Unlocking value: the strategic importance of Canada’s new sustainability standards

CSDS 1 – General requirements for disclosure of sustainability-related financial information 
Outlines general requirements for preparing and presenting sustainability-related (beyond climate) financial disclosures, including core content disclosures relating to governance, strategy, risk management, metrics and targets. It also includes general requirements for preparing disclosures (e.g., addressing the reporting entity, materiality, comparatives and timing of reporting). 

CSDS 2 – Climate-related disclosures 
Specifies climate-related financial disclosures, including disclosures in the key areas of governance, strategy, risk management, metrics and targets.  More specifically, there are disclosures about climate resilience, greenhouse gas emissions (GHGs) and any climate-related targets an entity may have set. 

These new standards are based on the International Sustainability Standards Board (ISSB) standards issued in June 2023. These include IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2, Climate-related Disclosures. Where do they differ? The CSDS include additional transition relief.  

Current state and developments: 

• The CSSB standards are voluntary until mandated by a regulatory authority.  

• For disclosures to become mandatory under Canadian securities legislation, the CSSB standards would need to be incorporated into a Canadian Securities Administrators (“CSA”) rule.  

• The CSA announced on April 23, 2025, that they are pausing their work on the development of a new mandatory climate-related disclosure rule. This is being done to support Canadian markets and issuers as they adapt to the recent developments in the U.S. and globally. The CSA will monitor domestic and international regulatory developments with respect to climate-related disclosures and expects to revisit the project in future years to finalize requirements for issuers. At the same time, they noted that climate-related risks are a mainstream business issue and securities legislation already requires issuers to disclose material climate-related risks affecting their business in the same way that issuers are required to disclose other types of material information. The CSA further mentioned that they encourage preparers to refer to the CSSB standards when providing voluntary disclosures.   

• Multijurisdictional entities may be subject to other reporting requirements, such as the European Sustainability Reporting Standards (ESRS) or California climate-related laws. 

• In February 2025, Canada’s Office of the Superintendent of Financial Institutions (OSFI) updated Climate Risk Management guideline, B-15, to align with the CSSB standards. 

• Additionally, it is important to note that the ISSB standards are gaining significant momentum around the globe. This growing international adoption highlights the need for Canadian entities to stay ahead of the curve and consider how these standards may influence their strategic initiatives, risk management and reporting practices. 

​What will you need to report? 

The CSSB’s climate-first approach allows entities to initially focus on providing high-quality, decision-useful information about climate-related risks and opportunities if the transitional relief is adopted.  However, it is essential for Canadian entities to adopt CSDS 1 if implementing and reporting on CSDS 2 (climate) initially. Why? Because CSDS 1 encompasses core content, such as materiality that must be considered across all ESG topics.​ 

While CSDS 2 permits reporters to exclude comparative information for the first reporting year, comparative information for the following year is required. 

For CSDS 1, unless stated otherwise in another CSDS or transitional relief is applied, entities need to provide comparative information for the previous period for all amounts reported in the current period. 

​In addition to implementing CSDS 2, entities will be required to disclose information regarding sustainability-related risks and opportunities that extend beyond climate considerations after an initial two-year relief period, while still having the option to voluntarily apply non climate related risks and opportunities during that time (CSDS 1).​ When reporting, you’ll need to specifically consider: 

Which disclosure components should you think about now?

The key components include disclosures tied to sustainability-related risks and opportunities that are reasonably expected to impact an entity's cost of capital, access to finance and cash flows across the short, medium, and long term throughout the value chain.​ What could that include? Some non-exhaustive examples include: 

Risks

• Increased cost of GHG emissions 

• Changing customer behaviours towards less carbon-intensive products 

• Climate physical and transition risk, such as wildfires, flooding, regulations 

• Human rights risk​s 

Opportunities

• Access to green financing​

• Shift to renewable energies 

Who will need to report, and when? 

Canadian regulators will determine who these disclosure standards apply to. To become mandatory disclosures under securities legislation in Canada, the CSSB standards would need to be incorporated into a CSA rule.​ As mentioned above, the CSA has currently paused its work on the development of a new mandatory climate-related disclosure rule and expects to revisit the project in future years to finalize requirements for issuers. ​ 

In terms of timing, sustainability-related financial disclosures are due annually at the same time as the related financial statements, after the initial transition relief period. They cover the same period as the related financial statements. An interim sustainability disclosure report is not required.​ 

Where will we report on these new requirements? 

In Canada, you will need to publish disclosures in an entity’s general purpose financial reports, for example:

• Management’s discussion and analysis​

• Annual report​

• Operational and financial review report​ 

• Integrated report​

• Strategic report​

Location requirements of these disclosures may change as these disclosures become mandatory by the regulators.

How is materiality defined with respect to the CSDS? 

Materiality for sustainability-related financial disclosures is defined in a similar way as matter as financial statement materiality: a singular financial materiality approach is followed, as opposed to the double materiality approach under the ESRS​. However, materiality judgements may differ from those for financial statements given the longer time horizons and the value chain considerations.​

For sustainability-related financial disclosures, information is material if the omission, misstatement or obscuring of that information could be reasonably expected to influence the decisions primary users of general-purpose financial reports make.

Are these disclosures applicable to private entities? 

For now, these disclosures are voluntary and are available to all entities.​ Regulators will ultimately determine for whom these disclosures apply going forward.  

That said, the Canadian government announced mandatory climate-related disclosures for large, federally incorporated private companies in October 2024. But the timing, framework and meaning of “large” has not yet been shared and these details may evolve as regulatory discussions continue. 

Which disclosure components should you think about now?

Many entities will consider their current state of disclosures and compare it to CSDS 1 and CSDS 2. Certain requirements may be challenging to implement. For example, conducting a materiality an assessment will take time and expertise. 

Transition planning¹ is equally vital, as it involves aligning corporate strategies with the transition to a low-carbon economy while managing both physical risks, such as extreme weather events, and transition risks stemming from regulatory changes and market shifts. 

Developing governance is also essential to this process. That means embracing a refined target operating model that clearly defines an entity's short-, medium- and long-term goals. Entities must articulate how functions, capabilities, and supporting elements will be structured to achieve their sustainability vision. This includes delineating roles and responsibilities across the organization to ensure accountability and foster cross-functional collaboration, ultimately driving the successful implementation of sustainability initiatives.

• Bring the board of directors in early.

• Address key activities sooner rather than later to build consensus and confidence.

Focusing on this now can help you transform a compliance change into a competitive advantage. Starting early creates ample time for discussion, enabling management and the board to feel confident in the plan before external disclosures are made. 

We recommend considering a series of integrated activities. This may be an iterative process, rather than sequential, surfacing learnings that you can apply in future stages to make refinements and strengthen governance overall.  

OSFI climate reporting requirements

In Canada, the OSFI has recognized the critical importance of addressing climate-related risks in the financial sector. As a regulatory body, OSFI's mandate encompasses the oversight of federally regulated financial institutions (FRFIs) to ensure their resilience and stability in the face of climate-related challenges.​ In remaining resilient against the climate-related risks, OSFI has issued the following climate requirements:​

• Climate Risk Management Guideline B-15 (OSFI B-15)​

• Standardized Climate Scenario Analysis (SCSE)​ 

• Climate Risk Returns​

OSFI B-15 Climate Risk Management is aligned to IFRS S2, Climate Related Disclosure Standards. This reporting is due for FRFIs beginning in 2025, with a phased-in approach.​

On February 20, 2025, OSFI provided an update to B-15. This includes certain revisions to B-15 to align with the CSSB standards. ​

Department of Finance Canada

In October 2024, the federal Department of Finance announced that the Government of Canada intends to bring forward amendments to the Canada Business Corporations Act to require climate-related financial disclosure requirements for large, federally incorporated private companies. 

The department has not yet provided the timing or framework or the meaning of “large’ has not yet been provided. At the same time, the department supports the development of voluntary “made in Canada” sustainable investment guidelines, otherwise known as a taxonomy.​ 

Bill C-59 Greenwashing

In June 2024, Bill C-59 included amendments to the Canada Competition Act that introduced provisions aimed at “greenwashing’, a term referring to marketing tactics entities use to falsely portray their products, services or activities as environmentally or climate friendly.​ These amendments are making entities take a step back and think about how they report on sustainability, and whether representations they make in public documents will hold up under scrutiny.​ 

The Competition Bureau recently closed its public consultation on environmental claims. As of the publication date of this article, the responses to this consultation are not yet published.  

Bill S-211 Fighting Against Forced Labour and Child Labour in Supply Chains Act 

In November 2024, Bill S-211 was revised to emphasize the need for Canadian entities to enhance transparency and compliance in their supply chains. While the Act itself remains unchanged, the updated guidance introduces new definitions and nuances that businesses must consider, particularly as they prepare for mandatory annual reporting on efforts to combat forced and child labour.  

Entities should review their commitments, assess operational risks and ensure all subsidiaries understand reporting obligations. With significant penalties for non-compliance, businesses are encouraged to start early in their reporting processes to avoid costly errors and to align their practices with international standards on human rights.​ Read more here.