ESG reporting is increasingly becoming integrated with financial reporting. Stay ahead of the curve with an overview of ESG reporting regulations, standards, and frameworks – attend Caren’s seminar on ESG reporting on Nov. 18.
Last year saw rapid progress toward sustainability reporting standards leading up to the finalization of the Canadian sustainability standards. It should come as no surprise, then, that 2025 brought contraction. Among proponents, there is disappointment as the CSA paused mandating climate disclosures in Canada and as Bill C-59 results in “green-hushing.” The U.S. SEC formally removed climate disclosures from its agenda, and Europe’s Omnibus package “stops the clock” on European sustainability reporting for some.
Contraction follows expansion, but pockets of progress remain
Despite this contraction, California, Australia, and much of Asia are pushing ahead toward mandatory climate reporting, and public sector climate reporting standards are being finalized. Among many reporting companies, a reframing is happening—the focus has shifted to sustainability as a source of value creation and competitive advantage.
In Canada, CSA curbs CSDS 1 and 2 while greenwashing bill creates uncertainty
The CSA has paused work on the development of a new mandatory climate-related disclosure rule. It states this was done to support Canadian markets and companies as they adapt to developments in the U.S. and elsewhere, citing increased uncertainty and rising competitiveness concerns. Adoption of CSDS 1 and CSDS 2, finalized in December 2024 and aligned with ISSB, now remains voluntary. The Canada Climate Law Initiative (CCLI) expressed disappointment after three years of work on the standards. The CSA argues that companies are already required to disclose material climate-related risks in their annual reports, but the CCLI points out that current disclosures fall short of providing investors with sufficient information to assess, price, and compare companies’ sustainability risks and opportunities.
At a time when 31 countries are already in the process of adopting ISSB climate-related disclosures, many argue it is more important than ever to mandate ISSB-aligned sustainability reporting in Canada.
EU Omnibus – a “right-sizing” of CSRD’s initial scope
The EU Sustainability Omnibus package proposes updates to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), the EU Taxonomy, and the Carbon Border Adjustment Mechanism (CBAM), aimed at reducing the reporting burden on in-scope companies. It significantly decreases the number of companies originally captured by CSRD, introducing a new threshold of more than 1,000 employees. Because CSRD was already mandatory for certain companies in 2024, a separate “stop-the-clock” directive was introduced while the proposed changes undergo legislative review.
This directive delays reporting until 2028 for companies originally due to report in 2026 and 2027, but does not affect the first wave of companies already required to report in 2025. For companies with fewer than 1,000 employees, who will no longer fall under CSRD, a voluntary reporting standard is proposed, based on the VSME standard.
Hot off the press in California, while the U.S. SEC goes cold
In March 2025, the U.S. SEC voted to stop defending its climate rule and formally withdrew climate disclosures from its agenda in June. It stated: “The Commission does not intend to issue final rules with respect to these proposals. If the Commission decides to pursue future regulatory action in any of these areas, it will issue a new proposed rule.” Meanwhile, after California’s climate disclosure law survived an initial legal challenge, the state is forging ahead. On 21 August, the California Air Resources Board (CARB) released details on the implementation of Bill 253 (Climate Emissions) and Bill 261 (Climate Risk). It is now full steam ahead toward compliance deadlines starting in 2026.
Australia (and Asia) lead by example
Australia legislated climate-related financial disclosures in late 2024. Australian reporting entities are now required to disclose their climate-related plans, financial risks, and opportunities in accordance with the Australian Sustainability Reporting Standards (ASRS) issued by the Australian Accounting Standards Board (AASB). AASB S1 and S2 align with IFRS S1 and S2, but include a modified liability approach for directors and auditors. Notably, AASB S1 is voluntary, but AASB S2 (Climate) is mandatory. The standards apply for 2025 year-ends, with reporting phased in based on company size or emissions. Elsewhere in Asia-Pacific, China, Hong Kong, Singapore, Japan, South Korea, and Malaysia, among others, have adopted or are progressing toward ISSB-aligned climate reporting.
Public sector climate standard moving forward
The International Public Sector Accounting Standards Board (IPSASB) released IPSASB SRS Exposure Draft 1 – Climate-Related Disclosures in late 2024. It proposed disclosures for public sector entities covering climate-related risks and opportunities to their own operations, and disclosures on climate-related public policy programs and their outcomes. These standards are aligned with private-sector ISSB disclosures but adapted to the unique needs of public sector reporting. In June 2025, IPSASB decided to move ahead with the climate standard for own operations as Phase 1, with a final vote planned for December 2025. Phase 2, covering public policy programs, is targeted for late 2026.
Climate risk and the cost of inaction
Climate risks are real. According to the World Economic Forum, climate, nature, and biodiversity risks dominate the top four risks on a ten-year horizon, even as short-term risks sandwich extreme weather events in between disinformation, armed conflict and societal polarization. As a recent HBR article stated, “planetary realities will shape politics.” It emphasizes that enormous progress has already been made in renewable energy and that new business models are turning sustainability into a source of profit and competitive advantage. The cost of inaction for companies during this in-between period is simply too high—it risks the loss of competitive advantage.
Headwinds forcing Canadian companies to reframe sustainability
Canadian companies must focus on staying competitive to attract capital and access new markets, while also navigating disclosures that inform investors of climate and supply-chain risks. Tariff uncertainty may have delayed mandatory disclosure regulations, but companies should use this time to reassess their sustainability strategies and refocus on resilience. Reframing sustainability means looking beyond compliance—seeing it as a driver of innovation, growth, value creation and value preservation.
Even in the U.S., a recent Ecovadis survey showed that companies are continuing to prioritize sustainability behind the scenes despite political headwinds. Fewer companies may be promoting it publicly, but leaders still see sustainability as essential for competitiveness and resilience.
In short: Companies are staying committed to sustainability because it is simply good business.
Caren Lombard is a CPA, CFA and a Fundamentals of Sustainability Accounting (FSA) credential holder. She is a full-time lecturer at Sauder School of Business and Academic Lead of the BMO SME Climate Clinic at the UBC Sauder Centre for Climate and Business Solutions. Caren teaches climate reporting courses to undergraduate and MBA students. She is also the instructor of the Introduction to ESG Reporting seminar for CPABC and she facilitates the Sustainability Reporting and Disclosure course for the CPA Canada ESG/Sustainability Certificate Program.
