Understanding CSDS 1 & CSDS 2 for Canadian businesses

CSDS 1 & CSDS 2

Canada is introducing the Canadian Sustainability Disclosure Standards (CSDS 1 & CSDS 2) in response to a global trend towards corporate transparency and sustainability. These standards, developed by the Canadian Sustainability Standards Board (CSSB), are set to align Canadian sustainability reporting with global frameworks while addressing national-specific considerations.

For Canadian companies, and any organization operating in Canada, understanding CSDS 1 & CSDS 2 is essential for preparing for compliance, ensuring investor confidence, and maintaining competitiveness in a global market.

The role of the Canadian Sustainability Standards Board (CSSB)

The CSSB was established in 2023 to create and maintain high-quality sustainability disclosure standards for Canadian businesses while contributing to international sustainability disclosure frameworks.

It works closely with the International Sustainability Standards Board (ISSB), ensuring that Canadian regulations align as closely as possible with global standards while allowing for necessary modifications to suit the national context.

Adapting global standards to Canada through a modification framework

While CSDS 1 and CSDS 2 are based on the IFRS S1 and IFRS S2 standards developed by the ISSB, the CSSB has implemented a Criteria for Modification Framework. This framework ensures that global standards are adapted to reflect Canada’s unique regulatory environment, economic structure, and public interest considerations.

Three key reasons for modifications include:

1. Ensuring compliance with Canadian laws and regulations.
2. Reflecting Canadian-specific provisions and practices.
3. Acting in the Canadian public interest while maintaining the quality of sustainability disclosures.

“Understanding and implementing the CSDS will be an essential component of Canadian organizations’ approach to transparency and accountability.”

Frank McShane
Founder and Principal
SHIFT Critical International

CSDS 1: General requirements for sustainability disclosures

CSDS 1 provides the foundational requirements for sustainability-related financial disclosures. It establishes the need for businesses to report on general sustainability matters beyond climate change, ensuring that stakeholders have access to relevant, decision-useful information.

Key modifications in CSDS 1:

• Transition relief for non-climate disclosures: Businesses will have a two-year transition period before mandatory reporting on sustainability factors beyond climate-related risks and opportunities.
• Alignment with financial reporting: Sustainability disclosures must align with financial statement reporting. However, transition relief allows for a phased approach, with a three-year period where companies can report sustainability data up to nine months after financial statements in the first year, and six months in the second and third years.

CSDS 2: Climate-related disclosures

CSDS 2 specifically addresses climate-related risks and opportunities. It provides guidance for Canadian businesses on disclosing climate risks, governance structures, and emissions data, ensuring alignment with international best practices.

Key modifications in CSDS 2:

• Scope 3 emissions reporting: Recognizing the challenges businesses face in tracking Scope 3 emissions (indirect emissions in the value chain), the CSSB has extended the transition period from two to three years.
• Climate resilience & scenario analysis: Companies must conduct scenario analyses to assess climate resilience. Quantitative analysis requirements will have a three-year transition period, while qualitative reporting is expected immediately.

Strategic planning and engagement with Indigenous communities

The CSSB has outlined strategic priorities for 2025-2028, with a strong emphasis on engaging Indigenous communities. The board recognizes that meaningful consultation is necessary before integrating Indigenous perspectives into disclosure standards, and ongoing engagement efforts are a top priority.

Why CSDS 1 & CSDS 2 matter for Canadian businesses

• Regulatory alignment: While adoption of CSDS 1 & 2 is voluntary for now, Canadian regulators, including the Office of the Superintendent of Financial Institutions (OSFI) and provincial securities regulators, are considering integrating these standards into regulatory frameworks.
• Competitiveness in capital markets: Global investors demand consistent and comparable sustainability data. Alignment with international standards ensures that Canadian businesses remain attractive to investors.
• Preparation for future mandates: Businesses that proactively implement CSDS 1 & 2 will be better positioned to comply with future regulatory requirements and avoid last-minute compliance burdens.

Next steps for Canadian businesses

1. Assess readiness: Companies should evaluate their current sustainability reporting capabilities and identify gaps in data collection and disclosure processes.
2. Leverage transition relief: Organizations should take advantage of the phased implementation approach to gradually build capacity for comprehensive sustainability reporting.
3. Engage with stakeholders: Businesses should communicate with investors, regulators, and industry peers to understand expectations and best practices for sustainability disclosures.
4. Stay informed: The CSSB is continuously updating guidance and educational materials. Companies should monitor CSSB’s website and participate in consultations and webinars.

Final thoughts on CSDS

CSDS 1 & CSDS 2 represent a significant step forward in sustainability reporting for Canadian businesses. By aligning with global standards while incorporating national considerations, these standards ensure that Canada remains at the forefront of sustainable business practices.

Companies that take early action in understanding and implementing these standards will be well-positioned for future regulatory requirements and investor expectations.

For more information and to access resources, visit CSSB’s official website.

To discover more on how Position Green’s Sustainability Suite can help you prepare for upcoming reporting mandates – speak with one of our experts by booking a demo through the button below.