Shaping the Future For Sustainability Disclosure In Canada: Comment Period Open Until June 10

The Canadian corporate responsibility and sustainability landscape is undergoing significant transformation with the introduction of the Canadian Sustainability Standards Board (CSSB) and its Exposure Drafts for the Canadian Sustainability Disclosure Standards (CSDS). These drafts are based on the International Financial Reporting Standards’ (IFRS) Sustainability Standards, released in 2023, so it’s likely that companies will not be very surprised by their contents. Stakeholders, however, still have until June 10, 2024, to review them and submit their comments. As this deadline approaches, energy companies should understand these new disclosure requirements to provide informed feedback that reflects their industry’s realities.

Currently voluntary, these standards may become mandatory, especially as Canada seeks to compete in a global marketplace in which some foreign jurisdictions already face mandatory reporting. Additionally, stakeholders—customers, suppliers, investors, and regulators—increasingly demand sustainability reporting as a criterion for business relationships.

The CSSB aims to enhance the quality and comparability of sustainability-related disclosures among Canadian companies. It focuses on standardizing reporting to provide reliable information for assessing companies’ environmental, social, and governance (ESG) performance.

The CSSB’s Exposure Drafts outline frameworks for reporting sustainability-related financial information, with a focus on:

1. CSDS 1: General Requirements for Disclosure of Sustainability-related Financial Information – Guides reporting companies to disclose sustainability risks and opportunities that impact investment decisions, aiming for comprehensive, comparable, and verifiable sustainability performance.
2. CSDS 2: Climate-related Disclosures – Focuses on reporting greenhouse gas emissions, climate risks, and mitigation strategies, reflecting investor and regulatory pressure to address climate change.

Energy companies in Canada face several challenges and opportunities as they prepare for the June 10, 2024 deadline to respond. Key considerations include:

1. Assessing Reporting Obligations – Companies should identify relevant metrics and indicators, conduct thorough assessments of their environmental and social impacts, and engage with stakeholders and Rightsholders to determine their reporting goals and objectives. With this understanding, companies will need to consider whether the CSDS allows enough time after the release of financial statements for them to be able to prepare and release their sustainability disclosures for the matching reporting period.
2. Data Management – Robust systems are needed to collect, analyze, and report sustainability-related data effectively. Investing in advanced data management technologies and building internal capacity for data analytics is crucial for accuracy and reliability. Companies should understand the time and resources involved to meet annual reporting requirements. Reporting on more complex metrics, such as Scope 3 emissions, may require greater transition times than currently suggested in the CSDS.
3. Stakeholder Engagement – Engaging with investors, customers, employees, and communities enhances transparency, builds trust, and identifies areas for improvement in sustainability performance. Companies should determine whether it is appropriate to incorporate additional international standards such as the Global Reporting Initiative (GRI) and the Climate Disclosure Standards Board (CDSB) Framework Application Guidance to meet their full reporting objectives and stakeholder expectations.

The introduction of the CSDS marks a significant milestone in Canada’s journey towards sustainable and responsible business practices. Proactive engagement, strategic planning, and a commitment to transparency will be key for energy companies to navigate these new disclosure standards successfully. Embracing sustainability and ESG integration not only helps meet regulatory obligations but also drives positive social and environmental impact. It also represents a strategic opportunity in that compliance with the CSDS can enhance brand reputation, attract investment, and drive long-term value creation. Demonstrating a commitment to sustainability and ESG principles can differentiate companies in the market and provide a competitive edge.

The incorporation of the CSDS into Canadian securities legislation would further mainstream sustainability reporting. The Canadian Securities Administrators (CSA), an umbrella organization of provincial and territorial securities regulators, plays a central role in setting securities regulations across Canada. They have been engaged with the CSSB in developing and refining the CSDS within the Canadian context. Their endorsement and the integration of the CSDS through provincial and territorial securities legislation would significantly influence disclosure practices across various sectors, including energy.

Although we cannot predict the future action of the CSA, here are some possibilities of how the CSA may incorporate the CSDS into its rules:

1. Endorsement and Recognition – The CSA may formally endorse the CSDS as a recognized standard for sustainability reporting within Canadian capital markets. This would align with the International Organization of Securities Commissions (IOSCO) endorsement of the IFRS Sustainability Standards in July 2023.
2. Incorporation into Regulatory Framework – The CSA may integrate specific requirements of the CSDS into the revisions of proposed National Instrument NI 51-107 Climate-related Disclosure Requirements.
3. Guidance and Interpretive Aids – The CSA may provide guidance and interpretive aids to help companies understand and comply with the standard under the existing regulatory framework, such as National Instrument 51-102 Continuous Disclosure Obligations.
4. Periodic Review and Updates – The CSA may periodically review and update its rules and guidance to reflect evolving best practices and emerging issues in sustainability reporting.

The formalization of these rules is expected in the coming year. With that said, it might be tempting to procrastinate or even ignore the coming regulations.  You might be thinking they’re voluntary (at this point), they don’t apply to you (but your supply chain customers and suppliers are starting to use them as evaluation tools in your relationships), your shareholders haven’t demanded them (yet), and no regulatory body is imposing them (but they’ve indicated they might). At GLJ, we recognize that every company is at a different point in its ESG reporting journey and we’ve helped many clients take their very first steps at disclosure as well as supported those with a long history of reporting.  However, many companies that voluntarily make the commitment to be leaders in sustainability disclosures realize that this process takes much longer than anticipated at the start. Now is the time to give ESG reporting some thoughtful consideration for your operations before they are imposed. Our team of ESG specialists are industry experts. Get in touch with us to find out how we can make your move into ESG reporting smooth and advantageous for your business.

Authors:

Colleen Sherry, Vice President Sustainability and Emissions Management

Kelly Rutledge, Senior Analyst Sustainability and Emissions Management

sustainability@gljpc.com