Canadian companies will need to boost their climate-related disclosures if they are to meet the requirements of the International Sustainability Standards Board (ISSB), according to new research by Millani, an ESG consultant.
In June, the ISSB issued its first two standards – IFRS S1 and IFRS S2 – which cover general sustainability information and climate-related disclosures, respectively. Canada is expected to incorporate these standards into its domestic reporting rules.
The study, which covers 227 members of the S&P/TSX Composite Index, finds that ‘86 percent conducted materiality assessments to identify sustainability-related risks and opportunities, yet only 34 percent of them disclosed metrics for each, as mandated by IFRS S1.’
Companies also need to catch up on scenario planning. The research report states that although IFRS S2 requires companies to undertake a climate scenario analysis, only 53 percent of companies that published an ESG report do this in some way.
Other climate-related areas where companies may need to increase disclosure include transition planning, capital deployment and use of carbon offsets, the report notes.
‘Many organizations have work to do to prepare for ISSB-level disclosures, in particular for S2 and the requirement to demonstrate capital expenditures,’ Milla Craig, Millani president and CEO, tells Corporate Secretary sister publication IR Magazine.
‘Less than 10 percent of sustainability reports disclosed such information, yet investors and their regulators continue to move forward.’
STRONG POSITION
Although there are gaps between current practices and the ISSB disclosures, Canadian companies are in a strong position given their already substantial take-up of other reporting frameworks and standards, the report states.
In companies’ ESG reporting, 74 percent use SASB standards and 64 percent are aligned with TCFD recommendations, Millani finds, which will prove helpful given that the ISSB standards are heavily based on these other reporting frameworks.
Following the publication of the ISSB standards, many countries indicated they would seek to integrate these disclosures into their own domestic reporting rules, including Canada, the UK and Singapore.
The Canadian Securities Administrators has said it will consult over adopting the standards, while considering any changes that may be necessary for the local market, and will provide an update later this year. The Canadian Sustainability Standards Board, which launched last year, is also supporting the uptake of ISSB standards in the country.
The Millani paper adds that ESG reporting may be delayed in 2023. At the end of August, 71 percent of S&P/TSX Composite Index constituents had released an ESG report, compared with 80 percent over the same period last year.
‘This prompts the question of whether the delay could be attributed to an increase in time-consuming assurance procedures, or the high costs associated with reporting in inflationary times,’ the firm says.
Another trend is the growth of double materiality assessments in Canada, where companies consider both financial materiality and their impact on society and the environment.
‘One of the most important areas of development is the evolution from single to double materiality,’ Craig says.
‘Although the ISSB doesn’t specifically ask for this assessment, issuers in Canada are already advancing: 19 percent of materiality assessments currently take a double materiality approach, even though 54 percent of issuers are not calling it as such.’
