The Institute for Sustainable Finance (ISF) has issued a warning that corporate sustainability reporting standards introduced by the European Union (EU) could have significant implications for more than 1,300 Canadian companies.
In their report titled “EU sustainability reporting requirements: Implications for Canadian business and policy makers,” the ISF, based at Queen’s University, examined how the EU’s Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS) will affect Canadian businesses operating in Europe.
According to Ryan Riordan, the director of research at the ISF and co-author of the report, Canadian companies, particularly those in the materials sector, are significantly behind in corporate sustainability reporting compared to their European counterparts. The lack of mandatory reporting requirements in Canada contrasts sharply with the EU’s stringent regulations, which mandate disclosure of environmental information such as carbon emissions, electricity use, and corporate governance.
The ISF’s analysis found that 1,311 Canadian companies would be impacted by the CSRD, with the materials sector being the most affected, followed by financial and energy sectors. While larger companies may adapt to the regulations relatively easily, smaller enterprises could face financial strain, potentially leading to tough decisions such as exiting the EU market.
Riordan emphasized the urgency for Canadian companies to adapt to sustainability reporting requirements to avoid fines or loss of access to European markets. He urged companies to begin sustainability disclosures immediately, as regulations in this area are expected to become increasingly stringent globally.
Moreover, the report highlights the need for Canada to develop its own sustainable finance taxonomy to define green finance activities. Without such standards, Canadian companies may struggle to attract foreign investment from markets with high sustainability standards.
The ISF’s warning underscores the growing importance of sustainability reporting in the global business landscape and the need for Canadian companies to align with international standards to remain competitive in an increasingly environmentally conscious market.