Criteria for Modification Framework Basis for Conclusions

Background

The Canadian Sustainability Standards Board (CSSB) was established in June 2022 as the result of an early recommendation from the Independent Review Committee on Standard Setting in Canada (IRCSS). The IRCSS was tasked by the existing accounting and audit standard-setting oversight councils to review standard setting in Canada. The Committee released its final recommendations in March 2023 after extensive public input.

Among other important conclusions, the IRCSS recommended that establishing the CSSB was warranted due to rapidly increasing changes in this area, including the following:

• Investors and other interested and affected parties demanding higher-quality information and insights beyond conventional financial statements, including about climate and other environmental, social, and governance matters.
• The existing – and growing – variety of sustainability-reporting standards, metrics, and frameworks have different requirements and often inconsistent application.
• Interested and affected parties expressing an urgent need for transparency, consistency, and comparability in sustainability reporting, and alignment with the International Sustainability Standards Board’s (ISSB).global framework.
• The progress of international reporting on sustainability is accelerating. It is important to ensure Canadian standards are relevant, responsive, and fit for purpose in Canada, and to focus on matters material to the decisions of investors and other participants in capital markets.

The CSSB is an independent entity, distinct from other standard-setting boards and regulatory bodies. The Board assesses the applicability and fitness for purpose of international sustainability disclosure standards for the Canadian context – applying the expertise and experience of sustainability professionals to sustainability standard setting. Therefore, the Board’s role is complementary to, and not duplicative of, the roles of governments and regulators.

Introduction

1. The benefits of global standardization of sustainability disclosure include both an increased ability to attract international and Canadian capital and to improve Canada’s reputation for transparency with regards to disclosure of material sustainability risks and opportunities in capital markets.
2. Standard setting in Canada is an inherently complex process that requires careful consideration of various, and often competing, interests, and perspectives. It involves engaging a diverse range of interested and affected parties each with their own priorities and concerns. The CSSB’s challenge lies in considering these divergent views to create standards that not only promote transparency and accountability but also reflect the Canadian public interest.
3. The CSSB is dedicated to upholding the rights of Indigenous Peoples and ensuring their meaningful participation in shaping sustainability disclosure standards and recognizes that advancing reconciliation with First Nation, Metis, and Inuit Peoples in Canada is fundamental to the work of Canadian standard setting for sustainability-related disclosures.
4. This Basis for Conclusions outlines how the CSSB balanced the interests and perspectives provided to the Board with regards to the Criteria for Modification Framework (Framework).

Overview

5. On June 26, 2023, 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.
6. Recognizing the significance of these standards, the CSSB established criteria for modifying the IFRS Sustainability Disclosure Standards when formulating Canadian Sustainability Disclosure Standards (CSDSs) based on them.
7. The Framework outlines the criteria the CSSB intends to adopt.
8. The CSSB issued the Consultation Paper, “Proposed Criteria for Modification Framework,” in March 2024 and invited comments on all elements of the proposal. Specific questions were asked on the Board’s proposed criteria to assess modifications (namely additions, deletions and amendments) to the global baseline and whether other criteria should be included in the Framework.
9. During the comment period, which concluded on June 10, 2024, the CSSB received 169 comment letters and 110 survey submissions. These written submissions were supplemented by feedback received during 48 consultation roundtables and small sessions. Through these various channels, the Board received extensive feedback from a total of 529 participants.

Decision-making process

10. The CSSB considered feedback received on the Exposure Drafts for proposed CSDS 1 and CSDS 2 to guide its decisions on the standards and the Framework.

Overview of decisions made

11. The CSSB decided to maintain the Framework as proposed. The decision balances the need to adopt the global baseline requirements with the ability to assess modifications (including additions, deletions, and other amendments) to the IFRS Sustainability Disclosure Standards to respond to Canadian-specific circumstances and act in the Canadian public interest.

Purpose of this Basis for Conclusions

12. This Basis for Conclusions advises interested and affected parties of the CSSB’s considerations and reasoning in finalizing the Framework. In addition to referencing significant consultation feedback, this document outlines key decisions and their accompanying rationale.

Specific Issues

13. The CSSB received responses to the Consultation Paper from 285 unique participants.

Proposed criteria for modifications to the global baseline

14. There were mixed views to Question 1 on the proposed Framework to assess modifications to the ISSB’s global baseline standards. Most of those who agreed with the proposed Framework were investors. Most who disagreed were nearly equally distributed between preparers and consultants.
15. The CSSB sought feedback on whether respondents agreed with the proposed criteria to assess modifications, namely additions, deletions, and amendments to the ISSB’s global baseline standards. Respondents were also asked to provide rationale for their response.

Arguments supporting the proposed Framework

16. Many respondents agreed with the Framework as proposed, indicating that it strikes an appropriate balance between global alignment and the ability to modify for Canadian-specific circumstances.

Arguments opposing the proposed criteria

17. Many other respondents disagreed with the Framework as proposed, with the most commonly raised themes as follows:

(a) The proposed Framework allowed for deviation from the global baseline, with many respondents specifically cautioning against the criterion that allows deletions, in particular, from the IFRS Sustainability Disclosure Standards

(b) Uncertainty about how and when modifications would be made due to a lack of clarity about the terms:

(ii) “public interest”; and

(iii) “Canadian provisions and practices”.

CSSB’s determination

18. The CSSB recognized the increasing global demand for high-quality international sustainability disclosures.
19. The CSSB acknowledged the benefits of the IFRS Sustainability Disclosure Standards as issued by the ISSB in facilitating the global standardization of sustainability disclosure standards to help meet the needs of users of general-purpose financial reports, both domestically and internationally.
20. These benefits align with the CSSB’s objective as set out in its Terms of Reference: “To set and maintain CSDSs that address the sustainability information needs of capital markets and improve the reporting of sustainability information by Canadian entities with due consideration for the costs and benefits to the preparers and users of such sustainability information.”
21. The CSSB, therefore, supports incorporating the IFRS Sustainability Disclosure Standards into the CSDSs to the fullest extent possible while recognizing that there may be certain circumstances in which amendments are required in the Canadian public interest.
22. To fulfill its role of serving the Canadian public interest and upholding high-quality sustainability disclosure in Canada, the CSSB proposed a Framework that could introduce additions, deletions and/or amendments to an IFRS Sustainability Disclosure Standard.
23. As sustainability-related disclosures are new to many entities and there is uncertainty about whether future international sustainability standards will be fit for purpose for Canada, the CSSB determined that the ability to modify the standards will be required to act in accordance with the Canadian public interest.
24. The CSSB acknowledged concerns raised regarding the lack of clarity about the term “Canadian public interest” and referred to the IRCSS’s final recommendation that “[w]hile the public interest is a foundational issue, defining it with precision is difficult because it is a dynamic concept and highly contextual to particular circumstances.”
25. The CSSB strives to uphold the IRCSS’s recommendations, which reflect the IRCSS’S underlying position that public interest is best served when:

    (a) standards are developed by independent and publicly accountable boards that operate transparently;
    (b) Boards are subject to oversight by independent oversight bodies; and
    (c) the standards-development process makes clear how the public interest has been taken into account. In its work, the CSSB seeks to determine what is in the Canadian public interest, including by listening to, analyzing, and deliberating on the feedback received from interested and affected parties.

26. The CSSB considered the balance of the feedback it received on the Consultation Paper and Exposure Drafts to be a collective indication of the Canadian public interest relative to its deliberations on the Framework and the final standards.
27. The CSSB considered several elements relevant to the Canadian context to inform its work including, but not limited to:
    (a) the rights of Indigenous Peoples;
    (b) climate change and environmental challenges;
    (c) social and economic structures;
    (d) capital markets dynamics;
    (e) the prevalence of the natural resource extraction and agriculture sectors;
    (f) the role and capacity of small and medium enterprises; and
    (g) the sustainability reporting ecosystem.
28. The CSSB determined that the phrase “Canadian provisions or practices” is a concept that is different than legal and/or regulatory requirements and identified the following examples to provide more clarity:
    (a) Readiness of Canada’s reporting ecosystem as characterized by the uptake of frameworks referenced within the IFRS Sustainability Disclosure Standards by Canadian preparers (the Task Force on Climate-related Financial Disclosures Framework, the Sustainability Accounting Standards Board’s Standards).
    (b) Rights and interests of Indigenous Peoples in Canada.
29. The CSSB acknowledged that sustainability disclosure standards serve the Canadian public interest in several ways as they:
    (a) are developed by an independent publicly accountable board that operates transparently and is subject to oversight by an independent oversight body;
    (b) are developed in consultation with a diverse range of interested and affected parties;
    (c) promote corporate accountability through transparency, comparability and consistency of disclosures; and
    (d) promote the efficient functioning of capital markets.
30. Balancing these factors, the CSSB decided:
    (a) to maintain criteria, as proposed; and
    (b) retain the ability to modify (including additions, deletions, and amendments) to IFRS Sustainability Disclosure Standards based on:
    (i) requirements consistent with applicable Canadian law or regulation;
    (ii) Canadian provisions or practices
    (iii) Canadian public interest.

Other criteria

31. Question 2 asked whether there were other criteria that the CSSB should consider including in its proposed Framework.
32. Most respondents indicated that the CSSB should consider including other criteria in the Framework. Preparers represented the largest group of respondents to this question, followed by consultants, and lastly, by advocacy groups.
33. Many respondents cited concerns about the reporting burden that could potentially put Canadian companies at a competitive disadvantage to those in jurisdictions with fewer disclosure requirements.
34. Many respondents urged the CSSB to consider adding the criterion “alignment with other regulatory bodies,” such as the U.S. Securities and Exchange Commission and/or Canadian regulators, such as the Canadian Securities Administrators and the Office of the Superintendent of Financial Institutions.
35. Other criteria respondents suggested included:
    (c) consideration for the impact on small and medium-sized enterprises;
    (d) decision-usefulness of reporting requirements;
    (e) rights and interests of Indigenous Peoples, rightsholders, governments, communities, businesses, and leaders; and
    (f) Cost versus benefit of reporting requirements.

CSSB’s determination

36. The CSSB considered responses to “other criteria” when it deliberated on its proposed Framework alongside feedback received on proposed CSDS 1 and proposed CSDS 2.
37. The CSSB views these responses provided a collective indication of examples of matters to be considered within the Canadian public interest criterion relevant to its standard setting. However, these are factors for the Board to consider within certain contexts, but in the Board’s view, they are too specific to provide sufficiently flexible overarching criteria that can be applied at different times and in different contexts for current and future standards.
38. The CSSB determined that maintaining the criterion that allows it to assess modifications to the global baseline (including additions, deletions, and other amendments) that are in the Canadian public interest captures such factors proposed by respondents as “other criteria,” along with additional considerations raised in response to the Exposure Drafts for CSDS 1 and CSDS 2. The Board determined that this criterion provides the required flexibility to broadly address Canadian-specific circumstances.

Appendix

How we quantified the feedback

39. The CSSB uses the following terms to describe the extent to which feedback was provided by respondents