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EU sustainability reporting requirements a wake up call for Canadian firms, policy makers: ISF Briefing Note

March 26, 2024

The impact of tough new standards for sustainability disclosures in Europe will reverberate across the Atlantic and be felt by Canadian firms with access to European Union (EU) capital markets, or significant operations in EU countries.

Based on current reporting practices and given Canada’s lack of a robust sustainable finance framework, Canadian firms could have a significant challenge in meeting these disclosure requirements. This will add compliance costs on Canadian firms and even create additional barriers for them to attract foreign capital from the EU and other sustainability-conscious markets.

ISF’s latest Briefing Note for decision-makers in finance, business and government takes a closer look at which Canadian companies and sectors of the economy are most impacted by the newly enforced Corporate Sustainability Reporting Directive (CSRD) and the accompanying European Sustainability Reporting Standards (ESRS) in the EU. The authors also draw implications for Canada’s sustainable finance policy design, specifically, Canada’s forthcoming green and transition finance taxonomy. To download the report, click here.

“The EU’s CSRD is a wake-up call to Canadian companies who are lagging on sustainability disclosures. The compliance pressure felt by the finance sector in Canada will be passed on to the companies they lend to and invest in,” said Ryan Riordan, ISF’s Director of Research. 

The Briefing Note offers the following key takeaways:

  • An estimated 1,311 Canadian companies could potentially fall under the CSRD scope, with the Materials sector (of which 94% are from the Metals & Mining industry) topping the chart based on the number of companies being impacted.
  • However, measuring the impact by revenue size (instead of the number of distinct corporate entities), the financial sector could potentially be the most impacted. Importantly, financial sector reporting largely depends on the information being disclosed by their borrowers which can have a significant downstream effect on the real economy.
  • Despite alignment with familiar disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures (TCFD), Canadian companies might still fall short of the ESRS, particularly due to its inclusion of impact materiality on top of the financial materiality assessment (“double materiality” approach).
  • ISF research highlights that only 37% of Canadian companies in the S&P/TSX index, based on their sustainability reports published in 2022, had their emissions verified by a third party. Compared to the CSRD/ESRS requirements for assurance over the full sustainability report (which contains a large number of key performance indicators in addition to emissions), a significant amount of work has to be done by Canadian companies in scope to catch up with the CSRD/ESRS requirements on the assurance front.
  • As part of the EU sustainable finance framework, the EU Taxonomy unifies the definition of “sustainable activities” for using such language in sustainability disclosures by companies that are subject to the CSRD.
  • Therefore, Canadian companies are not only facing additional compliance pressure from the CSRD and any other sustainability regulations where Canadian companies operate, but also losing the opportunity to attract foreign capital without Canada mandating a globally interoperable taxonomy and a standardized sustainability disclosure rule in Canada.
  • The requirements under ESRS are substantial and in some cases will require gathering information across several departments located in multiple countries. This can create issues, especially when done at the consolidated global level, for companies that do not already have the capacity or systems in place to meet this need.
  • Non-compliance with CSRD can result in direct penalties and additional costs such as reputational damage and financial repercussions. Companies failing to adhere to sustainability reporting regulations risk losing investor confidence, potentially reducing access to capital.

The authors conclude that a significant step that policy makers can take to prepare Canadian firms would be to adopt a green and transition taxonomy such as the one currently proposed by the Sustainable Finance Action Council.

“For Canadian companies to stay attractive to capital providers who want to invest in Canada’s net-zero future, Canada needs to have a globally interoperable green and transition taxonomy in place. It helps tackle green and transition washing while scaling up sustainable investments domestically and internationally,” said Yingzhi Tang, ISF Senior Research Associate.

Regarding capital mobilization in global capital markets, a comparable and interoperable Canadian taxonomy can lower transaction and compliance costs, while increasing investor confidence across borders. It is important for Canadian green and transition taxonomies to be interoperable with leading international science-based taxonomies, such as the EU Taxonomy, to instill market confidence and reduce costs for issuers and investors.  

Any delays in formulating a credible and science-based taxonomy accompanied by necessary disclosure standards or regulations will put Canadian companies at risk of being unprepared and disadvantaged amidst the inevitable, low-carbon transition happening around the globe.  

About the Institute for Sustainable Finance

ISF was launched in 2019 as a Canadian-specific centre of expertise and collaboration for advancing sustainable finance. Housed at Smith School of Business at Queen’s University, ISF is independent and non-partisan. It focuses on developing research, education, and collaborations among academia, business and government that will improve Canada’s capacity for sustainable finance as the shift to a low-carbon economy occurs. ISF’s work is generously supported by Ivey Foundation (inaugural supporter), McConnell Foundation, McCall MacBain Foundation, Chisholm Thomson Family Foundation, Smith School of Business, Queen’s University and Founding Contributors BMO, CIBC, RBC, Scotiabank and TD Bank Group. For more information, visit


David Watson  

Associate Director, Communications