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Canadian Sustainability Disclosure Standards

Transcript - On-demand Webinar – Proposed Canadian Sustainability Disclosure Standards and Criteria for Modification Framework

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Emilly Renaud:

Welcome, everyone. I see we have a lot of participants joining us today. We are very excited to have you. We’re offering this webinar in English with simultaneous French translation.

We are just going to give it a few minutes just to let people funnel in, and we will start the presentation shortly. And just to note, we will be recording the session, and it will be available in English and French on our website very shortly. Thank you. And just give us a few more minutes to let people join.

Hello, everyone. I see we have lots of participants funneling in. Just repeating the announcement that we’re just waiting a couple of minutes to let people join and get settled. This webinar presentation will be available in English with simultaneous French translation, which you can select at the bottom with the interpretation tool. This webinar will be recorded and available in English and French on our website shortly. Please bear with us. We’ll start in about one minute.

OK. I think we are going to start now. I’m going to pass it off to our host, Nora, to start the webinar. Thank you, everyone.

Nora Wood:

OK. Thanks, Emily.

Welcome to today’s webinar, and thanks for joining us. My name is Nora Wood, and I am a Principal with the Canadian Sustainability Standards Board. I’m in Winnipeg today, which is located on Treaty 1 Territory, the ancestral lands of the Anishinaabe, and the New and Dakota nations, as well as the traditional trade and travel routes of the Anishininewuk, Dene and Inuit, and the homeland to the Red River Métis.

Winnipeg’s water is sourced from Shoal Lake 40 First Nation and Treaty 3 Territory territory, and I acknowledge and extend my gratitude to past and present stewards of this land.

We’re joined also today by other members of the CSSB team, who are working behind the scenes to ensure that today's session goes smoothly.

Today’s session will run just under 45 minutes and aims to provide you with an overview of the three ongoing consultations of the CSSB that were launched on March 13 and will run through until June 10.

Today’s webinar, as Emily mentioned, will be recorded and will be available on demand shortly after the event concludes.

In today’s agenda, we will cover three topics. First, I’ll tell you a little bit about the CSSB. And secondly, we’ll look at an overview of the project itself, which will include a closer look at three documents. First is the proposed CSDS 1, General Requirements for Sustainability-related Financial Information. The second is the proposed CSDS 2, Climate-related Disclosures. And a third document – The Criteria for Modification Framework.

And lastly, we’ll review how you can participate to ensure your voice is heard as the CSSB deliberates on the final standards.

We’ll also have a live question and answer period at the end of the formal presentation. We have just under two thousand people registered for today’s event. So, we’ll be keeping the audience on mute and the chat function turned off. However, you will be able to enter your questions using the Q&A feature as we go along or at the end of the presentation.

These will be monitored by the CSSB team, and hopefully we’ll be able to answer most, if not all, of your questions throughout our time together today.

We’ll start with a brief look at how the CSSB came to be and how it fits into the sustainability standard-setting ecosystem.

The CSSB was established in April 2023 to serve the public interest by setting and maintaining high-quality sustainability disclosure standards for Canadian entities and by contributing to the development of high-quality internationally recognized sustainability disclosure standards.

The Board became fully operational in September 2023, and this slide provides an overview of that journey so far.

The CSSB contributes to the development of high-quality internationally recognized sustainability standards in a variety of ways.

One of these mechanisms is the representation of community interests via its seat on the Sustainability Standards Advisory Forum, which was established in 2022 with a mandate to support the ISSB’s goal of achieving a comprehensive global baseline of sustainability disclosure standards.

In addition to other standard setters, such as the ISSB, the CSSB works closely with Canadian regulators, such as OSFI, the Office of the Superintendent of Financial Institutions and Canadian Securities Administrators, or the CSA.

While the CSSB is independent from these regulators, it works in ongoing dialogue about how the standards impact regulation and vice versa to ensure the needs of the Canadian public interest is optimized.

Moving on to the project itself – we’ll go through a brief project overview, which outlines the commonalities between the two Exposure Drafts and the premises upon which they were developed.

On June 26, 2023, the International Sustainability Standards Board (the ISSB) released its first two IFRS Sustainability Disclosure Standards: IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2, Climate-related Disclosures.

These standards create a common language for disclosing the effect of all material sustainability-related risks and opportunities on a company’s prospects and ushered in a new era of sustainability-related disclosures in capital markets worldwide.

These disclosures are meant to help improve the trust and confidence in companies’ disclosures about sustainability to inform investment decisions.

IFRS S1, the General Requirements Standard establishes key concepts in underpinning definitions, outlines how and when information is to be reported, sets out the criteria for sustainability-related information to be connected to the financial performance of the entity, defines value chain concepts, and tells the company which sustainability risks and opportunities they’re required to report on.

The proposed Canadian Sustainability Disclosure Standard 1, or CSDS 1, which we’ll review in more detail in a few moments, is built upon IFRS S1.

IFRS S2, the Climate-related Disclosure Standard, takes all of the information in S1 (and is to be used in accordance with S1) but sets out the requirements for a company to disclose information specifically about its climate-related risks and opportunities.

Similarly, the proposed CSDS 2 is built upon IFRS S2.

The CSSB supports the ISSB’s goal of creating a comprehensive global baseline that enhances transparency and comparability of sustainability and climate-related risks and opportunities to the global capital marketplace. However, it acknowledges the concerns that have been raised on certain provisions within IFRS S1 and IFRS S2.

The Board is therefore exploring these concerns, seeking focused input from interested and affected parties on both of the Exposure Drafts.

Today’s webinar does not cover all aspects of proposed CSDS 1 and CSDS 2 but rather reviews the key Canadian priorities that are the focus of the CSSB’s consultation.

We encourage you to visit the IFRS Foundation’s website to access many of the available resources should you wish to learn more about the standards themselves.

The CSSB supports assessing both IFRS S1 and IFRS S2 in their full scope and has therefore published proposed CSDS 1 and CSDS 2 for exposure and public comment simultaneously.

Essentially, this means that other than effective date and some extension of existing transition relief IFRS S1 and IFRS S2 are proposed for adoption as CSDS 1 and CSDS 2, respectively, without modification.

The CSSB has also developed its criteria for modification framework, which are the principles that will guide the Board as to when and what kind of amendments (if any) it would make to the IFRS Sustainability Disclosure Standards.

These will be reviewed in more detail later in the presentation.

It should be noted that while proposed CSDS 1 and CSDS 2 are intended for use by publicly accountable enterprises, other entities are more than welcome to provide feedback.

The project has three broad objectives. The first objective is that the CSSB has taken a focused approach, focusing only on areas of certain key Canadian priorities.

The second objective is to support the uptake of the IFRS Sustainability Disclosure Standards in Canada to the fullest extent possible, which aligns with the CSSB’s acknowledgement of the benefits of global standardization of Sustainability Disclosure Standards.

And lastly, the CSSB endeavours to gain an understanding of Canadian interests by consulting with and receiving comments from interested and affected parties, such as yourselves, about the proposals contained within the draft CSDSs.

The CSSB identified specific issues for consideration when determining the content of the Exposure Draft.

The first thing that was considered were recurring themes and key Canadian priorities that were submitted to the ISSB in response to the IFRS S1 and IFRS S2 Exposure Drafts in 2022.

Secondly, staff consulted extensively with individuals and organizations in Canada in its formulation of a response to the ISSB’s Exposure Drafts.

Staff then analyzed the key differences between the recommendations made to the ISSB and the ISSB’s final standards, and these areas were then flagged as being “unresolved” in the Canadian Perspective.

Lastly, CSSB is engaged in ongoing regulatory and policy development review.

This step is critical in understanding the regulatory landscape, including legal frameworks and the political decisions that might impact sustainability disclosures in Canada.

One of the mechanisms outlined by the ISSB to support jurisdictional implementation of the first standards is the building block approach. This is an approach that facilitates the layering-onto the global baseline of additional requirements that are jurisdiction-specific or aimed at a broader group of interested and affected parties while maintaining transparency and comparability of information within global capital markets.

In the future, the CSSB will consider if and when it might be appropriate to use this approach to address specific requirements relevant to the Canadian public interest.

The rights of First Nation, Métis and Inuit Peoples are inherent and specific in Canada. The CSSB is committed to upholding the rights of Indigenous Peoples and ensuring their meaningful participation in shaping sustainability standards.

These rights are described in a global context in the United Nations Declaration of the Rights of Indigenous Peoples (or UNDRIP) and, in the Canadian national context, in section 35 of the Canadian Constitution Act.

The CSSB has made a commitment to upholding these rights, which includes creating an engagement plan informed by the needs and interests of First Nation, Métis and Inuit Peoples, communities, governments, and businesses to ensure these groups are involved in the development of standards.

The Board intends to actively listen to and collaborate with Indigenous Peoples to develop its multi-year strategic plans and to shape sustainability standards in Canada.

A full description of the CSSB’s commitment and next steps can be viewed in the Exposure Drafts.

Now let’s take a look at each of the proposed standards in more detail.

We'll begin with proposed CSDS 1, General Requirements for Disclosure of Sustainability-related Financial Information.

As indicated earlier, proposed CSDS 1 is based upon IFRS S1 with the objective to require an entity to disclose information about its sustainability-related risks and opportunities.

It’s based on the fundamental principle that an entity’s ability to generate cash flows over the short, medium, and long term is inextricably linked to the interactions between the entity and society, the economy, and the natural environment that it operates within.

CSDS 1 provides the same foundational concepts for sustainability-related disclosures as IFRS S1.

With increased demands for globally consistent sustainability disclosure standards, the CSSB has responded with a proposal for both CSDS 1 and CSDS 2 to become effective for annual reporting periods beginning on or after January 1st, 2025.

The key change here is that the proposed CSDSs push off the effective date of the IFRS sustainability standards by one year.

It’s important to note that, at this time, application of both proposed standards, CSDS 1 and CSDS 2, is voluntary and that any decisions about mandating sustainability disclosure reporting for publicly accountable enterprises will be made by Canada's regulatory community.

Whichever date an entity chooses to apply CSDS 1 is the same date, however, that it would also be required to apply CSDS 2 – that is, the proposed standards are meant to be applied together.

The second proposed amendment to CSDS 1 is a transition relief provision.

To assist with the demands for sustainability-related information and preparing entities’ need for additional time to prepare, the CSSB is proposing a transition relief amendment that extends the relief for disclosures beyond climate-related risks and opportunities to two years after the implementation of the requirements as compared to the one-year relief that’s included in the IFRS S1 standard.

In other words, an entity is able to defer disclosures beyond its climate-related risks and opportunities to the period beginning in the third annual reporting period after which the entity has applied the standard.

The CSSB is asking for feedback on whether this two-year transition relief is adequate for preparers of general-purpose financial reports to address the near-term capacity challenges and conversely whether this time frame will meet the needs of users of those reports.

We’ll look at an example to illustrate the proposed effective date and transition relief within CSDS 1 in a few moments.

Proposed CSDS 1 requires an alignment of sustainability-related financial disclosures and the related financial statements.

This requirement improves connectivity and ensures decision-useful information for users of general-purpose financial reports.

The CSSB acknowledges the benefits that integration in reporting affords users and the long-term benefits it provides to preparers. However, it recognizes the challenges that preparers will face in the near term.

The Board deliberated on various amendments, including deferring the alignment in timing of the reporting requirement. However, it concluded that any such deferral may not provide enough time for preparers to fully resolve the issues, while also noting that removing the requirement entirely could significantly impair the decision-usefulness of sustainability-related disclosures and contradict the spirit and intent of the standard itself.

The CSSB is therefore not proposing amendments within CSDS 1 regarding the Timing of Reporting requirement. However, it does wish to receive feedback about (1) whether any further relief or accommodation is needed by preparers, and conversely, (2) how critical it is for users to have sustainability-related financial disclosures at the same time as the related financial statements.

We’ll now move on to the second Exposure Draft – CSDS 2, Climate-related Disclosures.

As indicated earlier, CSDS 2 is based upon IFRS S2, Climate-related Disclosures, which requires an entity to disclose information related to its climate-related risks and opportunities that enable users of general-purpose financial reports to understand key areas related to those risks and opportunities such as the entity’s governance processes, the current and anticipated effects on the entity’s business model and value chain, and the resiliency of an entity’s strategy to climate-related uncertainties.

As indicated earlier, CSDS 2 must be applied with CSDS 1, as CSDS 1 includes the necessary foundational concepts for sustainability and climate-related disclosure reporting.

Using the same rationale as was applied to CSDS 1, the effective date of CSDS 2 has pushed off the effective date of IFRS S2 by one year and once [inaudible: finalized will come into effect at the same time as] CSDS 1, which is for annual reporting periods beginning on or after January 1st, 2025.

The second proposed amendment is related to transition relief for the reporting of Scope 3 greenhouse gas emissions.

It’s widely recognized that, for many entities, Scope 3 greenhouse gas emissions make up a significant part of the entity’s total greenhouse gas emissions inventory and is therefore critical for investors to understand an entity’s exposure to its climate-related risks and opportunities within its value chain.

However, preparers have raised concerns about the measurement uncertainty of Scope 3 greenhouse gas emissions, along with near-term process and capacity challenges to deliver disclosures concurrently with the general-purpose financial reports.

Therefore, the CSSB proposes that in the first two annual reporting periods in which an entity applies CSDS 2, the entity is not required to disclose its Scope 3 greenhouse gas emissions. In other words, the proposed transition relief for disclosure of Scope 3 greenhouse gas emissions has been extended from the one year granted in IFRS S2 to two years in the proposed CSDS 2.

This transition relief endeavours to balance preparers’ concerns with the realities of the urgent need to address climate-related risks.

We'll look at an example that illustrates this transition relief in just a few moments.

A climate-resiliency assessment provides critical information to investors about an entity’s exposure and response to its climate-related risks and opportunities.

However, the CSSB recognizes that scenario analysis methodologies are new for many Canadian reporting entities that have voiced concerns about the level of resources, skills and capacity required to prepare these disclosures.

While CSDS 2 supports the Global Baseline Requirements in IFRS S2 and does not propose any transition relief on climate resilience, the CSSB looks forward to hearing your views on whether transition relief and/or further guidance beyond those resources already referenced within CSDS 2 would assist with the assessment of an entity’s climate resiliency.

Now we’ll take a look at a couple of examples to illustrate the proposed implementation date and the transition relief proposed within CSDS 1 and CSDS 2.

The transition relief proposed within CSDS 1 for disclosures on an entity’s material sustainability-related risks and opportunities proposes an extension from the one year granted in IFRS S1 to two years in CSDS 1.

So, for example, assuming a calendar year-end, if an entity applies proposed CSDS 1 for the first time in the reporting period beginning on January 1st, 2025, and because CSDS 1 and CSDS 2 are to be applied at the same time, it would then be required to disclose information on all material climate-related risks and opportunities not including Scope 3 greenhouse gas emissions in the first annual reporting period beginning on January 1st, 2025 and on all other sustainability-related risks and opportunities in the third annual reporting period, which would begin on January 1st, 2027.

Next, we'll look at an example of a company that takes advantage of the transition relief related to Scope 3 greenhouse gas emissions within the proposed CSDS 2.

Again, assuming a calendar year-end, if an entity applies the standard for the first time in the reporting period beginning on January 1st, 2025, it will not be required to disclose its Scope 3 greenhouse gas emissions until the reporting period beginning on January 1st, 2027, and would then not need to provide comparative disclosures until the following year on the reporting period beginning on January 1st, 2028.

Next, we’ll shift gears a little bit and review the third part of the project, which is the CSSB’s proposed Criteria for Modification Framework.

While the CSSB recognizes the benefits of global standardization and supports the incorporation of IFRS Sustainability Disclosure Standards in Canada to the fullest extent possible, it recognizes that there may be circumstances where amendments are required in the Canadian public interest.

The Criteria for Modification framework sets out the criteria, which forms a set of principles to guide the CSSB when determining what circumstances and what kind of amendments, if any, it would make to international standards.

These criteria include circumstances such as (1) those to comply with applicable Canadian laws or regulations, (2) circumstances where the ISSB recognizes that different provisions or practices may apply in different jurisdictions, and (3) those circumstances where the CSSB believes such additions, deletions, and/or amendments are required to serve the Canadian public interest and maintain the quality of sustainability disclosures in Canada.

The CSSB welcomes feedback from any interested party on any or all of the questions posed in these three documents.

The comment period will remain open until June 10th, which will be followed by a Board deliberation period during July and August. The project is expected to reach its completion in the fall of 2024, and upon finalization, the proposed standards would come into effect on January 1st, 2025.

That brings us to the end of the formal presentation, and we invite you to share your thoughts.

The CSSB’s preference is to receive feedback through its online survey, which is a platform that allows you to contribute at your own pace. Respondents are also welcome to submit a comment letter, which can be uploaded to our project page at www.frascanada.ca/cssb.

Alternatively, you may send us an e-mail with your views or with the request to participate in a virtual event or discussion. Your input will be used by the CSSB when it makes its deliberations on the final standards.

But before we wrap up, we are going to move into a live question and answer session. So, please feel free to submit your questions using the Q&A feature if you haven’t done so already. Your questions are being monitored by the CSSB team, whom I’m now going to turn things over to.

Dianna Marini:

Hello, everyone. My name is Dianna Marini. I work for the Canadian Sustainability Standard Board staff team, and I work in outreach. So, I’ll be reading some of the questions, and we’ve received lots of great questions.

So, one question here I see: In some places they’re talking about a climate-first approach only. The CSSB is proposing S1 full scope beyond climate after a two-year period. Do you think Canada is ready for disclosure beyond climate reporting?

Nora Wood:

OK. So, I don’t know if this answers the question completely, but the CSSB did deliberate between a limited or full-scope approach and essentially landed on the full scope. And I think behind that it’s really intended to respect the IFRS S1’s original intent and ensure consistency within the global capital marketplace.
Since what we’re hearing from investors is that they’re looking for comprehensive sustainability information to inform their investment decisions, it’s really understood that disclosures beyond climate are really critical.

So while some companies, it’s true, may be proposing a climate-first approach, many others are embracing a full scope. And ultimately, the CSSB’s decision to go with the full scope reflects the criteria that it has set out within the criteria for modification framework and strives to ensure that Canada remains competitive within the global capital marketplace. I hope that answers the question.

Dianna Marini:

Thank you.

Another question here, and I’ll read it out loud: The CSSB seemed to acknowledge that scenario analysis is new in terms of assessing an organization’s resilience to climate change. However, you are still proposing not to give transition relief regarding climate resilience. Can you comment on that?

Nora Wood:

Yes, climate resilience. So, the standards have what are known as proportionality measures built into them that are meant to help an entity address the challenges of applying these standards, especially in the near term and especially in areas such as scenario analysis.

One of the concepts… So, the Board discussed these concepts in depth, and one of the concepts that’s mentioned in the standards is one of reasonable and supportable information, which is really intended to help preparers by guiding them to consider information that’s reasonably accessible or available and also suggests that an entity doesn’t have to carry out an extensive search for information. The second part of the proportionality measures is this concept of undue cost or effort, which again is really there to help ensure that what an entity is required to disclose is proportionate to its circumstances. So, a small company would not have to carry out the same rigour and detail of a report that a company that’s larger with more resources and would be expected to do so. So, it’s not really about getting it perfect but getting started and having the confidence and knowing that entities will learn and refine their processes within increased experience and that process of iteration.

But even with these provisions, the CSSB has acknowledged the challenges and is asking for feedback on whether other accommodation such as relief or guidance is required. So, we really encourage you to provide your feedback on this point.

Dianna Marini:

Thank you.

There’s another question, somewhat similar, however related to Scope 3 reporting: So, the CSSB recognizes the challenges with Scope 3 reporting. Why didn’t you consider giving companies a longer transition relief?

Nora Wood:

So yes, the CSSB does acknowledge the challenges associated with Scope 3 emission reporting but, as was mentioned in the presentation, also notes the importance of Scope 3 and understanding the entity’s full environmental impact across its value chain and fundamentally believes that Scope 3 helps to paint that picture of the entity’s overall net zero journey.

Again, like scenario analysis, the Board recognizes that complete data may not be readily available. But it’s really an encouragement for entities to begin reporting. So, start with what you have, and then entities can build and establish that baseline and then gradually improve over time as the entity gains experience and confidence to help improve the accuracy of that Scope 3 reporting over time. Again, proportionality measures, as mentioned with scenario analysis, can also help alleviate the burden and apply here as well.

But again, ultimately, the CSSB’s decision really reflects its criteria for modification framework and what it believes to be in the Canadian public interest.

Dianna Marini:

Thank you. Another question here, seen a few times actually: Some of the questions in the Exposure Draft appeared to seek feedback on guidance. Is the CSSB considering to issue guidance anytime soon?

Nora Wood:

That’s a good question. So right now, it’s not currently something that the CSSB is doing, but it is evaluating its future plans, which may include providing support and guidance for adopting the standards in the future. The Board is heading into its strategic planning cycle.

I believe that’s scheduled for later this year, and I believe that it’s likely that this will be considered as part of that strategic plan.

No. I think you’re on mute, Dianna.

Dianna Marini:

Oh, sorry! Sorry about that. Thank you. I think we have time for a couple of more questions.

What is the reason for the CSSB making only minimal changes to the IFRS Sustainability Disclosure Standards?

Nora Wood:

So, the CSSB’s goal is really to support the uptake of the global baseline as closely as possible, again, to support that comparability and consistency around the world.
So, as I’ve mentioned a few times throughout this presentation, the CSSB has considered the need for changes in accordance with its criteria for modification framework and what it believes is best for the Canadian public interest at this time.

Dianna Marini:

OK. Thank you. Here’s another question, and it seems to address quite a few of the questions that we received: I hear a lot about the standard application to list it or publicly accountable enterprises. Will the CSSB cater more to the businesses you need to Canada (for example, small companies, oil and gas sector, etc.)?

Nora Wood:

OK. So while it is true that the Canadian economy has some unique industry-based considerations, the CSSB also recognizes that it’s also true that these industries exist in other countries as well.

And the standards themselves do take into account industry-based guidance within its references to the SASB standards, meaning that essentially these industry-based considerations are already embedded into the global baseline.

It could be possible that there are elements of the Canadian context that aren’t quite captured in a global standard.

And in this case, that’s where the CSSB might introduce an additional requirement – so, that building block approach I mentioned earlier – or potentially supplementary guidance in the future to help close that gap, so to speak.

When it comes to smaller companies, the ISSB standards again include those proportionality measures.

So again, that means that smaller organizations with fewer resources aren’t expected to provide the same level of detail or rigour as, for example, a large publicly traded entity would be.

And since I’m not entirely sure what is meant by small companies, I will just mention that it’s possible that small non-listed companies could be asked for certain sustainability-related information to the supply chain partners.

But becoming familiar with these standards for those small non-listed companies could have its benefits from a competitiveness and customer retention standpoint.
I hope that answers the question.

Dianna Marini:

OK, thank you. That seems to be the time we have to answer the questions. I’ll handed it off back to Nora. But if there’s any remaining questions, you can always reach out to her.

Nora Wood:

Thanks, Dianna.

So again, I really want to encourage you to share your feedback by participating in an online survey, submitting a comment letter, or attending a round-table session.

Or send us an e-mail to [email protected] if you have any other questions that we weren’t able to get to today.

That’s all for now. Thanks so much for joining us and have a great rest of the day.