Canada now has its own sustainability disclosure standards. The Canadian Sustainability Disclosure Standards (CSDS 1 and CSDS 2), issued by the Canadian Sustainability Standards Board (CSSB) in December 2024, are closely aligned with the global ISSB framework but include Canadian-specific modifications and transitional relief.
While adoption is currently voluntary, securities regulators still require disclosure of material ESG risks under existing rules — and momentum toward eventual mandatory requirements continues to build. This guide covers what the standards require, who should be paying attention, and how to prepare.
What Are CSDS 1 and CSDS 2?
The CSSB developed two standards based on the ISSB's IFRS S1 and S2:
- CSDS 1 (General Requirements for Disclosure of Sustainability-Related Financial Information): Requires entities to disclose sustainability-related risks and opportunities that could affect their financial prospects. Covers all ESG topics, not just climate. Based on IFRS S1.
- CSDS 2 (Climate-Related Disclosures): Requires specific disclosures on climate-related risks and opportunities. Based on IFRS S2.
Both standards are effective for annual reporting periods beginning on or after 1 January 2025, meaning companies can begin reporting on their 2025 fiscal year in their 2026 reports.
The standards follow the ISSB's financial materiality approach — assessing how sustainability matters affect the company's financial position and prospects. This is the same lens used by Australia's AASB S2, Singapore's SGX framework, and the UK's UK SRS, and differs from the double materiality approach required under the EU's CSRD.
Voluntary or Mandatory? The Current Regulatory Landscape
The CSA Pause
On 23 April 2025, the Canadian Securities Administrators (CSA) announced a pause on mandatory climate-related and diversity-related disclosure requirements. The CSA cited uncertainty in the global regulatory environment — including developments at the U.S. SEC and changes to the EU's CSRD — as reasons for delaying mandatory rulemaking.
This means that, as of April 2026, CSDS 1 and CSDS 2 remain voluntary.
Why Companies Are Adopting Anyway
Despite the pause on mandatory rules, there are strong reasons for Canadian companies to adopt CSDS voluntarily:
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Existing securities law obligations. Provincial securities regulators still require disclosure of material risks, including ESG-related risks, under existing continuous disclosure rules. Companies must disclose material climate risks in their MD&A and AIF regardless of CSDS adoption.
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Investor expectations. Institutional investors increasingly expect climate-related disclosures aligned with international standards. Voluntary CSDS adoption signals governance maturity and transparency.
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Supply chain pressure. Companies selling into the EU, UK, Australia, or Singapore may face climate disclosure requirements from customers or regulatory frameworks in those jurisdictions.
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First-mover advantage. When mandatory rules eventually arrive, companies with established reporting processes will have a significant head start over those scrambling to comply.
Path to Mandatory Requirements
Canada's provincial and territorial regulators and legislators will determine whether CSDS 1 and CSDS 2 should be mandated, and over what scope and timeline. The CSA pause is not a cancellation — it is a deferral while the global landscape stabilises. Most observers expect mandatory requirements to follow once there is greater international alignment.
Key Provisions and Canadian Reliefs
The CSSB included several transitional accommodations to ease adoption:
Climate-Only Disclosure for the First Two Years
Entities adopting CSDS are permitted to disclose information on climate-related risks and opportunities only in their first two annual reporting periods. This means:
- 2025 and 2026 fiscal year reports can focus exclusively on climate (CSDS 2), without requiring broader sustainability disclosures under CSDS 1.
- From the 2027 fiscal year report onwards, full CSDS 1 disclosures covering all material sustainability topics are expected.
Scope 3 Emissions: Deferred Until 2027
Entities are not required to disclose Scope 3 greenhouse gas emissions until annual reporting periods beginning on or after 1 January 2027. This gives companies time to build value chain emissions measurement capabilities.
Other Canadian Modifications
- Proportionality considerations for smaller entities
- Transition relief for comparative information in the first reporting period
- Alignment with Canadian legal and regulatory context, including references to provincial securities requirements
How to Conduct a Materiality Assessment Under CSDS
Both CSDS 1 and CSDS 2 require a materiality assessment to determine which sustainability-related risks and opportunities warrant disclosure. The approach follows the ISSB's financial materiality framework.
The Assessment Process
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Identify sustainability-related risks and opportunities. Consider your business context, industry dynamics, value chain dependencies, and the broader ESG landscape. For the first two years under the climate-only relief, focus on climate-related matters. From 2027, broaden to all sustainability topics.
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Evaluate financial materiality. For each identified matter, assess whether it could reasonably be expected to influence the decisions of investors, lenders, and creditors. Consider effects on cash flows, financial position, access to finance, and cost of capital over short, medium, and long-term horizons.
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Apply entity-specific judgment. CSDS does not prescribe quantitative thresholds. Materiality depends on the nature and magnitude of the effect in the context of your specific business. Both quantitative factors (potential dollar impact) and qualitative factors (strategic significance, regulatory exposure, reputational risk) should be considered.
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Document your reasoning. Even under voluntary adoption, a well-documented materiality assessment strengthens your disclosure and demonstrates rigour to investors and auditors.
Sector-Specific Considerations
Canada's economy has significant exposure in sectors with high climate materiality:
- Energy (oil & gas): Transition risks from carbon pricing, stranded asset risk, regulatory changes, and shifting energy demand. Physical risks from extreme weather affecting infrastructure.
- Mining and resources: Water stress, tailings management, community relations, and transition risks as downstream industries decarbonise.
- Financial services: Climate-related credit risk, insurance liabilities, portfolio emissions, and financed emissions disclosure.
- Agriculture and forestry: Physical climate risks (drought, wildfires, changing growing seasons), land use changes, and supply chain vulnerabilities.
- Real estate: Physical risks to property portfolios, energy efficiency requirements, and transition risks from building performance standards.
For a comprehensive overview of ISSB industry-based metrics across all sectors, see our SASB sector guide.
Getting Started: Practical Steps
For Companies Considering Voluntary Adoption
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Assess your existing disclosures. Review your current MD&A, AIF, and any voluntary sustainability reports. Identify where you already address climate or sustainability risks and where gaps exist relative to CSDS requirements.
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Leverage your TCFD foundation. If you have been reporting under TCFD, you already have a framework for climate governance, strategy, risk management, and metrics. CSDS builds on this same structure with more specific requirements.
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Start with climate. Take advantage of the two-year climate-only relief. Focus your first CSDS disclosure on climate-related risks and opportunities under CSDS 2, then expand to broader sustainability topics.
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Run a structured materiality assessment. A systematic, documented assessment process is the foundation of credible CSDS reporting. It determines what you disclose and provides the evidence base for your judgments.
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Build Scope 3 readiness. Even though Scope 3 is deferred until 2027, value chain emissions data takes time to collect. Begin engaging with suppliers and mapping your emissions hotspots now.
For Consulting Firms Building CSDS Practices
The voluntary adoption period creates an opportunity to build expertise and client relationships before mandatory rules arrive. Firms that can offer structured, scalable CSDS assessment services will be well-positioned when the CSA eventually mandates reporting.
How Materiality Master Can Help
Materiality Master provides a structured, step-by-step workflow for conducting ISSB-aligned materiality assessments — directly applicable to CSDS 1 and CSDS 2. The platform guides you through identifying climate and sustainability risks, evaluating financial materiality, and documenting your assessment in a format suitable for disclosure and audit.
For advisory firms serving multiple clients across Canada's diverse sectors, the multi-client dashboard enables consistent delivery at scale. Learn more about CSDS materiality assessments or see pricing and plans.
Frequently Asked Questions
Is CSDS reporting mandatory in Canada?
Not yet. CSDS 1 and CSDS 2 are effective from 1 January 2025 on a voluntary basis. The CSA paused mandatory rulemaking in April 2025. However, existing securities rules still require disclosure of material ESG risks, and mandatory CSDS adoption is widely expected once global regulatory alignment improves.
How does CSDS relate to the U.S. SEC climate rule?
The SEC's climate disclosure rule has faced legal challenges and delays in the U.S. Canada's CSSB chose to align with the ISSB framework rather than the SEC approach. CSDS and the SEC rule share some common ground (both are rooted in financial materiality), but they are separate frameworks. Canadian companies listed on U.S. exchanges may need to monitor both.
Can I report under CSDS and ESRS simultaneously?
Yes, but the materiality approaches differ. CSDS uses financial materiality (how sustainability matters affect the company), while the EU's ESRS requires double materiality (also how the company affects the environment and society). Companies with both Canadian and EU reporting obligations will need to manage two parallel assessments. For a detailed comparison, see our ISSB vs. ESRS analysis.
What is the climate-only relief period?
Companies adopting CSDS can focus exclusively on climate-related disclosures (CSDS 2) in their first two reporting periods. This means reports covering the 2025 and 2026 fiscal years can omit broader sustainability topics that would otherwise fall under CSDS 1. From the 2027 fiscal year, full CSDS 1 disclosures are expected.
