What do Canadian organizations need to know about the new International Sustainability Standards Board (ISSB)?

What’s the reaction to the ISSB announcement within Canada?

• Canadian regulators keeping a close eye on ISSB developments that could influence future regulations. Specifically, the Canadian Securities Administrators (CSA) organization has publicly noted it strongly supports the establishment of the ISSB. “Establishing international standards is an important step in enhancing industry reporting and disclosure that yields reliable, complete, and comparable information for investors,” notes Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers¹.
  
• Overwhelming support from Canadian organizations. Canada’s successful bid to host the ISSB was supported by large pension funds, financial institutions, securities regulators, a leading First Nations organization, accounting firms, insurance companies and other large Canadian companies. There was also support for the bid from the country’s six largest municipalities and a broad cross-sector of Canada’s leading business, academic and environmental stakeholder organizations.
• Likely establishment of Canadian Sustainability Standards Board. The Independent Review Committee on Standard Setting in Canada is reviewing the governance and structure for existing Canadian accounting, auditing and assurance standards to identify what might be needed for the future—specifically, sustainability standards. Its goal is to make sure Canadian standard setting continues to be relevant and responsive, as well as independent and internationally recognized. To accomplish these goals, this committee is considering establishing a Canadian Sustainability Standards Board that would work alongside Canada’s existing accounting, auditing and assurance standards bodies.

What should Canadian organizations be doing right now?

The ISSB has made it clear it’s tackling climate disclosures first, as demonstrated by the climate-related disclosure prototype it released in November 2021². The climate-related disclosure aligns with the pillars of the Task Force on Climate-Related Financial Disclosures (TCFD). It’s also consistent with the approach of the CSA, which has released its own climate-related proposal that’s heavily influenced by the TCFD and may need to be implemented as early as 2023³. To get ahead of what’s coming, organizations should look to the TCFD as a key standard to follow and implement.

Although climate may be the first focus area for regulators, your organization’s reporting shouldn’t be limited to climate. Twelve months ago, institutional investors called for companies to report using standards set out by the Sustainability Accounting Standards Board (SASB) and TCFD. Voluntary reporting is still the main solution, so companies need to focus on reporting on those ESG topics they consider material. The most practical way to do this is to continue to use the existing standards (e.g. SASB and Global Reporting Initiative (GRI)) to help structure that reporting, but companies should also keep the ISSB’s General Requirements for Disclosure of Sustainability-related Financial Information Prototype in mind when developing their ESG reporting⁴.

Expectations about the quality of ESG information reported are rising—the bar for quality is moving closer to the level expected for financial reporting. Given their experience providing trusted and quality financial reporting, finance functions are uniquely positioned to help meet stakeholders’ ESG reporting expectations. Finance leaders should upskill their teams on ESG and, more specifically, on the enhanced reporting that must come with it. After all, this new sustainability standard is being led by the same organizations that have created the most widely recognized and used accounting standards in the world.

Define your reporting ambitions, and from there, figure out what’s needed to be successful. Many organizations are investing in people, systems, processes, controls and technologies to help them deliver on their ESG reporting ambition. The same sophisticated mechanisms that ensure the accuracy of financial information—including control procedures, internal audits, external assurance and cyber and other security systems—should be deployed to meet the same high standards for non-financial information.

^{1 “Canadian securities regulators strongly support the establishment of the International Sustainability Standards Board in Canada,” Canadian Securities Administrators, October 7, 2021, https://www.securities-administrators.ca/news/canadian-securities-regulators-strongly-support-the-establishment-of-the-international-sustainability-standards-board-in-canada/.}

^{2 “Climate-related Disclosures Prototype,” Technical Readiness Working Group, chaired by the IFRS Foundation, November 2021, https://www.ifrs.org/content/dam/ifrs/groups/trwg/trwg-climate-related-disclosures-prototype.pdf.}

^{3 “Consultation Climate-related Disclosure Update and CSA Notice and Request for Comment Proposed National Instrument 51-107 Disclosure of Climate-related Matters,” Canadian Securities Administrators, October 18, 2021, https://www.osc.ca/sites/default/files/2021-10/csa_20211018_51-107_disclosure-update.pdf.}

^{4 “General Requirements for Disclosure of Sustainability-related Financial Information Prototype,” Technical Readiness Working Group, chaired by the IFRS Foundation, November 2021, https://www.ifrs.org/content/dam/ifrs/groups/trwg/trwg-general-requirements-prototype.pdf.}