Ultimate Beneficial Ownership: Special Report
ESG Reporting in Canada: Change is Coming
As an international economic hub, Canada is becoming an increasingly important jurisdiction for environmental, social and governance (ESG) laws and regulations.
To date, only a selection of companies in Canada have had mandatory ESG reporting requirements imposed although many businesses voluntarily elect to disclose key ESG performance markers as part of their annual financial reports.
This is set to change with new mandatory Canadian ESG reporting framework set to be implemented over the next few years, bringing more business within the criteria for compulsory disclosure.
Here we provide a summary of the current status of ESG reporting in Canada as well as the expected upcoming changes.
What are the requirements now?
The majority of Canada’s current mandatory reporting requirements only apply to federally regulated financial institutions (such as banks and insurance companies).
Canadian ESG Regulation includes:
- Corporate Diversity Reporting
- Canadian Securities (CSA) Corporate ESG Reporting and Disclosure
- Supplier ESG Disclosure for Large Federal Contractors
- Canada’s Climate Investment Taxonomy
Supply Chain Reporting
In 2023, Canada’s federal government passed Bill S-211 – Fighting Against Forced Labour and Child Labour in Supply Chains Act. This legislation introduced annual modern slavery reporting requirements for Canadian companies as well as companies that ‘do business in Canada’.
The legislation and guidance released on the application of the Act purposely provides a very broad definition of “doing business in Canada” in order to include as many companies as possible in the reporting criteria.
Companies that meet the criteria must report on their structure, activities and supply chains as well as their policies and due diligence processes to prevent and reduce the risk of forced or child labour.
Companies are required to submit their report to Minister of Public Safety each year, with the first reporting deadline given as the 31st of May 2024.
Individuals or entities that fail to comply with this reporting obligation or knowingly provide false or misleading information face potential fines of up to CAD$250,000.
What’s coming up?
Companies should be aware of two key developments set to impact ESG reporting requirements in Canada.
1. New Canadian Sustainability Disclosure Standards
In June 2023, a new sustainability standards body – the Canadian Sustainability Standards Board (CSSB) – became operational. The role of the CSSB is to interpret, adapt and support ESF standards set by the International Sustainability Standards Board (ISSB).
The CSSB released draft standards for comment earlier this year. These drafts largely align with the recently finalized ISSB standards. The CSSB’s final standards are set to be released in the final quarter of 2024.
2. Canadian Securities Administrators Disclosure Requirements
The Canadian Securities Administrators are also reevaluating their ESG and climate-related disclosure requirements. Their revised rules are expected once the CSSB standards are finalized.
The CSA will likely incorporate some of the ISSB and the Securities and Exchange Commission (SEC) standards into the Canadian requirements including mandatory reporting requirements for companies. Such reporting will likely include:
- sustainability performance;
- how climate risks are being assessed and managed;
- the company’s carbon reduction targets.
The CSA’s disclosure standards aren’t expected until 2025 at the earliest.
Key takeaways
1. Stay up to date
More mandatory ESG reporting requirements will be introduced in Canada over the next few years. It is vital, companies keep a track of all new requirements and reporting deadlines.
Failure to comply can result in hefty fines as well as potential reputational damage and business continuity issues.
2. Pay attention to the SEC and ISSB
The finalized ISSB and SEC proposals are likely to become the international standard for ESG disclosure.
By developing a compliance framework aligned with these guidelines, companies will be well-positioned not only for future mandatory requirements in Canada but also for reporting in other jurisdictions around the word.
3. Carefully review requirements
Canada’s Modern Slavery legislation is purposely broad – applying to both Canadian companies as well as foreign entities that do business in or have assets in Canada.
Companies should thoroughly review legislation and any accompanying guidance to determine if reporting requirements apply and if they have a policy in place.
4. Be proactive
This is the beginning of the ESG reporting trend – not the end.
Companies should start developing their ESG policies now rather than waiting for requirements to be introduced and back tracking.
5. Map out the data needed and stakeholders involved
ESG reports involve many steps, a lot of data compilation and a huge amount of coordination across a large number of stakeholders – both internal and external.
Ensure ESG information is being monitored and collected in order to create efficient process for reporting in anticipation of annual reporting requirements.
Jeff Sayers
Senior Legal Officer, Mercator by Citco, Citco (Canada) Inc.
How Mercator can help
Understanding ESG criteria and navigating sustainability reporting can be a time consuming and complex task for many companies.
Mercator’s subsidiary governance experts are on hand to help with providing guidance the criteria and reporting process, along with collation and submission of reports.
Get in touch with the team at mercator@citco.com
