With a growing emphasis on sustainability and ESG practices and disclosure, there is a corresponding drive to build a regulatory framework in Canada that requires companies to provide comprehensive and standardized disclosure on sustainability and ESG matters. This regulatory framework seeks to provide investors with the information necessary to make more informed decisions that are aligned with their views on sustainability and ESG. The following outlines recent Canadian legislative and regulatory advances aimed at enhancing the transparency and reliability of sustainability and ESG reporting.
1. MADE-IN-CANADA SUSTAINABLE INVESTMENT FRAMEWORK
In October 2024, the Government of Canada announced preparations for voluntary sustainable investment guidelines (the "Taxonomy") to assist investors and lenders in identifying sustainable activities. The Taxonomy aims to help identify "green" and "transition" activities by classifying economic activities based on emissions and net-zero alignment. It is also expected to include company-level requirements for "green" and "transition" labelling, such as net-zero targets, transition plans and climate disclosures. These requirements would become eligibility criteria for companies seeking to rely on the Taxonomy for certain economic activities. Independent third-party organizations are expected to prepare the Taxonomy with input from a variety of stakeholders, including financial market participants, industry experts, climate scientists and Indigenous partners. The Government of Canada has committed to releasing a Taxonomy for two to three priority sectors within 12 months of the third-party organizations beginning their work. For more information on the Taxonomy, please refer to our in-depth analysis here.
2. DO NO HARM: THE IMPACT OF THE 21ST CENTURY BUSINESS ACT ON CANADIAN BUSINESSES
In May 2024, Bill S-285: The 21st Century Business Act ("Bill S-285") was introduced and proposes to amend the Canada Business Corporations Act ("CBCA") to incorporate social and environmental obligations into corporate duties and decision-making. If adopted, Bill S-285 would mandate directors and officers of CBCA companies to consider prescribed stakeholder constituencies, including the environment, when acting in the best interests of the company. Bill S-285 would also require annual reporting of a company's social and environmental impacts. Non-compliance would enable a "complainant" to bring a derivative action, allowing a shareholder to bring a claim against directors and officers for a breach of fiduciary duty. Bill S-285 also expands the definition of "complainant" under the CBCA, allowing any person to bring a derivative action, increasing the ability of persons to bring claims against directors and officers for a breach of duty. Bill S-285 was introduced as a private bill in the Senate without the support of any political party. For more information on Bill S-285, please refer to our in-depth analysis here.
3. CBCA AMENDMENTS PROPOSED FOR LARGER PRIVATE COMPANIES
In October 2024, the Government of Canada announced plans to amend the CBCA to mandate climate-related financial disclosures for large, federally incorporated private companies. The substance of the proposed disclosure requirements will be the subject of an upcoming regulatory process and will be aimed at helping investors understand how businesses manage climate risks and ensure capital allocation aligns with a net-zero economy. The government plans to work with provincial and territorial partners for broad climate-related disclosure across Canada and to harmonize these requirements with those required by securities regulators for public companies. For more information on these proposed amendments to the CBCA, please refer to our in-depth analysis here.
4. CANADIAN SUSTAINABILITY STANDARDS BOARD ADOPTS CANADIAN SUSTAINABILITY DISCLOSURE STANDARDS
In March 2024, the Canadian Sustainability Standards Board ("CSSB") released its first proposed Canadian Sustainability disclosure standards for public comment: General Requirements for Disclosure of Sustainabilityrelated Financial Information ("CSDS 1") and Climaterelated Disclosures ("CSDS 2," together with CSDS 1, the "CSSB Standards").
The proposed CSSB Standards substantially align with the International Sustainability Standards Board ("ISSB") IFRS S1 and S2 standards (collectively, the "ISSB Standards") – which are designed to serve as the global baseline for comprehensive, comparable and consistent reporting of climate-related disclosure – with minor modifications to address Canadian circumstances, primarily to extend the timeline for compliance and provide additional transition relief through a lengthier phase-in for Scope 3 greenhouse gas ("GHG") emissions disclosures.
Echoing the ISSB Standards, CSDS 2 works in conjunction with CSDS 1 to offer (i) specific requirements for climaterelated disclosures, including mandatory reporting of Scopes 1, 2 and 3 GHG emissions; (ii) the extent of assets' and business operations' vulnerability to climate impacts; and (iii) the reporting of quantitative and qualitative information such as capital expenditure, financing and investments deployed addressing climate-related risks and opportunities. Moreover, CSDS 2 would require mandatory scenario analysis gauging entities' resilience to climate change. For more information on these proposed amendments to the CSSB Standards, please refer to our indepth analysis here.
The CSSB adopted final CSSB Standards in December 2024 with few changes, see here Detailed Changes of CSDS 1 and CSDS 2: From Exposure Drafts to Final Standards. For the CSSB Standards to become mandatory for any Canadian entity, a Canadian regulator such as the Office of the Superintendent of Financial Institutions ("OSFI") or the Canadian Securities Administrators ("CSA") must adopt the CSSB Standards.
5. OFFICE OF SUPERINTENDENT OF FINANCIAL INSTITUTIONS UPDATES GUIDELINE ON CLIMATE RISK MANAGEMENT AND DISCLOSURE
The OSFI released in April 2024 an updated version of Guideline B-15: Climate Risk Management (the "Guideline"). In particular, OSFI updated Annex 2-2 to the Guideline, Minimum Mandatory Climate-related Financial Disclosure Expectations ("Annex 2-2"). The updated Guideline seeks to align its climate-related disclosure framework with the ISSB standard, IFRS S2 Climate-related Disclosures ("IFRS S2"), by incorporating several of IFRS S2's key elements and applies to financial institutions beginning either as of the end of their 2024 or 2025 financial year-end.
6. CANADIAN SECURITIES ADMINISTRATORS PROVIDE UPDATE ON CLIMATE-RELATED DISCLOSURE PROJECT
In December 2024, following the publication of the final CSSB Standards, the CSA issued a notice to provide an update on its own efforts in connection with climaterelated disclosures. The CSA stated that it is continuing to work towards a revised version of its proposed rule that will consider the CSSB Standards, and may include modifications considered appropriate in the Canadian context. The CSA also stated that it continues to work towards a balanced approach that supports the assessment of material climate-related risks, responds to stakeholder requests for consistent, comparable and decision-useful climate-related disclosures, and contributes to efficient capital markets, mindful of issuers of different sizes, needs and capabilities and regulatory developments in the United States. The CSA further advised that it will publish a revised rule for public comment and will encourage feedback on specific issues, including the scope of the rule's application and the need for additional time or guidance for reporting issuers to comply with certain disclosure requirements. The CSA anticipates consulting on concerns regarding liability with respect to new requirements for climate-related disclosure.
This article appeared in ESG and Sustainability: Key Trends in Canada
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