Double Materiality Assessment
Canada

Double materiality assessment in Canada: Canadian Sustainability Disclosure Standards (CSDS 1, CSDS 2), issued by CSSB, based on ISSB

Canada's sustainability reporting framework is built on the Canadian Sustainability Disclosure Standards (CSDS 1 and CSDS 2), issued by the Canadian Sustainability Standards Board (CSSB) in March 2024. These standards are based on the ISSB's IFRS S1 and IFRS S2 with Canadian modifications. Like Australia, Canada follows a single materiality approach aligned with ISSB: entities assess whether sustainability matters could reasonably be expected to influence the decisions of primary users of financial reports. Double materiality as defined by ESRS 1.20-33 is not part of the Canadian framework. As of early 2026, adoption of CSDS 1 and CSDS 2 remains voluntary. The Canadian Securities Administrators (CSA), the umbrella body for provincial and territorial securities regulators, has not yet mandated sustainability reporting. The CSA published proposed National Instrument 51-107 (Disclosure of Climate-related Matters) in 2021, which would require climate-related disclosure for reporting issuers, but the instrument has not been finalised. In the interim, the CSSB standards provide a voluntary framework that entities can adopt. The Office of the Superintendent of Financial Institutions (OSFI) has issued Guideline B-15 (Climate Risk Management) requiring federally regulated financial institutions to disclose climate risks starting in 2024, creating a de facto mandate for the banking and insurance sectors. Canadian entities with EU operations or EU-listed securities face potential CSRD obligations and must assess whether double materiality applies for their European reporting. Given the fragmented Canadian regulatory position, these entities should plan for both frameworks.

Regulatory context: Canadian Securities Administrators (CSA) and Canadian Sustainability Standards Board (CSSB)

Securities regulation in Canada is a provincial competence, exercised through 13 provincial and territorial regulators coordinated by the CSA. This fragmented structure means that a mandatory sustainability reporting requirement must be adopted by each provincial regulator individually, which explains the slow pace of adoption compared to the EU or Australia. The CSA's 2021 proposed rule on climate disclosure received extensive comment and has been repeatedly delayed. OSFI's Guideline B-15 applies to federally regulated financial institutions (banks, insurance companies, trust companies) and requires disclosure of climate-related governance, strategy, risk management, and metrics. Guideline B-15 aligns with TCFD and ISSB frameworks. OSFI requires institutions to assess the materiality of climate risks to their financial position, using a financial materiality lens consistent with IFRS S1. For banks, this includes financed emissions and physical risk exposure in the lending portfolio. The CSSB continues to develop Canadian-specific application guidance for CSDS 1 and CSDS 2. The CSSB has adopted a "building block" approach, allowing provinces to mandate CSDS standards as they see fit. British Columbia, Quebec, and Ontario have expressed interest in mandatory adoption, but none has enacted legislation as of early 2026.

Practical guidance for Canada

Canadian entities voluntarily adopting CSDS should follow the materiality assessment methodology in CSDS 1 (mirroring IFRS S1 paragraphs 17-19). Identify sustainability-related risks and opportunities relevant to the entity's industry, geographic operations, and value chain. Assess whether each could reasonably affect the decisions of primary users. For climate-specific assessment under CSDS 2, apply scenario analysis covering physical and transition risks. For federally regulated financial institutions complying with OSFI Guideline B-15, the climate materiality assessment is not optional. Institutions must identify, assess, and disclose material climate risks. OSFI expects institutions to use climate scenarios (including a scenario consistent with net-zero by 2050) and to assess both physical and transition risk across lending, investment, and insurance portfolios. Canadian entities in the oil and gas sector face specific materiality considerations. The sector represents approximately 27% of Canada's total greenhouse gas emissions (Environment and Climate Change Canada, 2023 National Inventory Report). Transition risk is acute given global decarbonisation trends, while physical risk (permafrost degradation, wildfire, water scarcity) affects operational infrastructure. The federal government's emissions cap for the oil and gas sector, announced in 2023, creates direct financial materiality through regulatory compliance costs.

Audit expectations

The CSSB standards do not currently mandate assurance on sustainability disclosures. However, entities voluntarily adopting CSDS may choose to obtain assurance to strengthen credibility. CPA Canada has published guidance on sustainability assurance, aligning with ISAE 3000 (Revised) and anticipating ISSA 5000 adoption. OSFI's Guideline B-15 does not mandate external assurance on climate disclosures, but OSFI expects institutions' climate risk disclosures to be subject to internal governance and oversight equivalent to financial reporting. OSFI's supervisory review process includes examination of climate risk disclosures, and institutions should expect supervisory scrutiny of their materiality assessment process. For Canadian entities also subject to CSRD, assurance on the ESRS-format sustainability statement is mandatory. These entities must engage assurance providers capable of performing ESRS-based sustainability assurance, which may require engaging EU-based or EU-qualified practitioners.

Canada-specific considerations

Canada's federal-provincial regulatory divide creates complexity for entities operating across multiple provinces. Environmental regulations differ by province (Alberta's Technology Innovation and Emissions Reduction regulation, Quebec's cap-and-trade system, British Columbia's carbon tax), and the materiality of climate regulatory risk varies depending on where the entity operates. Canada's mining sector faces specific materiality challenges. Mining companies listed on the TSX or TSX-V with operations in developing countries must assess S2, S3, and E4 for their mine sites. The TSX requires compliance with National Instrument 43-101 for mineral project disclosure, and sustainability materiality increasingly intersects with mineral project risks. Indigenous rights and free, prior, and informed consent (FPIC) create specific S3 materiality for entities with operations on or near Indigenous lands. The federal government's Greenhouse Gas Pollution Pricing Act establishes a nationwide carbon price (C$80 per tonne in 2024, rising to C$170 by 2030). This creates quantifiable financial materiality for emitting entities and should be reflected in the climate materiality assessment using the entity's actual emissions and the projected carbon price trajectory.

Common inspection findings

OSFI's 2024 supervisory review of Guideline B-15 compliance found that several banks had disclosed climate governance structures without demonstrating that the board actually used climate risk information in decision-making.

The CSA's 2023 staff notice on climate disclosure observed that many Canadian reporting issuers disclosed climate risks in generic terms without entity-specific materiality assessment or quantified financial impacts.

OSFI identified that Canadian banks' financed emissions calculations lacked granularity, using sector-average emission factors rather than borrower-level data, and that the methodology for determining materiality of financed emissions was not documented.

CPA Canada's readiness survey found that fewer than 30% of Canadian audit firms had developed sustainability assurance capabilities, raising concerns about assurance capacity if CSDS reporting becomes mandatory.

The CSA observed that Canadian entities with dual-listed securities (TSX and EU markets) were not consistently preparing for CSRD's double materiality requirements, despite their EU listing triggering CSRD obligations.