The International Sustainability Standards Board launched a standard for financial disclosure rules in June, 2023, which have since been adopted or partly incorporated by 33 markets worldwide.JASON FRANSON/The Canadian Press
Mark Hughes is a board member of UBS Group AG, a former group chief risk officer at Royal Bank of Canada and former chair of the Global Risk Institute.
Barbara Zvan is the chief executive officer of the University Pension Plan Ontario, a former chief risk and strategy officer of Ontario Teachers’ Pension Plan and a member of Canada’s Expert Panel on Sustainable Finance.
The Great Recession of 2008 schooled us in the consequences of not getting disclosure right. When a lack of corporate transparency and imperfect information around issues such as borrowing practices and cash flow came to a head, it became clear that seemingly healthy companies were facing much higher levels of risk than investors previously understood. The impact: a massive loss of confidence in the market leading to plummeting investments and significant negative consequences, not just for the financial world but for main street.
Today, we have another major risk looming large on the horizon: climate-related disruption. The international investment community agrees that there is an urgent need for better and more transparent information about how companies are preparing (or not) for rising global temperatures. This is what we learned from 2008. When it comes to corporate information that is essential for managing widespread financial risk, we need disclosure rules to be clear, consistent and mandatory.
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Canada’s regulators have acknowledged this lesson, but instead of acting on it in unison with our international competitors and peers, they have frozen progress in an indefinite delay. While it’s true that some Canadian companies disclose climate-related information anyway, a voluntary system will not give investors the comparable, consistent data that are needed.
The longer we wait to get mandatory rules in place, the greater the risk and the cost to investors and Canadian businesses. We need to get the wheels on climate-related disclosure in motion today.
Few categories of information are more relevant and prescient to investment decisions than those associated with climate-related disruption.
The physical realities are already affecting us. In 2024, worldwide losses from wildfires, floods and storms topped US$400-billion. As our climate warms, these risks will inevitably grow worse.
The transitional implications of climate change are equally clear. While conventional energy will play a role in the global economy for some time, the demand for non-emitting sources such as wind, solar, geothermal and nuclear will only grow. According to a recent IEA report, in 2025 capital flow toward electricity generation, grids and storage will be 50 per cent higher than that allocated to oil, gas and coal development. As energy affects all sectors of the economy, it’s clear that significant adjustments will be required.
In the face of transformative shifts, the job of finance and investment professionals is to identify risks and opportunities, then allocate capital accordingly to keep our long-term investments healthy and our economies running. Information is the fuel for that engine.
That’s why, for more than a decade, the global financial and investment community has been working to align on a standard for credible, comparable climate-related financial disclosure rules. That standard was finally launched by the International Sustainability Standards Board (ISSB) in June, 2023. Since then, 33 markets have officially adopted the standard or are taking steps to do so. That includes most of the places Canada aims to do business in as a means of trade diversification.
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Europe’s disclosure standards, the highest bar in the world, have more than prepared their companies to compete for capital in an ISSB-aligned world. The U.K. is set to mandate standards for all listed companies by 2026. China will do so by 2027. Emerging markets such as Brazil, Indonesia and Malaysia are all following this track, no doubt to increase their companies’ competitiveness in attracting capital from international markets and investors.
Until recently, Canada was following suit. In December, 2024, after significant consultation and support from the financial sector, the Canadian Sustainability Standards Board (CSSB) published a set of ISSB-aligned disclosure standards that reflects Canada’s unique needs and context.
In February, the Office of the Superintendent of Financial Institutions, which oversees federally regulated banks, pension funds and insurance companies, integrated CSSB into its existing, mandatory climate-disclosure guidelines.
The next step should have been adoption by the Canadian Securities Administrator (CSA), which harmonizes securities regulations across the country. This would have paved the way for mandatory disclosure across nearly all of Canada’s economy – an explicit recommendation of Canada’s Sustainable Finance Action Council, which comprised the country’s largest banks, insurers and pension plans.
However, in April, the CSA hit “pause.” Instead of making disclosure mandatory, it encouraged companies to “refer to” the CSSB when preparing voluntary reports. Whatever factors influenced the CSA to halt progress, it was a mistake – one that runs completely contrary to the nation-building strategy Canada is now pursuing.
If we truly want to build stronger trade and investment relationships globally, we need to understand and meet the expectations and requirements of those partners. Climate disclosure is, and will remain, one of them.
The decision to put off clarity and direction on disclosure for Canadian businesses does them a disservice. Not only does it put Canadian firms out of step with their competitors, it makes catching up even more difficult. Every region that adopts mandatory climate-disclosure rules does so in phases to ensure businesses have time to plan and prepare. A delay means choosing between a longer lag or a shorter, steeper climb; both put Canadian companies at a disadvantage.
While it appears that many of Canada’s large companies are voluntarily reporting information that broadly aligns with CSSB, a recent PwC study found that even those are falling short of the detailed requirements that investors are demanding (e.g., quantifying financial impacts and linking sustainability issues to business strategies and financial plans). Piecemeal and voluntary disclosure efforts aren’t enough. Not if we want to address climate risk across our entire economy and create a level playing field for our businesses competing for global capital. We need clear expectations for all companies and full-sail implementation of CSSB.
This is the moment for Canada to act on our own, long-term interests. Getting climate disclosure right, now, is critical to that endeavour. It’s time for Canada’s regulators to unpause their efforts and press forward.