Canada halts work on climate and DEI disclosures

Regulatory body blames ‘recent developments in the US and globally’

Canada’s capital markets regulator has announced it is halting its work on mandatory ESG disclosures.

The Canadian Securities Administrators (CSA), which comprises the country’s local and regional financial regulators, will shelve the introduction of new climate reporting requirements and pause efforts to update existing diversity-related rules.

It said in a statement on Wednesday the decision had been made “to support Canadian markets and issuers as they adapt to the recent developments in the US and globally”.

Within days of returning to office in January, US President Donald Trump began clamping down on diversity, equity and inclusion (DEI) initiatives across the public and private sector, claiming they are “illegal and immoral discrimination programmes”.

Hundreds of firms have removed references to their DEI efforts from annual reports, including Mastercard, Salesforce and Lego.

The US Securities and Exchange Commission has also ditched plans to introduce mandatory climate disclosures for listed companies.

In a similar move, the EU is expected to cut 80% of companies from the scope of its Corporate Sustainability Reporting Directive under a current review of the law.

India’s markets regulator SEBI was also reported to be rethinking its ESG disclosure requirements last week.

Echoing the rhetoric of European policymakers, the CSA cited “rising competitiveness concerns”, with local companies being burdened with disclosure obligations that peers in other jurisdictions don’t have to comply with.

U-turn

Last October, Canada’s finance minister Chrystia Freeland announced the development of “mandatory climate-related financial disclosures for large, federally incorporated private companies” as part of a commitment made in the government’s 2024 budget.

The changes were due to be introduced via a revision of the Canada Business Corporations Act.

At the time, the government said mandatory climate disclosures were needed “to attract more private capital into Canada’s largest corporations and ensure Canadian businesses can continue to effectively compete as the world races towards net-zero”.

But the CSA now says voluntary disclosures are sufficient for the time being, and should be based on guidelines published in December by Canada’s Sustainability Standards Board.

Existing financial regulation requires companies to disclose financially-material risks, including climate-related ones, it noted.

“With respect to diversity-related disclosure, non-venture issuers will continue to be required to provide disclosure regarding the representation of women on their boards and in executive officer positions based on the existing requirements under National Instrument 58-101 Disclosure of Corporate Governance Practices,” the regulator added.

The CSA will monitor developments in climate and DEI disclosure around the world, and “expects to revisit both projects in future years to finalise requirements for issuers” it said.

“Issuers will be provided with appropriate notice ahead of any changes to the status of these projects.”