What a first quarter! The number of developments in climate governance and sustainable finance in Canada is impressive. And yet, Canada still faces scrutiny for lagging behind international counterparts in enacting robust corporate climate-related policies that would help us align our financial system with a net-zero emission transition and move toward a more sustainable economy.

There is mounting pressure on Canadian regulators to align with global standards with mandatory climate-related disclosures and sustainable finance. Without clearer guidance and regulation, Canadian companies risk missing out on significant opportunities as capital increasingly flows toward sustainable solutions.

Setting the bar high: Leading jurisdictions are mandating climate-related disclosures

In February, Singapore announced the introduction of mandatory climate reporting aligned with the International Sustainability Standards Board (ISSB) standards, starting in 2025. In a phase-in approach, listed companies will first disclose sustainability-related information followed by large, non-listed companies based on a revenue and assets threshold. Mandatory climate-related disclosure will also include scope 3 greenhouse gas (GHG) emissions, as is included in European climate disclosure mandates. In a first in sustainability reporting, the Singapore government will provide funding support of up to 30% for large companies to help them publish their first sustainability reporting.

China’s three main exchanges also showed leadership when they announced mandatory sustainability reporting requirements for listed companies, including companies with dual listings overseas.

Closer to home, the United States Securities Exchange Commission (US SEC) finally voted and adopted rules to enhance and standardize climate-related disclosures for investors at the beginning of the month. After much anticipation, the US SEC issued its final rule that requires registrants to disclose climate-related information. Companies will need to disclose information including the board oversight and management role of material climate-related risks, the material impact of climate risks on the company’s strategy, business model and outlook, risk management processes, and scope 1 and 2 emissions if material.

While the final rule is weaker than its proposed rules and other reporting requirements in California and Europe, it remains good news for corporate sustainability reporting in the US. As Cynthia Williams, Principal Co-Investigator of the Canada Climate Law Initiative (CCLI), put it, “What this disclosure regime can do is cause companies to take climate governance more seriously.”

Where does Canada stand?

At home, we have seen some good news, as well as discouraging developments (or lack thereof). Let’s start with the good news.

Last week, the Canadian Sustainability Standards Board (CSSB) released its proposed Canadian Sustainability Disclosure Standards (CSDS) 1 and 2 and opened its public consultation. CSDS 1 is focused on general requirements and CSDS 2 is focused on climate-related disclosures. Both exposure drafts are respectively aligned with the International Financial Reporting Standards (IFRS) S1 and S2 but are slightly adapted to the Canadian context. The main adjustments concern the effective date, which has been extended by one year (annual reporting periods beginning on or after January 1, 2025), and the transition relief period for disclosures beyond climate-related risks and opportunities has also been extended to two years (reporting period beginning on January 1, 2027). Other notable considerations include the extension of the transition relief for the disclosure of scope 3 emissions to two years (reporting period beginning on January 1, 2027) and the mention of the rights of Indigenous Peoples and the participation of First Nation, Métis, and Inuit Peoples in shaping sustainability disclosure standards in Canada. The CSSB recognized the importance of advancing Indigenous reconciliation and meaningful engagement with Indigenous Peoples in the consultation process to respect their rights, perspectives, and priorities.

This is a major step for Canada in facilitating and accelerating the adoption of sustainability standards that are aligned with global developments—IFRS S1 and S2. While the Canadian Securities Administrators (CSA) didn’t include scope 3 emissions in its proposed national instrument 51-107 Disclosure of Climate-related Matters, it is encouraging to see the inclusion of scope 3 emissions in the CSDS. The CSSB recognized that collecting the data, disclosing, and acting to reduce scope 3 emissions is challenging. However, they also mentioned this information is crucial to investors because scope 3 emissions make up a significant of many organizations’ total GHG emissions and can reveal important information about an organization’s exposure to climate-related risks and opportunities in its value chain. We can only hope this requirement will stay in the final standards.

Meanwhile, Québec’s securities regulator, the Autorité des marchés financiers (AMF), showed leadership by publishing its draft guideline on climate-related risk management. This is an important acknowledgement that climate-related risks can significantly affect the soundness of Québec-regulated financial institutions, thus affecting the resilience of Canada’s financial system. Of particular mention, the AMF has included a fair treatment of clients in its themes, where financial institutions must take into consideration the evolution of climate-related risks in the development, marketing, and advertising of new or existing products—something that is not included in the Office of the Superintendent of Financial Institutions Guideline B-15. CCLI welcomed the guidance of the AMF and submitted its recommendations in January.

We are hosting a discussion on the AMF guideline on April 24th. We encourage you to join us for this important conversation.

While provinces are taking the lead, it is more than time Canada’s national securities regulator joins the pack to ensure investors have the necessary information to make effective investment and engagement decisions. More than two years after the Canadian Securities Administrators released 51-107, the regulator has yet to finalize and enforce it. CCLI urged the CSA and all provincial and territory securities commissions to finalize and bring into force NI 51-107.

The two-year anniversary of the introduction of the Climate-Aligned Finance Act (CAFA or Bill S-243) by Senator Galvez is quickly approaching. Yet, the CAFA is still under consideration by the Senate Banking Committee and has not been implemented. The Bill, aimed to align Canada’s financial system with climate goals, has received significant support from academics, civil society groups, and climate experts across the country. The Bill would strengthen directors’ duties of federally-regulated financial institutions, a key sector that needs to do its part in the transition, regarding sustainable finance.

From snail speed to rabbit speed: Can we accelerate the pace?

We have less than six years to meet our 2030 targets of reducing our GHG emissions by 40-45% below the 2005 levels and implementing key policies outlined in the 2023 Emissions Reduction Plan. To achieve these targets, we must adopt a “whole-economy” approach that includes the corporate and financial sectors. Speed is paramount. The longer we take, the more we risk transitioning in a disorderly way or in a “too little, too late” scenario where we face sudden and unanticipated policies in addition to experiencing significant physical climate risks.

This month, we published a guide for non-governmental organizations (NGO) and civil society members to continue to press for effective climate-related legislation at the provincial level. Corporations and financial institutions regulated at the provincial level must also do their fair share to move on the path to a net-zero emissions economy. The guide aims to support NGO and civil society members navigate the laws and departments responsible for regulating the conduct of corporations, financial institutions, and pension funds so they can develop their own policy recommendations to advance Canada’s net-zero emissions transition.

The costs of climate damages in 2025 could be as high as $25 billion relative to a stable-economy scenario. We cannot afford inaction. Effective legislation and regulation will push corporations and financial institutions to act, while increasing the resiliency and sustainability of Canada’s financial system.