Will the new International Sustainability Standards Board succeed in unifying global sustainability and climate-related disclosure rules?

September 1, 2022 | Bruno Caron, Annafaye Dunbar

Sustainability and climate disclosure rules are about to be standardized

On March 31, 2022, the International Sustainability Standards Board (“ISSB”), a recently formed sustainability standard-setting body of the International Financial Reporting Standards (“IFRS”) Foundation, published for public comment two exposure drafts, one outlining general sustainability disclosure rules and another on climate-related disclosure rules (the “ISSB Exposure Drafts”). They were specifically developed in response to calls from primary users of general purpose financial reporting for more transparent, reliable and comparable reporting on sustainability-related financial information to help them more accurately assess an entity’s enterprise value. Once finalized, the ISSB Exposure Drafts will form the basis of the IFRS Sustainability Disclosure Standards that will aim to provide a comprehensive global baseline for sustainability and climate-related disclosures that meet the informational needs of investors.

Considering that the development of the ISSB global standards are supported by the G7, the G20, and the International Organization of Securities Commissions (“IOSCO”), whose members include several of Canada’s provincial securities regulators, including the Autorité des marchés financiers, it is likely that regulators across jurisdictions, including in Canada, will consider mandating disclosures in line with the finalized ISSB Exposure Drafts.

The ISSB and the establishment of a global baseline

The ISSB, created by the IFRS Foundation at the 26th Conference of the Parties in Glasgow in November 2021, works alongside the IFRS’s International Accounting Standards Board (“IASB”), which establishes the IFRS Accounting Standards that are applied in over 140 countries, including Canada.

The release of the ISSB Exposure Drafts follow in the wake of the Canadian Securities Regulators (the “CSA”) proposing its own climate-related disclosure rules in October 2021 encompassed in National Instrument 51-107 – Disclosure of Climate-related Matters (PDF) (the “Canadian Rules”), which once finalized, will apply to certain Canadian reporting issuers. They also follow the release of the U.S. Securities and Exchange Commission (the “SEC”) rules on March 21, 2022, The Enhancement and Standardization of Climate-Related Disclosures for Investors (PDF) (the “SEC Rules”), which we discussed in a previous update.

While all three of these proposals are informed by the recommendations of the Task Force on Climate-related Financial Disclosures (PDF) (“TCFD”), all the proposals require varying levels of mandatory disclosures, resulting in a fragmented reporting landscape – from the Canadian Rules being the most lax to the SEC Rules being the most stringent. The ISSB is therefore proactively engaging regulators and other stakeholders to facilitate the widespread implementation of the finalized ISSB Exposure Drafts within regional and national legislation to ensure minimum baseline disclosure requirements are established globally.

The ISSB Exposure Drafts

The objective of the ISSB Exposure Drafts are to facilitate the disclosure of material information by entities on their exposure to significant sustainability and climate-related risks and opportunities, which primary users of general purpose financial reporting can use to assess enterprise value.[1] Under these ISSB Exposure Drafts, sustainability-related financial information and climate-related disclosures would need to be reported on at the same time as an entity reports on its financial statements, and would therefore form part of that entity’s general purpose financial reporting obligations.

The proposals include:

  • IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (PDF), (the “ISSB General Requirements”), which sets out the general rules entities would need to follow when disclosing all sustainability-related financial information on significant sustainability-related risks and opportunities to which they are exposed and that impact their enterprise value[2]; and
  • IFRS S2 Climate-related Disclosures (PDF) (the “ISSB Climate Requirements”), which sets out the specific rules entities would need to use when they identify, measure and disclose specific information on their climate-related risks and opportunities, including the physical risks from climate change and the risks associated with transitioning to a lower carbon economy.

While the ISSB General Requirements are designed to establish the general principles applicable to disclosing all material ESG information generally, the ISSB Climate Requirements serve to provide guidance on a specific thematic area. It is therefore the ISSB’s intention that over time, additional thematic focus areas will be developed, which will be informed by the ISSB General Requirements.

The core disclosures envisioned within the ISSB Exposure Drafts

To comply with the ISSB Exposure Drafts, reporting entities would generally need to disclose material information on:

  • Governance – the processes, controls and procedures used to identify and manage sustainably and climate-related risks and opportunities;
  • Strategy – the strategies used to address sustainability and climate-related risks and opportunities that reasonably influence business models and strategy in the short, medium and long-term. This would involve disclosures on how identified risks and opportunities impact business models and value chains, as well as strategy and decision-making;
  • Risk management – the mechanisms by which sustainability and climate-related risks and opportunities (both present and future) are assessed, addressed and mitigated; and
  • Metrics & Targets – the metrics and targets used to assess entity performance in relation to identified sustainability and climate-related risks and opportunities.

Notable disclosure requirements contained within the ISSB Exposure Drafts

While both the Canadian Rules and the ISSB Exposure Drafts require entities to disclose information on governance, strategy, risk management and metrics and targets in line with the TCFD recommendations, the level of prescriptive detail mandated by the ISSB Exposure Drafts far surpasses what the CSA has proposed. Notable differences include:

  • Governance Disclosures: Under the ISSB Exposure Drafts, reporting entities would be required to disclose much more extensive information on governance processes, controls and procedures compared to what the Canadian Rules would mandate. This would include, for example, the requirement to provide information on how sustainability and climate-related concerns are incorporated into board mandates and policies and the qualifications of directors or officers who manage sustainability-related risks and opportunities. Likewise, there is also a requirement to disclose if and how executive compensation is tied to meeting climate-related performance targets.
  • Strategy DisclosuresUnder the ISSB Climate Requirements, reporting entities would be required to disclose their emission reduction targets and whether and how they use carbon offsets to achieve these targets. There are no such requirements under the proposed Canadian Rules. Likewise, reporting entities would be required to use scenario analysis to describe the resilience of their business strategies, including information on how their strategies align with the Paris Agreement’s goal of reducing global temperatures.
  • Industry-based reporting requirements: Under the ISSB Climate Requirements, reporting entities would be required to assess their climate-related risks and opportunities by considering industry-specific disclosure requirements derived from the Sustainability Accounting Standards Board (“SASB”) standards. This approach therefore recognizes that specific industries or sectors face distinct sustainability and climate-related risks and opportunities.
  • Greenhouse Gas (“GHG”) emission reporting requirements: Under the ISSB Climate Requirements, Scope 1 (direct GHG emissions), Scope 2 (indirect GHG emissions from energy) and Scope 3 (upstream and downstream GHG emissions in the value chain) would need to be disclosed if material. The Canadian Rules, by contrast, use a “comply and explain” approach whereby Canadian issuers may opt out of disclosing their Scope 1, 2, and 3 emissions, provided they give a public explanation in their filings as to why they have chosen to do so.[3] In addition, the ISSB Climate Requirements would mandate that reporting entities disclose Scopes 1 and 2 GHG emissions separately for: (a) its consolidated accounting group, and (b) associates, joint ventures, unconsolidated subsidiaries or affiliates not included in the group, which would likely increase compliance costs.

The impact of ISSB activities on Canada’s regulatory responses

The need for a global baseline of sustainability and climate-related disclosures is a priority for international and domestic stakeholders alike. Considering the credibility of the IFRS as a standard-setting body, it is in a unique position to deliver a comprehensive set of rules so as to provide a minimum baseline on sustainability reporting that will operate alongside jurisdictional based requirements. However, as is the case for the IFRS Accounting Standards, it will ultimately be up to regional and national regulators to decide whether entities within their jurisdictions are required to comply with the IFRS Sustainability Disclosure Standards.

Within Canada, there is no doubt that establishing disclosure standards on sustainability generally, and on climate change specifically, in collaboration with the ISSB is a policy priority, as is evident from a June 15 announcement that a Canadian Sustainability Standards Board (“CSSB”)[4] was being established, which will work to implement the IFRS Sustainability Disclosure Standards in Canada. Likewise, it was also announced on June 28 that the IFRS Foundation signed a Memorandum of Understanding with Montréal International to obtain financing from the Government of Canada and the Government of Quebec to establish the ISSB Americas Office in Montreal.

What does this mean for Canadian issuers?

The ISSB Exposure Drafts are likely to influence the direction the CSA takes when it finalizes its proposed Canadian Rules. While the CSA was initially ahead of the curve when it first proposed the Canadian Rules back in 2021, the subsequent publications of the SEC’s proposed rules and the ISSB Exposure Drafts (which both mandate much more demanding disclosures than what the Canadian Rules require) is a signal that the Canadian Rules need further refinement. Otherwise, Canadian issuer access to global capital markets may be hampered if the disclosures mandated by the Canadian Rules do not keep pace with the regulatory responses taken by regulators in the United States and at the international level.

While the Canadian Rules were set to be finalized and phased in after December 31, 2022, we note that in a recent statement, CSA Chair Louis Morisset suggested that the CSA may delay finalizing the Canadian Rules until both the SEC and the IFRS Sustainability Disclosure Standards are finalized, which are both also expected to be in their final form in the second half of 2022.

If you have any questions with respect to this legal update, please contact Bruno Caron (bcaron@millerthomson.com) and Annafaye Dunbar (adunbar@millerthomson.com) or any other member of our Capital Markets & Securities Group.

[1] The term “Enterprise Value” is defined as “The total value of an entity. It is the sum of the value of the entity’s equity (market capitalization) and the value of the entity’s net debt.”

[2] The concept of disclosing material and relevant sustainability-related financial information requires entities to assess whether sustainability-related risks and opportunities concerning people, the planet and the economy are relevant to assessing their enterprise value. Considering the concept of ‘sustainability’ is quite vague, entities may have difficulty determining what information is ‘material,’ which could create uncertainty among entities when they determine what should be disclosed.

[3] In an alternative proposal, the CSA has suggested mandatory Scope 1 emissions disclosure, while keeping in place the “comply or explain” approach for Scope 2 and Scope 3 emissions.

[4] According to Kevin Nye, chair of the Auditing and Assurance Standard Oversight Council, “The CSSB will work in lockstep with the International Sustainability Standards Board to develop and support the adoption of IFRS® Sustainability Disclosure Standards – ensuring that the Canadian perspective is part of international decision making.”


This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you. If you have any questions about our information practices or obligations under Canada's anti-spam laws, please contact us at privacy@millerthomson.com.

© 2023 Miller Thomson LLP. This publication may be reproduced and distributed in its entirety provided no alterations are made to the form or content. Any other form of reproduction or distribution requires the prior written consent of Miller Thomson LLP which may be requested by contacting newsletters@millerthomson.com.