ESG reporting is increasingly becoming integrated with financial reporting. Learn ESG reporting fundamentals and recent regulatory updates with our Introduction to ESG Reporting series on Dec. 9, 11, 16 and 18.
The need for CPAs to upskill and build capacity in ESG, as well as provide related support to businesses embarking on their sustainability journeys continues to grow, with related legislation and reporting requirements increasingly becoming mandatory. To assist members in building their skills and knowledge in this important area, below are some key ESG developments for 2024-2025, as well as educational resources.
Europe leads with mandatory reporting from 2024
2024 has seen many developments on the sustainability reporting front. In Europe, the Corporate Sustainability Reporting Directive (CSRD) and accompanying European Sustainability Reporting Standards (ESRS) became mandatory in 2024. Europe chose to follow a double materiality approach to sustainability reporting, in contrast to financial materiality which the International Sustainability Standards Board (ISSB) and Canada, the UK, Australia and many others chose to follow as a global baseline. Despite this difference, all parties are working to align the standards to ensure interoperability and European reporters will be required to disclose both financial materiality and impact materiality as part of their Double Materiality Assessments (DMA). With Europe ahead, reviewing implementation guidance provided by EFRAG and European sustainability reports publishing in 2025 may provide useful insights for Canadian reporters planning their own materiality assessments and reporting. Some Canadian companies will be scoped into the requirements to report under ESRS; notable industries that may be affected include the financial and mining sectors. The date when this takes effect will depend on individual corporate structures. More information can be found in this CSRD briefing note.
Finalized Canadian sustainability standards expected December 2024
The Canadian Sustainability Standards Board (CSSB) released the first Canadian Sustainability Reporting Standards - CSDS 1 (General Requirements) and CSDS 2 (Climate-Related Disclosures) - for comment in March and the final standards are expected in December, allowing for voluntary adoption from 2025. These standards adhere to IFRS S1 and S2, but contained proposed adjustments to increase the implementation timelines in Canada. The importance to include Indigenous Peoples’ rights, interests, and their significant expertise in areas such as biodiversity, is a focus for the CSSB. Once finalized the standards will remain voluntary until the Canadian Securities Administrators (CSA) issues a revised rule setting out climate-related disclosure requirements. EY prepared a summary of the comments.
Bill C-59 which introduced greenwashing regulations through the Competition Act, was passed without amendments in June 2024. While we initially saw a lot of legal uncertainty from corporations regarding Bill C-59’s reach, Canada Climate Law Initiative (CCLI)’s research on the topic emphasizes that companies should be careful with their statements to avoid greenwashing risks, but they should not fear or refuse to publicly disclose climate-related information.
In mid-October the Canadian government announced mandatory climate-related financial disclosures for large, federally incorporated private companies. The goal is to attract more private capital into Canada’s largest corporations and to ensure Canadian businesses can continue to effectively compete in the world. To this end the government is planning amendments to the Canada Business Corporations Act to require these disclosures. A regulatory process will be launched to determine the disclosure requirements and size of private federal corporations that would be subject to these disclosures. Small-and-medium-sized businesses will be excluded, but may voluntarily release climate disclosures. At the same time a plan to deliver made-in-Canada sustainable investment guidelines was announced to credibly identify green and transition economic activities. This taxonomy is also aimed at accelerating the flow of private capital into sustainable activities across the Canadian economy.
South of the border: US SEC climate rule stalls, while California Bills gain traction
Almost two years after the US Securities Exchange Commissions (SEC) first issued an ambitious proposed climate rule, the final rule was released in March 2024, but it was stayed in April 2024 pending a judicial review following legal challenges around the SEC’s statutory rulemaking authority. Beyond that, opponents argue that it is too onerous and expensive for companies and that the GHG data requested is not reliable. The SEC maintains that the information is relevant to, and in the interest of investors demanding consistent and comparable, climate-related information to help inform investment and voting decisions. While on hold, affected companies may choose to prepare for the proposed disclosures, due to obligations under the CSRD or the new California Bills. Deloitte prepared an executive summary of the proposed requirements.
Meanwhile in California, SB 219 - Greenhouse Gases: Climate Corporate Accountability: Climate-Related Financial Risk (an update to SB 253 and SB 261), was signed in September 2024, delaying implementation by six months, but mostly adhering to the original requirements with reporting of 2025 GHG emissions data to start in 2026. SB 253 requires reporting entities to disclose annually their Scope 1, 2, and 3 GHG emissions based on the Greenhouse Gas Protocol’s Corporate Accounting and Reporting Standard and Corporate Value Chain (Scope 3) Accounting and Reporting Standard. SB 261 requires covered entities with revenue above US $500 million to disclose their climate-related-financial risks bi-annually, similar to disclosure under the TCFD framework. For more information, see Grant Thornton’s snapshot.
Just released: Public sector sustainability reporting standards exposure draft SRS ED 1
The International Public Sector Accounting Standards Board (IPSASB), just released IPSASB SRS Exposure Draft 1 - Climate-Related Disclosures which proposes disclosures for public sector entities to report on the climate-related risks and opportunities to its own operations, and climate-related public policy programs and their outcomes that are useful for primary users of financial statements and support decision-making and accountability. These standards are aligned with the private sector disclosures developed by the ISSB, but addresses the unique differences and information needs of users of public sector reports; a wide range of entities are included. SRS ED 1 is open for comment until 28 February 2025. IPSASB believes that this will increase transparency and enable governments and public sector entities to make contributions toward the climate emergency, support better decision-making, assist in accessing funding and generally help shape governments’ response to addressing climate change.
Assurance standards are developing in tandem
In September 2024, the International Auditing and Assurance Standards Board (IAASB) approved International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. ISSA 5000 is an overarching standard for assurance on sustainability reporting. Publication is expected for December and supplementary implementation guidance will follow in January 2025. This has become increasingly important as investors and other users of information are calling for reliability and verifiability. As we see reporting shift from voluntary to mandatory, we also see the need for assurance on sustainability information being phased in and moving from limited to reasonable assurance, over time. In developing the standard, existing standards - ISAE 3000, for assurance engagements other than audits of financial information and ISAE 3410, for Greenhouse Gas assurance engagements - were used. In Canada, the AASB has approved a project to adopt ISSA 5000 as CSSA 5000.
Standards evolve gradually, then suddenly
More than 130 countries now follow IFRS accounting standards. Accounting standards provide the investor community and beyond with certainty and consistency in reporting, and report preparers understand their reporting expectations and obligations. It was not always that way. International accounting standards evolved over a period of more than 25 years and were only widely adopted between 2005 and 2010, but now enjoy widespread acceptance and co-exist alongside US GAAP. Sustainability standards are still evolving, but looking back over what was accomplished in 2024 alone, demonstrates that just one year makes a big difference, as well as the continuing need for CPAs to keep up with these developments!
Resources for CPAs
For CPAs interested in learning more, CPA Canada offers a four-course certificate in sustainability. CPA Canada also has extensive ESG and sustainability resources for self-study. If you’re interested in a certification or credential, the IFRS Foundation offers the Fundamentals of Sustainability Accounting credential. Additionally, Accounting4Sustainability has developed extensive resources for accountants and offers an annual academy program for industry participants.
Caren Lombard is a CPA, CFA and a Fundamentals of Sustainability Accounting (FSA) credential holder. She is a full-time lecturer at Sauder School of Business and Academic Lead of the SME Climate Clinic at the UBC Sauder Centre for Climate and Business Solutions. Caren teaches Climate Reporting courses to undergraduate and MBA students. Caren is the instructor of the Introduction to ESG Reporting series for CPA BC and she facilitates the Sustainability Reporting and Disclosure course for the CPA Canada ESG/Sustainability Certificate Program.
