, despite worries among experts that any further delay puts the country at a competitive disadvantage, and opens companies up to legal risks.
This month, the Canadian Sustainability Standards Board announced it is set to start public consultation on its first sustainability and climate-specific disclosure guidelines, which will be based on rules being adopted internationally. That 90-day process will start in March.
The guidelines, developed by the International Sustainability Standards Board and tailored to the Canadian economy, are expected to be finalized by the end of this summer or early autumn, CSSB chair Charles-Antoine St-Jean said.
The Canadian Securities Administrators, the umbrella group for the country’s securities commissions, declined to say whether this work would form the basis of a move to mandatory reporting, only that “the CSSB’s consultation will provide meaningful input into ongoing CSA work on development of a climate-related disclosure rule.”
The securities regulators will launch their own consultation after the CSSB’s process, focusing on the “proposed scope” of how standards will be applied, CSA spokesperson Ilana Kelemen said in an e-mail.
“The CSA recognizes that disclosure standards have implications for Canadian issuers and investors. As such, a separate subsequent consultation by securities regulators will be required for potential adoption into Canadian securities law requirements,” Ms. Kelemen said. The group plans to provide more information in a market update this spring.
The CSSB’s newly drafted proposals include requirements for reporting material information about sustainability-related financial, market and legal risks and climate-specific risks, in similar fashion to traditional accounting statements.
Financial and sustainability experts have warned that delays in adopting internationally recognized disclosure standards could put Canadian companies at a disadvantage in the race to attract capital, especially for decarbonization projects in the race to net zero.
Such rules aim to provide easier comparability for investors in determining climate risks, as well as to help protect against greenwashing. The ISSB said its standards are designed to make deceptive practices much more difficult.
However, the CSA’s plan would mark another in a series of consultations on this topic in Canadian capital markets, said Conor Chell, national leader of ESG legal risk and disclosure at KPMG Canada.
“Most developed jurisdictions – in the Western world anyway, and some even that aren’t quite as developed – are actually just taking ISSB rules and either enacting them in whole, or in part, as part of legislated mandatory reporting,” Mr. Chell said.
The European Union is among jurisdictions that have established mandatory sustainability reporting requirements, and many others are in the midst of doing so. This month, China announced new guidelines for companies listed on its major stock markets in Shanghai, Shenzhen and Beijing. They will require large and dual-listed companies to begin reporting on sustainability factors in 2026.
In a recent Globe and Mail op-ed, Janis Sarra, principal co-investigator at the Canada Climate Law Initiative, urged the CSA to institute mandatory reporting without further delay, saying Canadian companies could be left behind as other countries deal with the “urgent risks that climate change poses to capital markets.”
Mr. Chell said leaving sustainability-related disclosure up to companies to conduct voluntarily could leave them exposed to legal problems if activists and investors find shortcomings in what is reported, and respond with action in the courts or with regulators.
Indeed, this year, the advocacy group Investors for Paris Compliance filed a complaint with securities regulators to crack down on Canada’s Big Five banks, accusing them of misleading investors and the public with their sustainability claims.
Ms. Kelemen said the CSA is committed to adopting climate-related disclosure rules that reduce fragmentation in markets, support assessment of material risks and consider the needs and capacity of companies of all sizes to implement rules.
Another Canadian regulator, the Office of the Superintendent of Financial Institutions, or OSFI, said it is monitoring the CSSB’s process and may update its own climate disclosure regulations to align with them.
Last year, OSFI, which regulates banks and insurance companies, published guidance on climate-related disclosures for incorporating potential consequences of climate change into their risk profiles, and account for a range of possible climate-related outcomes when assessing whether the capital they hold in reserve is adequate.
Institutions are expected to start the first detailed disclosures under what’s known as guideline B-15 at the end of their 2024 fiscal year, and most of the remaining requirements will come into effect in 2025.
The current version of the guidelines was designed to incorporate ISSB standards, and the regulator will publish updates later next month, according to a statement issued to The Globe.
“We are among a very small group of regulators around the world, and the only financial regulator in North America, who have issued prudential guidance on climate, including mandatory disclosures,” the statement said. “We are incorporating climate-related risks into our assessments of financial institutions.”
Jeffrey Jones