December 18, 2024, the Canadian Sustainability Standards Board released the final version of the Canadian Sustainability Disclosure Standards.
CANADIAN SUSTAINABILITY DISCLOSURE STANDARD 1 KEY HIGHLIGHTS
Canadian Sustainability Disclosure Standard 1 (CSDS 1), outlines the general requirements for disclosing sustainability-related financial information. The standard aims to provide information useful to primary users (investors, lenders, and creditors) of general-purpose financial reports when making decisions about providing resources to an entity.
The standard covers several key areas:
Objective and Scope: CSDS 1's objective is to mandate the disclosure of information about an entity's sustainability-related risks and opportunities that could reasonably impact its cash flows, access to finance, or cost of capital. The scope includes how entities prepare and report this information, ensuring its usefulness to primary users. It does not cover sustainability-related risks and opportunities that couldn’t reasonably be expected to affect an entity’s prospects.
Core Content: The core requirements necessitate disclosures on:
Governance: The processes, controls, and procedures used to monitor and manage sustainability-related risks and opportunities. This includes details about governance bodies and their responsibilities.
Strategy: The entity's approach to managing these risks and opportunities, encompassing the effects on its business model, value chain, decision-making, financial position, and financial performance (both current and anticipated).
Risk Management: Processes for identifying, assessing, prioritizing, and monitoring sustainability-related risks and opportunities.
Metrics and Targets: The entity's performance concerning sustainability-related risks and opportunities, including progress toward set targets.
General Requirements: This section addresses:
Sources of Guidance: Entities should refer to CSDSs, SASB Standards, CDSB Framework Application Guidance, and other relevant pronouncements from standard-setting bodies when identifying sustainability-related risks and opportunities.
Identifying Applicable Disclosure Requirements: The process of determining which CSDS applies to specific risks or opportunities.
Location of Disclosures: How and where the disclosures should be included within the entity's general-purpose financial reports.
Timing of Reporting: Sustainability-related financial disclosures must be reported concurrently with related financial statements.
Comparative Information: Comparative information from the preceding period should also be disclosed.
Statement of Compliance: A clear statement of compliance with CSDS 1 should be provided.
Judgments, Uncertainties, and Errors: The document addresses how to disclose judgments made in preparing disclosures, significant uncertainties, and material errors.
Appendices: The document includes several appendices: Appendix A defines key terms; Appendix B provides application guidance; Appendix C lists sources of guidance; Appendix D outlines the qualitative characteristics of useful sustainability-related financial information; and Appendix E details the effective date and transition requirements for adopting the standard.
In summary, CSDS 1 provides a comprehensive framework for entities to disclose material sustainability-related financial information, aiming for transparency and accountability to key stakeholders. It establishes a structured approach to identifying, assessing, and reporting on relevant risks and opportunities, promoting responsible and sustainable business practices.
CANADIAN SUSTAINABILITY DISCLOSURE STANDARD 2 KEY HIGHLIGHTS
Canadian Sustainability Disclosure Standard 2 (CSDS 2), specifically focuses on climate-related disclosures.
Objective: CSDS 2 mandates that entities disclose information about climate-related risks and opportunities impacting their financial prospects, aiding resource allocation decisions by primary users of financial reports (investors, lenders, etc.).
Scope: The standard covers climate-related physical and transition risks, and opportunities that could reasonably affect an entity's prospects. It explicitly excludes risks and opportunities with negligible impact on the entity's future.
Core Content: This section outlines the required disclosures grouped under Governance, Strategy, Climate-Related Risks and Opportunities, Business Model and Value Chain, Strategy and Decision-Making, Financial Position, Financial Performance and Cash Flows, Climate Resilience, Risk Management, Metrics and Targets.
Each section below details the specific disclosure requirements:
Governance: Discloses the processes, controls, and procedures an entity uses to oversee climate-related risks and opportunities. This includes information about the governance body (board, committee, or individuals), responsibilities, skillsets, and how climate-related aspects inform strategic decisions and target setting.
Strategy: Requires disclosure of the entity's strategy for managing climate-related risks and opportunities. This covers anticipated effects on the business model and value chain, strategic decision-making, impact on financial performance, and the resilience of the strategy itself.
Climate-Related Risks and Opportunities: Entities must describe their identified risks and opportunities, classifying them as physical or transition risks, specifying time horizons (short, medium, long-term) and defining the terms used for these horizons.
Business Model and Value Chain: This requires a description of how climate-related factors affect the entity's business model and value chain, highlighting where those effects are concentrated geographically and within the business.
Strategy and Decision-Making: Focuses on how climate-related risks and opportunities impact the entity's strategy, including transition plans, resource allocation, mitigation/adaptation efforts (direct and indirect), and progress toward climate-related targets.
Financial Position, Financial Performance and Cash Flows: This section mandates disclosure of the current and anticipated effects of climate-related factors on the entity's financial position, performance, and cash flows. It emphasizes both quantitative and qualitative information, including planning horizons. It also outlines circumstances when providing quantitative information is not required, focusing on materiality and uncertainty.
Climate Resilience: This section is critical, requiring entities to conduct and disclose climate-related scenario analysis to assess their resilience. This analysis should include various scenario inputs, considering uncertainties, and demonstrate the entity's capacity to adapt its strategy and business model to climate change over time.
Risk Management: This section details the required disclosures regarding an entity's processes for managing climate-related risks and opportunities. It emphasizes integration with overall risk management and the use of scenario analysis.
Metrics and Targets: The final section focuses on the performance metrics and targets related to climate-related risks and opportunities. It mandates disclosure of cross-industry metric categories (greenhouse gases, transition risks, physical risks, opportunities, capital deployment, internal carbon prices, remuneration), industry-specific metrics, and targets set by the entity, as well as progress toward those targets. Detailed guidance is provided for disclosing greenhouse gas emissions, including Scope 1, 2, and 3 emissions. The disclosure of the methodology for target setting and review, along with any revisions, is also included.
Appendices:
Appendix A: Defined Terms: Provides definitions for key terms used throughout the standard, such as "climate resilience," "climate-related physical risks," "climate-related transition risks," "carbon credit," and others.
Appendix B: Application Guidance: Offers detailed guidance on how to implement various aspects of the standard, with particular emphasis on climate resilience and greenhouse gas emission reporting.
Appendix C: Effective Date and Transition: Specifies the effective date (January 1, 2025) and provides transition provisions for entities adopting the standard, offering options for earlier adoption and allowing for certain adjustments to phase in the new requirements, especially relating to Scope 3 emissions reporting.
Footnotes: Clarifies specific terms and provides references to relevant supporting documents.
Timelines:
Full reporting under CSDS 1 begins January 1, 2027. CSDS 2 is effective January 1, 2025 with the expectation that companies begin voluntarily reporting in early 2026.
If you are not sure how to meet sustainability disclosure requirements, please reach out for a discovery call to determine how Equipois:ability Advisory can support you as you get ready for mandatory reporting.
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