Canada

Canadian sustainability standards: global alignment, local impact

The Canadian Sustainability Standards Board (CSSB) is at the forefront of advancing sustainability reporting in Canada. A milestone was marked on 18 December 2024 with the release of Canadian Sustainability Disclosure Standard (CSDS) 1 and CSDS 2, Canada’s first sustainability disclosure standards. These standards are based on the International Sustainability Standards Board’s (ISSB) standards, ensuring global consistency while incorporating modifications to address the Canadian public interest.

CSDS 1 provides general sustainability-related disclosure requirements while CSDS 2 focuses on climate-related disclosures, including reporting requirements for Scope 1, 2 and 3 greenhouse gas emissions. Recognising the need for practical implementation, the CSSB has introduced additional transition reliefs from the international standards to give preparers time to build capacity, ensuring high-quality, decision-useful disclosures.

The CSSB’s work does not stop there. It is now seeking public input on its proposed 2025-2028 Strategic Plan. This consultation provides an opportunity for businesses, investors and other interested parties to shape the CSSB’s future work plans. 

The proposed plan focuses on several key areas, including: 

• supporting the adoption of CSDS 1 and CSDS 2; 
• advancing the inclusion of Indigenous Peoples of Canada in sustainability standard setting; and 
• deepening engagement with regulators and international bodies to strengthen global interoperability. 

As sustainability disclosure regulations evolve worldwide, ensuring that Canada’s standards are internationally aligned while meeting domestic needs is a top priority.

Canada is at a pivotal moment in sustainability reporting. CSDS 1 and CSDS 2 will help Canadian companies streamline reporting, reduce fragmented information requests, and better identify and manage sustainability risks and opportunities. By aligning with global standards, these disclosures enhance transparency, reduce the cost of capital and strengthen Canada’s competitive position in international markets. 

The CSSB is committed to ensuring that Canadian organisations have a reporting framework that aligns with international standards while remaining practical and responsive to local requirements.

Find out more about the CSSB.

Bruce Marchand, Interim Chair, Canadian Sustainability Standards Board

New Zealand

Changes proposed to climate disclosures regime

Just a year after the introduction of mandatory reporting, changes have been proposed to New Zealand’s climate-related disclosures (CRD) regime for large, listed entities and financial institutions. The regime currently requires approximately 170 climate reporting entities (CREs) to prepare annual climate statements in accordance with standards issued by the External Reporting Board (XRB).

Despite reporting overall satisfaction with the first tranche of climate statements in its CRD insights report in December 2024, the Financial Markets Authority acknowledged challenges for some CREs in obtaining reliable data, incurring higher-than-expected costs, and deciding how to make disclosures in the absence of guidance on some topics.

The Ministry for Business, Innovation and Employment (MBIE) recently consulted on possible adjustments to the CRD regime. In response to the challenges, and the risk that the regime is encouraging entities to focus on compliance rather than positive climate action, MBIE is proposing to increase the thresholds for climate reporting as well as amend possible liabilities for CRE directors.

At a similar time, acknowledging the challenges encountered by CREs, the XRB extended the timeframe for adoption of certain elements of the climate standards. In addition, the XRB has decided to bring forward the differential reporting element of its post-implementation review of the climate standards (NZ CS).

The XRB’s differential climate-related reporting document notes the potential for differential reporting standards to be issued under section 19C of the Financial Reporting Act 2013. This would allow for new or amended climate standards for different classes of CREs. The XRB plans to consult on this potential use in 2025, with the intention of developing concrete proposals and publication of a consultation paper and exposure draft(s). The aim is to have differential reporting standards available by December 2025, permitting eligible CREs to adopt a differential standard for accounting periods that had commenced but not ended by that date.

The document illustrates a possible differential reporting model with three tiers: large, medium and small. Large entities, such as listed issuers, banks and insurers, would report in accordance with existing Aotearoa New Zealand Climate Standards (NZCS) or a modified form of NZ CS. Medium entities would have reduced disclosure requirements for cost-benefit proportionality reasons, while small entities would have further disclosure reductions if feedback indicates a need.

Karen McWilliams FCA, Sustainability and Business Reform Leader, Advocacy, Chartered Accountants Australia and New Zealand

Japan

IASB’s proposal on the equity method

In September 2024, the International Accounting Standards Board (IASB) issued the Exposure Draft Equity Method of Accounting IAS 28 Investments in Associates and Joint Ventures (ED) in response to stakeholders’ questions on how to apply the equity method. The IASB has focused on answering application questions rather than a fundamental review of the equity method. A fundamental review would have included assessing the appropriateness of a “one-line consolidation” method whereby transactions, such as the gains and losses from upstream and downstream transactions, are eliminated compared with a “measurement method” whereby transactions do not need to be eliminated.

The equity method is commonly used in Japan. Some entities have significant amounts of investments accounted for using the equity method on their balance sheets with significant amounts of their share of the profit or loss in associates and joint ventures recognised in the statement of profit or loss.

While the Japanese Institute of Certified Public Accountants (JICPA) supports the IASB’s decision to clarify certain requirements on the application of the equity method in accordance with IAS 28, particularly from an auditing perspective, we are concerned about the IASB’s approach of addressing individual aspects of the equity method without undertaking a fundamental review. We have noticed that some of the answers to application questions developed in the ED lack a clear rationale or a basis for the conclusion, which may cause diversity in practice. We highly recommend that the IASB provides further clarification to the following areas that the ED has not addressed:

• the accounting treatment for costs directly related to the acquisition of an investment in an associate, including transaction costs;
• the accounting treatment for equity-settled share-based payments and share warrants with associates;
• the accounting treatment for when additional funds are paid by an investor in relation to an already recognised liability for a constructive obligation; and
• the rationale for the order of recognising profits separately in profit or loss and other comprehensive income when an investor resumes recognising its share of the associate’s profit (after the investment is reduced to nil with unrecognised losses).

Furthermore, we strongly disagree with the proposed accounting treatment that requires an investor to recognise in full the gains and losses resulting from transactions with its associates and joint ventures. We think the proposal is inconsistent with the IASB’s approach not to perform a fundamental review of the equity method. We believe the proposal will not only significantly change the existing accounting treatment and result in unintended consequences for preparers and auditors. We also believe it may risk introducing opportunities for earnings management, whereby management uses judgement in financial reporting and structuring transactions to potentially mislead stakeholders or influencing contractual outcomes. 

We sincerely hope that the IASB will further consider the issues raised in the ED in light of the feedback it receives.

Takashi Matabe, Technical Director, IFRS Desk and JICPA research lab