Foundational Knowledge

Sustainability is meeting the needs of the present without compromising the ability of future generations to meet their own needs, as defined by the United Nations.

From a business perspective, sustainability encompasses three main pillars, often referred to as the triple bottom line: profit (economic), people (social) and planet (environmental).

Sustainability in business aims to create long-term shareholder value, as well as value for people and the planet.

While the terms "sustainability" and "ESG" (Environmental, Social and Governance) are related and often used interchangeably, they are not the same.

Sustainability is a broad, multi-dimensional concept that encompasses long-term shareholder value, and value for people and planet.

ESG, however, represents a specific subset of the broader concept of sustainability. ESG focuses specifically on measurable criteria in three key areas (environmental, social and governance) that are widely accepted as being material in assessing an organization’s value from a sustainability perspective.

For example, local community engagement would pertain to the sustainability dimension of people. While local community engagement has a social aspect to it, it may not fit nicely into a business’ ESG framework if it doesn’t directly relate to the company’s operational social metrics such as labour practices or product responsibility.

In summary, sustainability is a broader concept, while ESG is a more focused, often measurable, set of criteria that fall under the umbrella of sustainability.

Sustainability has gained prominence in the business community due to many factors, including consumer demand for products and services that are environmentally and socially responsible, investor demand for sustainable business practices, and new regulatory measures.

By embracing sustainability, businesses can create long-term value for their company, as well as people and planet.

For a more in-depth understanding, read our article, Why Businesses Can’t Ignore Sustainability.

Investors and other stakeholders are realizing the real business risks and opportunities that sustainability can have on an entity’s value. Companies are being evaluated not just on their financial performance but on their sustainability performance as well.

For example, banks have started to incorporate sustainability-related factors into their lending decisions. The increased focus on sustainability-related matters has, in turn, created an increased demand for sustainability reporting and the incorporation of this information into their decision-making processes.

Though many companies voluntarily disclose a broad range of sustainability-related information, an increasing number of companies are reporting on sustainability matters using certain sustainability frameworks integrated with a company’s continuous disclosure requirements on financial information. This trend is further supported by the growing demand from regulators for more transparency and accountability.

There are different sustainability reporting frameworks across the globe.  However, there are only a few standards that have received broad market support and acceptance, which include:

• International Financial Reporting Standards (IFRS) Sustainability Standards (IFRS S1 & IFRS S2) by the International Sustainability Standards Board (ISSB)
• European Sustainability Reporting Standards (ESRS)
• Global Reporting Initiative (GRI) Standards

When the ISSB was formed in November 2021, it consolidated the work of:

• Sustainability Accounting Standards Board Sustainability Standards
• Taskforce on Climate-related Financial Disclosures (TCFD)
• Climate Disclosure Standards Board Framework
• Carbon Disclosure Project Standards

In July 2023 the work of the TCFD was transferred to the ISSB. For more information refer to our Spotlight: International Sustainability Standards Board (ISSB).

One of the core objectives of the ISSB is to create a global baseline for sustainability reporting through the consolidation of some of the other widely accepted sustainability reporting frameworks.

For more information, refer to our At a Glance: Sustainability Reporting Standards and Sustainability Reporting Regulations and check out our Sustainability Reporting Standards page.  

Determining what to disclose in a sustainability report is a nuanced process that often begins with a “materiality assessment.” This assessment helps to identify the information to be disclosed. Information is considered material if omitting, misstating, or obscuring that information could be expected to influence decisions of the users.

A materiality assessment is a systematic process used to identify and prioritize the sustainability-related topics that are most significant to an organization and its stakeholders. The assessment serves as a foundational step in sustainability reporting, guiding what topics should be disclosed. A materiality assessment often involves engagement with various stakeholders such as investors, employees, customers, regulators and affected communities. It can also involve reviewing industry benchmarks, competitor disclosures and consideration of any relevant legal and regulatory requirements. A materiality assessment not only informs sustainability reporting, but it can also help an organization’s strategic planning and risk management.

For more information, read our article on performing a materiality assessment.

Double materiality is a concept in sustainability reporting that considers "financial materiality" and "impact materiality."

Financial materiality refers to how sustainability risks and opportunities affect the financial position, financial performance and cash flows of an organization.

Impact materiality, on the other hand, considers how an organization’s activities and operations impact society and the environment.

Double materiality thus integrates these two perspectives to form a holistic view of an organization’s sustainability footprint. This dual approach to materiality is increasingly recognized as essential for comprehensive sustainability reporting and is aligned with evolving regulatory frameworks. Currently, double materiality is required under the Corporate Sustainability Reporting Directive (CSRD) for companies with operations in the European Union.

A value-chain encompasses a broad range of activities that go into creating a product or service from design to delivery, consumption and end-of-life management.

Sustainability disclosure frameworks require value chain disclosure. A value-chain disclosure is information about an organization’s sustainability risks, opportunities and impacts across its entire value chain, from raw material sourcing to production, distribution and end-of-life management.

Value-chain disclosures aim to capture a broader range of information across the entire value chain of which the organization is a part. This includes risks, opportunities and impacts associated with suppliers, manufacturers, distributors and end consumers.

This is different than traditional corporate reporting which focuses solely on an organization’s direct operations.

Yes. Although the terms are often used interchangeably there is a distinct difference between the two. A supply chain refers to the sequence of activities and stakeholders involved in the production and distribution of a good or service, from raw material sourcing to manufacturing and delivery to the end consumer. Its focus is on the logistical aspects of getting a product or service to its ultimate market. In contrast, a value chain, as the name suggests, aims to capture the total value creation process of a good or service.

Value chain encompasses a broader range of activities and impacts, including the supply chain and other functions like design, marketing, after-sales service and end-of-life management.

Scope 1 emissions are direct greenhouse gas emissions generated from sources owned or controlled by the entity, such as emissions from the entity’s facilities and vehicles.

Scopes 2 and 3 are indirect greenhouse gas emissions. Scope 2 emissions arise from the generation of purchased electricity, heat or steam used by the entity, and physically occur at the facility where electricity is generated. Scope 3 emissions, on the other hand, are produced in the entity’s value chain, including both upstream emissions such as the emissions from the supplied goods or service, and downstream emissions such as emissions from the use of a product produced by the entity.

Emissions along the value chain (Scope 3 emissions) often represent an entity’s biggest greenhouse gas impact. 

A taxonomy is a system of classification. It involves creating a hierarchy of information based on characteristics of the subjects. For example, a taxonomy framework for music could be organized by genre, year, record label and artist. A taxonomy improves data management and searchability. 

In sustainability, there are sustainable finance taxonomies (green and transition), as well as sustainability reporting taxonomies. These taxonomies classify and label sustainability-related information, so investors can compare and analyze investments from a sustainability lens. For example, green taxonomies define which economic activities and assets are environmentally sustainable. Transition taxonomies categorize businesses or projects that are making progress in the transition to a low-carbon economy and reducing greenhouse gas emissions.

Sustainability reporting and financial reporting differ fundamentally in their scope, focus and temporal orientation. Financial reporting is generally backward-looking, concentrating on historical financial data, such as financial performance, financial position and cash flows over a specified historical period. Sustainability reporting, in contrast, not only provides information about the organization’s sustainability-related activities in the current financial reporting period, but also will often include forward-looking information about future sustainability-related risks, opportunities, impacts and future targets.

Sustainability encompasses a broader range of sustainability-related matters, which could span environmental, social and governance matters and more.

Integrated reporting is an advanced approach to corporate reporting that combines financial and sustainability information into a comprehensive set of disclosures. Unlike traditional financial reporting which generally is backward-looking and focuses on historical financial data, or sustainability reporting which focuses on both current and forward-looking non-financial data, integrated reporting aims to provide a more comprehensive view of an organization’s performance, strategy and prospects. It considers a range of factors including both financial and non-financial factors to give stakeholders a fuller picture of how an organization creates value over the short, medium and long term.

Integrated reporting is guided by frameworks such as International Integrated Reporting Council (IIRC)’s Integrated Reporting Framework, which has been consolidated into the International Sustainability Standards Board (ISSB) and is designed to meet the needs of a broad range of stakeholders ranging from investors to employees to regulators.

There are a few reporting standards on sustainability. 

The IFRS Sustainability Standards issued by the International Sustainability Standards Board (ISSB). They are anchored to a financial materiality perspective. The Global Reporting Initiative (GRI) Sustainability Standards issued by the Global Reporting Initiative. The GRI standards are anchored to an impact materiality perspective.

The European Sustainability Reporting Standards (ESRS) issued by the European Financial Reporting Advisory Group (EFRAG). The ESRS are anchored to a double materiality point of view (both financial and impact materiality).

In Canada, the Canadian Sustainability Standards Board (CSSB) issued two Canadian Sustainability Disclosure Standards (CSDS) for comment. The comment period is open until June 10, 2024. The CSDS are based on the IFRS Sustainability Standards. The proposed effective date for the CSDS are for annual reporting periods beginning on or after January 1, 2025.

Like the IFRS Sustainability Standards, the CSDS are anchored to a financial materiality perspective.

The ISSB was established in 2021 by the International Financial Reporting Standards (IFRS) Foundation and is a sister board to the International Accounting Standards Board (IASB).

Its main objectives are:

• To develop standards for a global baseline of sustainability disclosures to meet the information needs of investors.
• To enable companies to provide comprehensive, decision-useful sustainability information to global capital markets.
• To deliver a common language of sustainability-related disclosures with the flexibility for regulators to add “building blocks” to meet local and multi-stakeholder information needs.

Issued by the International Sustainability Standards Board (ISSB) on June 26, 2023, IFRS (International Financial Reporting Standards) S1 and IFRS S2 are the first two IFRS Sustainability Disclosure Standards.  

IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information, covers the overall requirements for an entity to disclose material sustainability-related financial information about its significant sustainability-related risks and opportunities to meet investor information needs. 

IFRS S2, Climate-related Disclosures, covers requirements for an entity to disclose information about its exposure to significant climate-related risks and opportunities.  

These two standards are designed to be applied together and include reporting across four pillars: 

• Governance - the governance processes, controls and procedures used to monitor and manage significant sustainability-related risks and opportunities
• Strategy – the approach for addressing sustainability-related risks and opportunities
• Risk management – the processes used to identify, assess and manage sustainability related risks
• Metrics and targets – the metrics and targets used to measure, monitor and manage significant sustainability-related risks and opportunities over time

International Financial Reporting Standards (IFRS) S1 and IFRS S2 are effective for annual reporting periods beginning on or after January 1, 2024, with early application permitted if both standards are applied at the same time.  

However, there is a transitional relief, which allows an entity to disclose information on only climate-related risks and opportunities (in accordance with IFRS S2) in the first year of application of IFRS S1 and IFRS S2. The entity would be required to provide information about its other sustainability-related risks and opportunities in the second year.   

In addition, in the first year of reporting an entity does not need to: 

• provide comparative information
• provide annual sustainability-related disclosures at the same time as the related financial statements
• disclose Scope 3 greenhouse gas emissions
• use the Greenhouse Gas Protocol to measure emissions if they are using a different method 

The CSSB was created to advance the adoption of sustainability disclosure standards specifically for Canada. The CSSB develops Canadian Sustainability Disclosure Standards that align with the IFRS Sustainability Standards issued by the ISSB, but with modifications to serve the Canadian context.

No, not yet.

There are two regulators in Canada currently looking at sustainability-related disclosures. The first is the Canadian Securities Administrators (CSA), which regulates public companies in Canada, and the second is the Office of the Superintendent of Financial Institutions (OSFI), which regulates financial institutions in Canada.

While sustainability disclosures are not mandatory in Canada in accordance with a recognized sustainability reporting framework, publicly listed companies are required to disclose material information to users in accordance with NI 51-102 Continuous Disclosure Obligations.

This is expected to change. In October 2021, the CSA proposed National Instrument 51-107 (NI 51-107), Disclosure of Climate-related Matters to address the need for more consistent and comparable information for investors. With the release of the Canadian Sustainability Disclosure Standards (CSDS) by the Canadian Sustainability Standards Board (CSSB), which are based on the IFRS Sustainability Standards, the CSA signaled its intent to seek comment on a revised rule to NI 51-107 – Disclosure of Climate-related Matters once the CSDS are finalized. The CSA also stated that they may consider additional modifications considered appropriate for Canadian capital markets.

The Office of the Superintendent of Financial Institutions (OSFI) published its first climate-related regulation, Guideline B-15 – Climate Risk Management in March 2023, which is effective for fiscal year-end 2024 for Domestic Systemically Important Banks (D-SIBs) and Internationally Active Insurance Groups (IAIGs) headquartered in Canada; and for fiscal year-end 2025 for all other in-scope Federally Regulated Financial Institutions (FRFIs). OSFI has signaled its intent to align the disclosure requirements in B-15 with the IFRS Sustainability Standards. We expect OSFI will revisit B-15 once the CSDS are finalized.

For more information and updates, check out our Sustainability Reporting Regulations page.

No, not yet. 

Though the International Sustainability Standards Board (ISSB) has issued International Financial Reporting Standards (IFRS) S1 and S2, as a standard-setting board it does not have the authority to mandate entities to adopt and comply with the standards it publishes. Similarly, the Canadian equivalent standard setting body, the Canadian Sustainability Standards Board (CSSB) does not have the authority to mandate the use of the standards it issues.

The only bodies who have authority to require sustainability disclosure in Canada, including the selection of the sustainability reporting framework, are the securities regulator, the Canadian Securities Administrators (CSA) – for publicly listed companies – and other regulators such as the Office of the Superintendent of Financial Institutions (OSFI).

The use of the ISSB standards (IFRS S1 and IFRS S2) issued by the ISSB, or the Canadian Sustainability Disclosure Standards (CSDS) issued by the CSSB have not yet been mandated in Canada. 

The adoption of the ISSB standards (IFRS S1 and IFRS S2) have not yet been mandated in Canada.

However, that is expected to change. For more information and updates, search for our Sustainability Reporting Regulation page.

While sustainability disclosure is not yet mandatory in Canada, Canadian companies could be impacted by the regulatory requirements of other jurisdictions if they are listed there or to the extent that the company forms part of a value chain of regulated entities subject to mandatory sustainability reporting requirements. In the latter instance, Canadian companies could find themselves at the receiving end of requests for sustainability reporting.

In the US, the Securities and Exchange Commission (SEC) finalized their Climate Disclosure Rule in March 2024. Canadian companies which are listed in the US are likely to be caught by this Rule, unless the Canadian filer is filing through the Multijurisdictional Disclosure System (MJDS), for which there is an exemption.

The US State of California’s Climate Accountability Package would require US subsidiaries who meet total annual revenues of more than $500 million USD and do business in California (as defined in California’s existing tax code) to report in accordance with California law.

In the European Union, the European Sustainability Reporting Standards (ESRS) developed by the European Financial Reporting Advisory Group (EFRAG) were approved by the European Commission in October 2023, and received no objection from the European Parliament and Council, paving the way for the ESRS to be used in support for the Corporate Sustainability Reporting Directive (CSRD). The ESRS cover general disclosures and a range of specific topics including climate change, biodiversity and ecosystems, and workers in the value chain.  

For more information, refer to our At a Glance: Sustainability Reporting Standards and Sustainability Reporting Regulations and our Sustainability Reporting Regulations page. 

Furthermore, even if Canadian companies are not caught by the US SEC Rule, California’s Climate Accountability Package or the EU’s CSRD, all of these reporting requirements include some degree of value chain disclosure. This means a Canadian company may still get caught by value-chain disclosures even if they may not be required to report sustainability information in accordance with the relevant laws and regulations. To the extent that the Canadian company forms part of a value chain where there is a company that is required to report sustainability information, Canadian companies could find themselves at the receiving end of requests for sustainability reporting from regulated entities within their value chain.  

For more information on value-chain disclosures, refer to our FAQ, What is a value chain disclosure?

There are currently no sustainability reporting standards specifically for public sector entities. The International Public Sector Accounting Standards Board (IPSASB) announced in December 2022 that it is beginning to explore scoping of three potential public sector sustainability reporting projects including:

• General Requirements for Disclosure of Sustainability-related Financial Information,
• Climate-related Disclosures, and
• Natural Resources – Non-Financial Disclosures

In June 2023, IPSASB announced that it is proceeding with the development of a public sector specific Climate-Related Disclosure standard.

From a Canadian perspective, the Canadian Public Sector Accounting Board (PSAB) is carefully monitoring the IPSASB’s work in this area.

There are currently no sustainability reporting standards specifically for not-for-profit entities and there are currently no plans to develop sustainability reporting standards specific to not-for-profits. Given the focus of not-for-profit entities, sustainability reporting standards that focus solely on financial materiality (e.g., the IFRS Sustainability Standards) may not be appropriate for a not-for-profit entity. However, sustainability reporting standards such the Global Reporting Initiative that focus on impact materiality, may be more appropriate.

Companies in Canada continue to show momentum on corporate reporting and related assurance involving environmental, social and governance (ESG) issues or sustainability information, according to a February 2023 report from the International Federation of Accountants (IFAC), American Institute of Certified Public Accountants (AICPA) and Chartered Institute of Management Accountants (CIMA). While the frequency of reporting ESG information is very high and the incidence of assurance is on an upward trend, there continues to be a meaningful difference between reporting and assurance rates.  

In 2021: 

• 98% of large Canadian companies reviewed reported some level of sustainability information (compared to 96% in 2020 and 94% in 2019)
• 61% of Canadian companies that report sustainability information provided some level of assurance on sustainability information (compared to 58% in 2020 and 45% in 2019)
• 61% of these assurance engagements were conducted by audit or audit-affiliated firms (compared to 67% in 2020 and 75% in 2019)
• 48% of these assurance engagements used International Standard on Assurance Engagements (ISAE) 3000 (compared to 60% in 2020 and 58% in 2019)
• 19% of these assurance engagements used ISAE 3410 (compared to 40% in 2020 and 33% in 2019)
• 35% of these assurance engagements used International Organization for Standardization (ISO) 14064 (compared to 27% in 2020 and 33% in 2019) 

Yes, even if your organization is not publicly listed or directly subject to sustainability reporting regulations, you may still be impacted by such requirements due to your position within the value chain of regulated entities. 

Organizations that are required to report on sustainability information often must extend their reporting to include “upstream” and “downstream” activities in their value chain, encompassing suppliers, distributors and other partners.  

As a result, non-public or unregulated organizations that are a part of these value chains may be asked by the regulated entity to provide data and information or adhere to certain sustainability standards to enable their sustainability reporting. Failure to meet the requirements of these regulated entities could jeopardize business relationships and even result in exclusion from value chains that prioritize sustainability. Therefore, even unregulated organizations have a vested interest in understanding and potentially participating in sustainability reporting.  

For more information on why all businesses, both large and small, should care about sustainability reporting, please refer to our article: Why Businesses Can’t Ignore Sustainability

No, there are currently no mandatory assurance requirements over sustainability or climate-related disclosures in Canada. Some companies, however, are obtaining independent assurance to help support the reliability of the information being provided to users.

Assurance requirements over sustainability-related information is on the radar of Canadian regulators, such as the Canadian Securities Administrators (CSA) and the Office of the Superintendent of Financial Institutions (OSFI).

In October 2021, the CSA proposed disclosure of climate-related information for reporting issuers with National Instrument 51-107 (NI 51-107), Disclosure of Climate-related Matters. Even though the proposal did not include any assurance requirements, it requested feedback as to whether any form of assurance on greenhouse gas emissions should be required. In light of the release of the Canadian Sustainability Disclosure Standards (CSDS) by the Canadian Sustainability Standards Board (CSSB), the CSA plans to seek comment on a revised regulation once the CSDS are finalized. It is unknown if there will be assurance required in the revised regulation.

In March 2023, OSFI published Guideline B-15 – Climate Risk Management that sets out expectations for the sound management of climate-related risks for federally regulated financial institutions. Guideline B-15 does not require independent external assurance at this time but notes that entities should work towards a future state when assurance will be expected.  

Assurance requirements over sustainability-related information are becoming mandatory across jurisdictions outside of Canada.

For example, in the United States, the Securities Exchange Commission (SEC)’s climate disclosure rule (Rule),  would require an accelerated filer or a large accelerated filer to include, in its relevant filing, an attestation report from a greenhouse gas emissions attestation provider covering,  the Scope 1 and Scope 2 emissions disclosures.

In the European Union, the European Sustainability Reporting Standards (ESRS) will be mandatory for use by companies that are obliged by the Corporate Sustainability Reporting Directive (CSRD) to report sustainability information. The CSRD includes an independent third-party assurance requirement over all mandatory reported sustainability information. Initially, companies will be required to obtain only limited assurance. The CSRD foresees moving to reasonable assurance after assessing whether reasonable assurance is feasible for auditors and for companies. The European Commission expects to adopt assurance standards for reasonable assurance no later than October 1, 2028. 

Assurance over sustainability information is currently commonly performed as an attestation engagement in accordance with Canadian Standard on Assurance Engagements (CSAE) 3000, Attestation Engagement other than Audits and Reviews of Historical Information. Under this standard, assurance can either be reasonable or limited assurance. CSAE 3410, Assurance Engagements on Greenhouse Gas (GHG) Statements, is used for assurance engagements to report on a company’s GHG statement.

The International Auditing and Assurance Standards Board (IASSB) has issued an exposure draft on the International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, for public consultation. Once finalized, ISSA 5000 will serve as a comprehensive, standalone standard for limited and reasonable sustainability assurance engagements and will apply to sustainability information reported across any sustainability topic and prepared under multiple frameworks. The exposure draft was open for comment until December 1, 2023. The Canadian Auditing and Assurance Standards Board (AASB) issued an equivalent, proposed Canadian Standard on Sustainability Assurance (CSSA) 5000 in September 2023. 

An engagement in accordance with Canadian Standard on Related Services (CSRS) 4400, Agreed-upon Procedures (AUP) Engagements, can be performed on sustainability information. In an AUP engagement, no assurance is provided. The practitioner agrees to the procedures to be performed with the engaging party (for example, management), performs the agreed-upon procedures, and communicates the procedures performed and the related findings, including exceptions when applicable, in their report.

A reasonable assurance engagement provides a high level of assurance that the sustainability information is free from material misstatement and in accordance with the applicable criteria.

A limited assurance engagement provides a lower level of assurance, but still enhances the users’ confidence on the sustainability information. Unlike the positive conclusion in a reasonable assurance engagement, in a limited assurance engagement, the practitioner expresses whether anything has come to the practitioner’s attention to cause them to believe that the sustainability information is not prepared or not fairly presented, in all material respects, in accordance with the applicable criteria.

Generally, the work effort and procedures in a reasonable assurance engagement are more extensive than in a limited assurance engagement with the latter mostly involving analytical procedures and inquiries.

Currently, there are no specific ethical standards for sustainability reporting and sustainability assurance. The CPA Code of Professional Conduct (“CPA Code”) applies to all CPAs regardless of what professional services they offer.  For example, CPAs providing sustainability assurance services would apply the fundamental principles and the existing independence rules for assurance engagements.

The International Ethics Standards Board for Accountants (“IESBA”) has issued two exposure drafts. One on the use of experts, and another is the Proposed International Standards for Sustainability Assurance (“IESSA”). The final standards are expected to be issued in December 2024.

Greenwashing usually refers to the intentional practice of publishing misleading sustainability information which often gives users a false impression about how well an organization, or an investment is doing in relation to its sustainability goals or regarding their products or services.

The fundamental principles are the guiding principles within the CPA Code of Professional Conduct (“CPA Code”). The fundamental principle of objectivity requires CPAs to remain objective and not be influenced by bias or others. The CPA Code also addresses issues around false and misleading information under Rule 205 which requires CPAs to not associate with false or misleading information.

Sustainability reporting is new, complex, subjective, and there are incentives for misrepresenting and misreporting data. These factors can create ethical risks for CPAs. Two common ones are:

• Association with false or misleading sustainability information
• Insufficient sustainability knowledge or expertise