Great Expectations? What’s in Store for 2022 in the ESG and Climate Reporting Landscape

By Alan Willis, FCPA, FCA

2021 was a remarkable year in the evolution of corporate reporting - one of unprecedented convergence and advances in sustainability-related reporting frameworks and standards that was unimaginable two years ago. The momentum of this appears to be unrelenting as we head into 2022: new announcements in this space will demand our close attention throughout the year. Great expectations are being raised, but will they be fulfilled? 

International Sustainability Standards Board Start-Up

First, the headline story has to be the establishment of the International Sustainability Standards Board (ISSB) by the International Financial Reporting Standards Foundation Trustees (IFRS) at COP 26 in November.[1] Working alongside the IASB, it will focus on standards for a company to report, primarily to investors, how sustainability (a.k.a. ESG) factors affect its financial performance and future prospects. Its No. 1 priority is the release in 2022 of an exposure draft for a standard, based on the TCFD recommendations and subsequent prototypes, for climate-related financial disclosures. 

When finalized later in 2022 or early in 2023, following the due process public comment period, the standard will, like IFRS, need to be adopted by the various jurisdictions around the world that regulate company reporting – a step that IOSCO has been strongly encouraging. Like IFRS, any standards released by the ISSB will become mandatory only when adopted and made mandatory in a given jurisdiction. Whether the EU and the SEC will also take such a step remains to be seen, in view of their current respective plans and initiatives to mandate enhanced ESG and sustainability reporting.

The ISSB is still in start-up mode, having just appointed its chair and first vice-chair. Recruiting is in progress for the remaining twelve members, to be appointed in Q1 of 2022. The Value Reporting Foundation (VRF), formed in 2021 by the merger of SASB with the IIRC, and about to be consolidated into the ISSB, is likely to be a major source of input to the ISSB’s work. The VRF’s CEO, Janine Guillot, has been appointed as Special Advisor to the ISSB Chair. The ISSB’s main office is to be located in Frankfurt, Germany, with a further office to be located in Montreal, Canada. The latter location was no doubt influenced by the submission of an unprecedented letter from Canada’s Deputy Prime Minister in mid-2021 on behalf of a formidable coalition of business, financial, institutional, government and investor organizations convened by CPA Canada under the banner of “Canadian Champions for Global Sustainability Standards.” Additional offices for the ISSB are expected to be announced in due course. 

A Sustainability Standards Board for Canada?

Meanwhile, back in Canada, the Independent Review Committee on Standard Setting in Canada, established in May, 2021 and chaired by Ed Waitzer, released a consultation paper in December 2021, much of which focused on exploring the need for a Sustainability Standards Board in Canada (a CSSB).[2] Its role would be to adapt as necessary the standards issued by the ISSB, to ensure their appropriateness in a Canadian context. It would work alongside Canada’s existing Accounting Standards Board (AcSB), Public Sector Accounting Board (PSAB) and Auditing and Assurance Standards Board (AASB). Its mandate, should it be established, would largely mirror that of the ISSB, namely to develop and issue standards for companies to disclose primarily for the benefit of investors information alongside its financial statements about how sustainability (a.k.a. ESG) factors affect its financial performance and future prospects. 

The consultation paper does not discuss how CSSB standards might become mandatory for Canadian companies, or align with existing or future Canadian securities regulators’ (CSA) MD&A and AIF disclosure requirements regarding business, risk, financial, environmental, social and governance matters. Comments on the consultation paper are to be received by March 31, 2022, and the Committee’s final report is expected later in 2022.

Meanwhile, CPA Canada has created a new position, VP Sustainability Standards, perhaps in anticipation of a future CSSB, and the need to interface effectively with the work of the ISSB, especially after the latter’s Montreal office opens later this year. Lisa French was appointed to this new position in December 2021. Until then, Lisa was the technical lead for the International Integrated Reporting Council, before which she worked with the Global Reporting Initiative on sustainability reporting, and was on CPA Canada’s external reporting Research Guidance and Support team for several years. Sustainability reporting standards and reporting are now very much on CPA Canada’s radar!

Canadian Securities Administrators Proposals for Climate Disclosures

Another development to monitor this year is the progress of the CSA’s proposed National Instrument 51-107, Disclosure of Climate Related Matters, released in October 2021, with comments due by February 16, 2022.[3] Earlier CSA guidance, various reports about securities regulation and capital markets, institutional investor pressure and broad global as well as domestic concerns about climate change disclosures led to the development of the proposed National Instrument. It is closely modelled on the TCFD Recommendations but differs from them in some key respects. For example, scenario analysis is not called for and, if a company chooses not to disclose its Scope 1,2 and 3 GHG emissions, it must disclose the reasons for that decision. An alternative approach is also suggested for comment, namely to disclose only Scope 1 GHG emissions. 

An effective date for the proposed instrument has not been set, and a phased in transition timetable is suggested for venture issuers and non-venture (TSX listed) issuers. Fiscal year 2024, and quite possibly later, appears to be the earliest for which the proposed disclosures would be required from non-venture issuers. There is no mention of the climate-related financial disclosure standard that is expected from the ISSB and how soon, with IOSCO encouragement, that might be adopted in Canada by, say, a future Canadian Sustainability Standards Board and/or the CSA.

It is noteworthy that the Prime Minister’s post-election Mandate letter to Deputy Prime Minister and Minister of Finance Freeland includes the following paragraph:

“Supported by the Minister of Environment and Climate Change, work with provinces and territories to move toward mandatory climate-related financial disclosures based on the Task Force on Climate-related Financial Disclosures framework and require federally regulated institutions, including financial institutions, pension funds and government agencies, to issue climate-related financial disclosures and net-zero plans.”

This is clearly significant for federally regulated financial institutions. Even though the federal Minister has no jurisdiction over provincial securities regulators, this may strengthen the post COP 26 message to them that climate related financial disclosures are a priority issue that supports other net zero initiatives affecting all types of enterprises, governments and institutions.


One other space to watch while awaiting the outcome of the CSA’s proposal process is what is happening south of the US border.  As reported in earlier blogs last year,[4] the SEC is in the process of developing proposed new rules regarding first, with urgency, climate-related financial disclosures (also likely to build on the TCFD recommendations), to be followed later by rules for disclosures about broader ESG factors, such as those covered in the SASB (now VRF) standards that may have material implications for financial reporting and 10Ks. The proposed new rule for climate-related disclosures had earlier been expected to be released before the end of 2021, but will no doubt be forthcoming before long. 

The extent of intentional alignment of this new rule with the future ISSB standard for climate-related financial disclosures is unknown, though IOSCO would doubtless encourage this. Inter-listed Canadian issuers too will be interested to see what alignment there is between the future CSA disclosure instrument and forthcoming SEC rule. But SEC Commissioners have made it clear that they are expecting companies soon to be far more transparent and specific to investors about their GHG emissions and their plans to reach net zero targets and pledges. Further, of special importance to accounting professionals, the SEC recognizes the importance of internal controls over climate and ESG reporting in the same sense that it calls for internal controls over financial reporting (ICFR).[5]

Sustainability Reporting and the GRI: Toward A Two-Pillar Reporting Landscape

A fourth important aspect of the evolving reporting landscape to watch in 2022 is not only progress on the above-described standards and rules to ensure more consistent, decision-useful information for investors about the financial implications for a company arising from climate change and other ESG factors, but also continuing development and company uptake of standards for reporting on entity-level sustainability issues, i.e., a company’s impacts on the environment, economy and people that are of concern to a broad swathe of stakeholders and to the global “village” of human kind. The GRI standards have been constantly evolving since their launch in 2000 and are now followed by the vast majority of large companies worldwide in preparing their sustainability reports. 

In my summer 2019 article for ThinkTWENTY20, I proposed there should be two distinct but related corporate reporting packages (“bundles” I called them) outside financial statements: one for investors and one for stakeholders in general, and I suggested how these should be structured, developed and governed.[6] Over the last two years, there has been, understandably, enormous attention to the need for investor-facing reporting standards and the need to simplify the alphabet soup of related reporting frameworks and standards. Indeed, the GRI itself has been an active player in several collaborative initiatives in this regard. 

I was, therefore, delighted and reassured to see that, in January 2022, the GRI (and its recently appointed new CEO, Eelco van der Enden) reaffirmed its commitment to a two-pillar reporting landscape for financial and core sustainability reporting.[7] “Pillar 1 –  addressing financial considerations through a strengthened financial report which includes sustainability disclosures in the context of enterprise value” (the focus of the ISSB), and “Pillar 2  –  concentrating on sustainability reporting focusing on all external impacts a company is having on society and the environment” (the focus of the GRI), which thereby shows its contributions (positive or negative) to sustainable development, the UN SDGs and the possibility for future generations to thrive on a livable planet. 

I believe it is critically important that the proponents for, and participants in, the work of both these pillars understand and respect the vital need for both types of reporting and collaborate, whenever the need arises, to promote sustainable business hand-in-hand with sustainable finance. Interestingly, the work currently underway in the EU to implement its Corporate Sustainability Reporting Directive (CSRD) could result in a de facto merging of the two pillars![8]

I have great expectations that, so long as capital markets continue to function as a major source of finance for doing business, a two-pillar reporting landscape, such as that described above, will become generally accepted worldwide, to supplement financial statements in corporate reporting to all stakeholders. Reporting under Pillar 1, especially regarding climate change, will likely become universally mandatory. How soon will Pillar 2 reporting also become mandatory? That will take rather longer, but the EU’s CSRD could show the way. Watch and see!