As we addressed here, the Canadian Sustainability Standards Board 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; the CSSB didn’t propose any major changes to the underlying ISSB standards except to modify proposed effective dates and transitional reliefs. We already looked at some of the feedback in several areas, including on the broad question of whether and to what extent Canadian standards would be justified in differing from those issued by the ISSB (the CSSB has now issued a summary of the feedback it received, without indicating what it intends to do about it). One complexity is that the US recently issued its own non-ISSB-aligning rules in this area, thus providing a fresh opportunity to trot out the familiar “competitive disadvantage” arguments against any Canadian action that deviates from that. This is from the Alberta Enterprise Group:

• The proposed Canadian standards seem to align more closely with the European Union than our North American trading partners. Only 8% of Canada’s export trade goes to the EU, while 78% goes to the United States. The U.S. Securities and Exchange Commission has introduced a climate disclosure rule, but it is currently being challenged in court. Even if the U.S. rule is upheld, key elements like Scope 3 emissions accounting, climate scenario analysis, industry based guidance, and transition plans are voluntary. Additionally, the U.S. rule contains safe harbour provisions to limit legal liability.
• In contrast, it is our understanding that Mexico is not considering any mandatory climate-related financial disclosures. This means Mexican manufacturers and food producers will not face the same financial or regulatory burdens as their Canadian counterparts…The stark differences between the approaches in Canada, the U.S., and Mexico could put Canadian companies at a competitive disadvantage in the North American market. We recommend that Canada align more closely with its CUSMA trading partners, rather than other nations with which it conducts very minimal trade.

The law firm Burnet, Duckworth & Palmer LLP (also based in Alberta, ground zero for such perspectives) also sees comparability to the U.S. as the most relevant consideration:

• The United States is Canada’s most important trading partner and also the jurisdiction with which we compete most heavily for both human and investment capital. For Canadian businesses and our capital markets to remain competitive with the United States, we need securities legislation that provides similar protections to U.S. securities legislation and a disclosure regime that provides for comparability with U.S. companies. It is equally important that the Canadian regime is recognized as being business friendly and does not place significant burdens on companies wishing to do business in Canada.
• We recognize that through CSDS 1 and CSDS 2 the CSSB is recommending adopting IFRS 1 and IFRS 2 largely unchanged and that these standards have been adopted in other foreign jurisdictions; however, CSDS 1 and CSDS 2 impose significantly more burdensome disclosure requirements than the disclosure requirements set out in the U.S. Climate Disclosure Rules. We believe that compliance with CSDS 1 and CSDS 2 will require significantly more costs and management resources than the costs and resources required for U.S. companies to comply with the U.S. Climate Disclosure Rules. This ultimately could result in Canadian companies being less competitive than their U.S. peers. This is especially true given the significantly larger market size in the U.S. than in Canada.
• …ultimately in a choice between an investment in a U.S. company with less burdensome regulatory requirements operating in a larger market versus a Canadian company with more burdensome regulatory requirements operating in a smaller market, an investor will choose the U.S. company regardless of whether the Canadian company has more fulsome climate and sustainability disclosure than the U.S. company.

The “Friends of Science Society,” another Alberta-based entity, asks rhetorically: “What constructive thing will the CSDS initiative accomplish for the Canadian economy?” It has an answer:

• Nothing but more operational chaos for businesses, the destruction of more small and medium-sized enterprises which will crumble under the financial and HR strain of reporting such details and all for the purpose of counting molecules, allegedly leading to the reduction of carbon dioxide emissions and the sustainability of materials. With so much energy wasted in this accounting process, it is very unlikely such reporting will have any beneficial result. It will likely use more energy than is saved, especially if there is a reliance on Artificial Intelligence (A.I.) to aggregate results.
• Indeed, such detailed reporting is an open invitation for competitors or Canada’s competitor nations to use such information to manipulate the prices or access to essential inputs and put Canadian companies out of business.

I do agree, as I’ve said numerous times before, that there’s no certainty the disclosures flowing out of the proposed standards would be used in ways we might broadly consider “good.” Perhaps the “Friends of Science” are right that the whole regime will turn out to be the equivalent of the average Tesla, its frail supposed virtues evaporating under even minor examination. On the other hand, a company that would “crumble” from having to comply with such a disclosure requirement wouldn’t seem stable enough to survive for long anyway. The concern for Canada’s competitiveness, as expressed in such submissions, is too often tinged with the mindset that prioritizes present-day returns over almost all else, however dirty and unsustainable their underpinnings.

Still, I hope the CSDS will take on such submissions (and there are plenty more of them) forcefully and seriously, and find a way to strongly articulate why they shouldn’t win the day. For example, it might point out, as in a recent Globe and Mail opinion piece, that “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.” Hmmm, maybe I’ll take that back, metaphors don’t always do much to help…

The opinions expressed are solely those of the author.