Leading Canadian investors have made it clear: sustainability is increasingly becoming a crucial factor in their investment decisions. However, non-comparable disclosures – driven by an “alphabet soup” of different reporting frameworks – has hindered their ability to make informed decisions. To address this, the Canadian Sustainability Standards Board (CSSB) was formed in June 2023. By adapting global standards from the International Sustainability Standards Board (ISSB), the CSSB has released draft standards tailored to the Canadian context.
To help Canadian leaders grasp the impact of these new sustainability standards on financial reporting, investments, and business practices, Ivey hosted an Impact Live panel: "Standardized ESG Reporting and Disclosure: Implications for Canadian Business." This second webinar in Ivey’s ESG series featured industry experts Lisa French (CPA Canada), Michael Jantzi (ISSB), Nadine de Gannes (Ivey Business School), and moderator Matthew Lynch (Ivey Business School). These are the key insights from their engaging conversation.
Don’t get lost in the alphabet soup
Knowing that the past often clarifies the present, panelist Michael Jantzi, member of the ISSB, began the discussion with a brief overview of the evolution of global sustainability reporting disclosure standards. Before the establishment of the ISSB and CSSB, a range of differing disclosure standards existed. However, because these were generally considered “nice to have”, the quality and consistency of these metrics showed considerable variation amongst firms.
A global shift occurred around 2015, when sustainability data suddenly moved from a "nice to have" to a "need to have." Investors, frustrated by poor quality, lack of comparability, and insufficient assurance, demanded more. Companies were also burdened by the inefficient and costly "alphabet soup" of reporting frameworks. In response, the International Financial Reporting Standards Foundation (IFRS), the leading not-for-profit for global accounting standards, launched the ISSB in 2021.
"In capital markets, when something becomes a need to have, what was once fit for purpose is no longer fit for purpose,” said Jantzi.
To wade through the “soup,” and to ensure that sustainability reporting is fit for purpose, the ISSB undertook a comprehensive evaluation and data collection process, consulting with over 30,000 stakeholders. In 2023, this effort culminated in the creation of a global baseline: the ISSB disclosure standards.
Finally, a level playing field
While firms may face challenges in adopting the ISSB standards, panelists emphasized that the long-term benefits for both investors and companies will outweigh the short-term difficulties. The standards create a level playing field, offering much-needed guidance and clarity.
“There’s something to be said about having the same playbook as your industry peers,” said Lisa French, Vice-President, Sustainability Standards, CPA Canada.
The ISSB has also seen this effect on a global level, with over 20 jurisdictions now adopting their standards. Jantzi noted that even developing countries are keen to embrace the standards, seeing them as a way to level the playing field and boost capital flows. He emphasized that standardized, consistent information enhances trust and transparency, leading to more informed decisions that could inevitably drive market changes.
Agreeing with this sentiment, Ivey Assistant Professor, Managerial Accounting and Control and Sustainability, Nadine de Gannes said: “We’ve seen so much data in the last few years that there has been a decline in trust in our corporations in North America… so if we can even just get this right then the trust building mechanism that comes out of a transparency foundation will just be bolstered.”
The voice of the North
Although panelists unanimously agreed on the value of standardization, they emphasized the crucial role of the CSSB in adopting and modifying these standards for Canadian nuances and public interest considerations. French emphasized that while the core disclosure requirements will remain unchanged, the modifications will reflect the unique aspects of the Canadian market. They will also give Canadians adequate timing to adopt this new framework.
A key aspect of adapting the standards is likely to be the inclusion of reconciliation and Indigenous rights. French noted that, based on rigorous market research, this is a priority consistently voiced by Canadians to the CSSB.
“Safeguarding the rights of indigenous peoples is a top-of-mind consideration for the CSSB, and to that end the Board has made a public commitment… and that commitment is to collaborate with First Nations, Metis, and Inuit peoples to explore how to best address these rights in the context of Canadian sustainability disclosure standards,” said French.
We’re moving out of a voluntary reporting environment to a mandatory environment
At the time of the panel, both ISSB and CSSB standard disclosures were considered voluntary. However, panelists advised that these standards are likely to soon become mandatory. Despite varying public policies across jurisdictions, the need for common and comparable information for investors is universal. This need, along with strong global market pressure for alignment, will drive the need for assurance and auditing. Another indication can be seen in large economies, like China, who are already adopting these standards and issuing directives.
“I think that voluntary disclosures are a thing of the past. I think as we look forward, it's going to be mandatory disclosures at securities level, at credential, and supervisory… that’s clearly the direction of travel,” said Jantzi.
New standards require a new mindset
As these "game-changing" standards near adoption in Canada, panelists urge firms to keep an open mind, especially in the early stages of integration. They acknowledged that hesitation and frustration are natural when starting something new, especially when dealing with something so unfamiliar that requires additional time and resource investment.
“Human beings don’t like feeling stupid,” said de Gannes. “When there is so much new language, so much new terminology, and very scary mathematics around climate risk and new models, we need to recognize that this [hesitation and negativity] comes from places of insecurity and confusion.”
Panelists urged firms to move beyond traditional thinking and use the new standards to connect the dots more effectively. They emphasized the importance of linking sustainable impacts to financial statements. Rather than treating these as separate entities for disclosure, firms should integrate sustainable impacts with key financial elements, such as the long-term business model, profile, and strategy.
To learn more about sustainability reporting and disclosure, and to view the entire panel discussion, visit Ivey’s YouTube channel: https://www.youtube.com/watch?v=liA7IJtRUJQ&t=17s
