Key Impact Points:
- Global rollout of mandatory ESG reporting: Requirements like the EU’s Corporate Sustainability Reporting Directive (CSRD) are already in effect, with Canada finalizing its own standards.
- Audit committees are essential: Committees must ensure their organizations are prepared for compliance through detailed roadmaps and proactive planning.
- Greenwashing penalties tighten: Canada’s Bill C-59 mandates proof of environmental claims, with harsh penalties for non-compliance.
The Global Shift to Mandatory ESG Reporting
Mandatory ESG reporting is expanding worldwide, impacting organizations across sectors. While the EU’s CSRD is already in effect, Canada is gearing up to adopt its own standards. Businesses need detailed compliance roadmaps and audit committee oversight to meet the stringent requirements.
Michael Ort, Partner, Accounting Advisory Services at KPMG in Canada, emphasized:
“Audit committees should ensure management has a roadmap in place to meet the new reporting requirements.”
Canada’s Evolving ESG Standards
The Canadian Sustainability Standards Board (CSSB) released two voluntary Canadian Sustainability Disclosure Standards (CSDS) in December 2024, effective for reporting periods beginning January 1, 2025. Although not yet mandatory, these standards are critical for businesses preparing for eventual compliance.
The Canadian Securities Administrators (CSA) may mandate parts of these standards, with initial adoption focused on climate-related disclosures. Organizations delaying their preparations risk facing significant challenges as requirements evolve.
Avoiding Greenwashing Risks
Under Canada’s anti-greenwashing amendments in Bill C-59, companies must substantiate environmental claims with rigorous tests and adhere to international standards. ESG disclosures in securities are now considered “promotions” under the amended Competition Act. Non-compliance carries severe penalties and reputational risks.
The Audit Committee’s Leadership Role
Audit committees are pivotal in navigating these complexities. By challenging management to prepare detailed roadmaps, committees ensure readiness.
Related Article: Innovation and Sustainability Go Hand in Hand: KPMG
Dave Power, Partner, Consumer and Industrial Markets Audit at KPMG in Canada, highlighted:
“Organizations can benefit from identifying needed resources and securing them early.”
Roadmaps should follow a five-stage process: establish, assess, design, implement, and sustain. Early action is crucial for securing external resources and adapting reporting systems to meet global expectations.
Staying Ahead of Emerging Standards
As global standard setters expand focus beyond climate to areas like biodiversity and social issues, businesses must remain agile. Sustaining compliance requires continuous updates and potentially annual assurance processes.
Audit committees should regularly ask:
- Are we clear on the ESG requirements for the organization?
- What preparations have been made for ESG reporting and assurance?
- Is there a roadmap for implementation?
- Does management have the expertise to evaluate requirements?
Preparation and proactive leadership are essential to navigating this era of mandatory ESG reporting.
