The Canadian Sustainability Standards Board has issued for comment its first two proposed standards.

These are proposed Canadian Sustainability Disclosure Standard (CSDS) 1 General Requirements for Disclosure of Sustainability-related Financial Information  and CSDS 2 Climate-related Disclosures, built on the pre-existing IFRS S1 and S2. Perhaps surprisingly, the CSSB didn’t propose any major changes to the underlying ISSB standards except to modify proposed effective dates and transitional reliefs, neither of which may ultimately matter too much given that, as they acknowledge, “Canada’s regulators and legislators will determine whether CSDSs should be mandated, and if so, who will need to apply the standards and over what time frame.” The Canadian Securities Administrators promptly emphasized that point:

• In order to become mandatory under Canadian securities legislation, the CSSB standards must first be incorporated into a CSA rule. Once the CSSB consultation is complete and its standards are finalized, the CSA anticipates seeking comment on a revised rule setting out climate-related disclosure requirements. The CSA proposal will consider the final CSSB standards and may include modifications appropriate for the Canadian capital markets. The CSA anticipates adopting only those provisions of the sustainability standards that are necessary to support climate-related disclosures.

The CSSB proposals acknowledge a couple of areas that may be particularly contentious among Canadian issuers. On climate resilience: “The CSSB supports the global baseline requirements on climate resilience. However, it acknowledges that scenario-analysis methodologies are new for Canadian reporting entities, who have concerns about the level of resources, skills and capacity required to prepare these disclosures. Although IFRS S2 does not include transition relief, the Board seeks views on whether transition relief and/or guidance would help preparers and users of proposed CSDS 2-related disclosure in their assessment of climate resilience.” And on disclosure of “Scope 3” emissions: “Preparers have raised concerns about the measurement uncertainty of Scope 3 GHG emissions, along with challenges related to processes and capacity to deliver disclosures concurrently with general-purpose financial reports. While acknowledging these concerns, the CSSB endeavours to balance this feedback with the realities of the urgent need to address climate-related risks.”

No doubt some respondents will cite the new US SEC rules, covered here last time, which take a lighter touch in both those areas, in arguing that Canadian companies should indeed be granted greater relief (as long as I’ve been tuned into Canadian financial reporting, “competitiveness” with the US has been cited as a reason why Canadian issuers should be given a break in one respect or another, not always very persuasively). It doesn’t say much for Canadian regulatory efficiency though that even in a dream scenario where a rapid consensus emerges around the CSSB proposals, the standards won’t be effective for several more years, perhaps even four or five (in this regard I always enjoy recalling the Globe and Mail’s comment last year that “Canadian businesses will have several months to prepare…”). It’s also worth noting that the SEC rules, as we summarized last time, include a couple of requirements relating to the notes to the financial statements: to disclose capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions and relating to carbon offsets and renewable energy credits or certificates, and information relating to the material impact of severe weather events and related matters on estimates and assumptions used to produce the statements. The SEC has a long history of issuing financial statement directives which supplement US GAAP for public companies; Canadian regulators aren’t as prescriptive, preferring to issue commentaries on their “expectations” and suchlike for financial statement preparers. We’ll have to wait and see what happens on that front, but as always, there’s nothing preventing IFRS preparers from disclosing more than what’s explicitly mandated…

Oh and by the way, as I write those SEC rules have been temporarily halted by a federal court, likely bolstering my prediction last time that they wouldn’t fare well under a Trump administration. As reported by the New York Times:

• The U.S. Chamber of Commerce, which represents a wide cross-section of industries, filed suit in the U.S. Court of Appeals for the Fifth Circuit this week to stop the rules, calling them unconstitutional. Ten Republican-led states have also sued to stop the rules.
• The emergency stay granted by Fifth Circuit judges on Friday came in a case brought by two fracking companies, Liberty Energy and Nomad Proppant Services. “There is no clear authority for the S.E.C. to effectively regulate the controversial issue of climate change,” the two companies wrote in their petition. They were “arbitrary and capricious,” the two companies said, and violated the First Amendment, which protects free speech, by “effectively mandating discussions about climate change.”
• In addition, the rules would cost companies “irreparable injury in the form of unrecoverable compliance costs,” they said.

And no doubt we all feel their pain…

The opinions expressed are solely those of the author.