2025 Canadian Sustainability Reporting Insights

Businesses that have been operated under largely voluntary reporting frameworks will soon face the challenges of navigating a complex array of disclosure regulations across various jurisdictions.

Our annual Sustainability Reporting Insights analysis of Canadian companies’ disclosures found many companies unprepared to meet these new reporting obligations. These companies face growing risks. But they also have opportunities to show how sustainability forms a strategic imperative for their organization by viewing these requirements as more than just a compliance exercise.

Sustainability reporting is about more than regulatory compliance and sharing a story of progress. It’s an opportunity to make better business decisions and enhance corporate strategy by understanding how sustainability will challenge today’s business models, creating both risks and opportunities for growth and reinvention. Given the changing geopolitical landscape, particularly in North America, it’s crucial for companies to anchor their sustainability reporting in financial impact and value creation.

How companies can create a transparent story of sustainability progress

Many Canadian companies are rethinking their reporting strategies as they transition to mandatory sustainability reporting. In some cases, this involves consolidating various sustainability-related publications into annual reports that explain the execution of their sustainability strategy. This approach helps organizations create more consistent messaging, streamline reporting efforts and enhance their reporting strategy by reducing costs and exploring how reporting can create value beyond compliance.

Many reporting requirements that companies will soon need to follow are grounded in the four pillars of the Task Force on Climate-related Financial Disclosures (TCFD): governance, strategy, risk management, and metrics and targets. Our analysis found 67% of companies reference TCFD in their reporting.

We structured our report around these four areas to better understand the readiness of Canada’s top companies for mandatory sustainability reporting requirements.

Governance: Building trust by disclosing roles and accountabilities 

Mandatory sustainability reporting requirements—along with investor expectations for integrating sustainability into corporate strategy—add complexity to the board’s oversight responsibilities. Developing and disclosing directors’ sustainability-related skills build confidence in the board’s oversight efforts but remain as significant governance gaps in many companies’ reporting .

Effective governance disclosures also include information on management’s role in assessing and managing sustainability-related risks and opportunities, along with details on the relevant controls and procedures. Disclosing management’s role helps stakeholders understand who is responsible for sustainability initiatives and how these efforts are integrated into the organization’s overall strategy. It also creates greater accountability for sustainability-related decisions.

Recent changes to Canada’s Competition Act under Bill C-59 highlight the risks for companies that lack appropriate governance, processes and controls over their environmental disclosures. These provisions target companies that make false, misleading or deceptive environmental and climate claims. This includes releasing new sustainability-related claims, commitments or targets—such as carbon neutrality and sustainable sourcing—through social media or press releases. Companies found to be misrepresenting their environmental claims could face fines and penalties of $10 million to $15 million and up to 3% of annual gross worldwide revenues.

Strategy: Managing risks and seizing opportunities

Disclosing how your company integrates sustainability into corporate strategy demonstrates that you’re addressing your company’s sustainability-related risks and opportunities. This helps avoid the impression that your company is exposed to unmanaged risks. It also highlights how you’re spotting strategic opportunities in the marketplace and innovating around sustainability to seize them, thereby gaining a competitive advantage.

Yet our analysis found only 42% of companies disclose details on how sustainability-related issues affect their business strategy and financial planning. This gap highlights opportunities for companies to more closely integrate sustainability into strategy and unlock potential to both increase their long-term enterprise value and improve operational performance.

Consider the example of a retailer with hundreds of stores, each consuming significant amounts of energy. The annual energy bill for such a company may run into millions of dollars. By forming a dedicated energy management team, the retailer can explore ways to introduce more efficient refrigerants, upgrade to energy-saving lighting and modernize heating systems. These initiatives are part of a broader energy transition opportunity for companies to create value by taking charge of their energy demand, protecting against risks while achieving cost savings.

A company’s ability to manage climate-related impacts is linked to other important sustainability issues, including human capital management. Many employees want to reduce their environmental impact, creating an opportunity for businesses to clearly articulate their climate strategy as a competitive differentiator that enhances their ability to attract and retain skilled talent.

Some reporting standards require companies to disclose sustainability strategies for short-, medium- and long-term time horizons. Organizations can clearly articulate their objectives and the steps needed to achieve them by defining these time frames. Aligning these time frames with enterprise risk management processes improves consistency, although certain sustainability risks and opportunities may require extending the long-term horizon beyond ten years.

Considering various scenarios helps an organization develop sustainability strategies across different time horizons. For example, a short-term climate strategy might address responses to extreme weather events with immediate consequences, such as disruptions to essential services. A medium-term strategy could cover transition risks and opportunities, including regulatory changes and shifts in customer preferences. And a long-term strategy might focus on changes in climate patterns, such as persistent heat waves.

Conducting a scenario analysis helps companies develop strategies to address the risks and opportunities they face over these different time horizons. Yet only 49% of companies undertake such an analysis, and not all these companies holistically analyze their business and value chain.

We typically see companies perform qualitative assessments rather than quantitative assessments that focus on financial impact. This approach is still a positive step as it lets companies identify and assess their climate-related risks and opportunities. Standard-setters such as the CSSB have provided transitional provisions for quantitative assessments as many companies will need to allocate the required resources as well as obtain executive and board approval before publicly disclosing the financial impact of climate-related risks and opportunities. 

Companies can think more strategically about how climate change and extreme weather events affect their business with the help of these insights. For example, intense flash flooding in July 2024 disrupted power and internet services for many downtown Toronto businesses. This disruption, in turn, affected employees’ productivity and their ability to deliver services to clients.

Analyzing such scenarios helps companies implement and monitor mitigation measures by integrating material risks and opportunities into strategic and financial planning.

Risk management: From assessment to action

Stakeholders, including investors, want to know what material risks and opportunities a company faces. But they also want to understand how companies are managing these risks and opportunities. Additionally, some reporting standards direct companies to examine sustainability-related impacts on their business from a financial perspective. This includes disclosing mitigation measures to manage these financial effects and enhance business continuity and resilience.

The gap between assessing and managing climate-related risks

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Consider the example of a fashion retailer. It may identify that climate change is causing unpredictable weather patterns that can reduce the yield and quality of the cotton it relies on. This can affect the company’s ability to maintain consistent product quality and supply levels. In addition to diversifying its supply chain, the company can also engage its biggest suppliers to explore—and disclose how it’s taking advantage of—innovative agricultural practices and technologies that enhance the resilience of cotton crops to climate change.

In addition to risk management, stakeholders are also interested in how companies are harnessing climate-friendly opportunities. Changing consumer preferences, the move toward electrified mobility systems and growing demand for more climate-resilient products—such as the cotton crops in the scenario above—are among the shifts that are creating new markets for businesses. Already, 27% of Canadian respondents to our Annual Global CEO Survey said they’re generating revenue from climate investments made over the last five years. Similarly, 30% of the companies in our analysis are disclosing the financial impact of their climate-related opportunities.

It’s crucial to take a systematic approach that considers the magnitude and likelihood of each risk and opportunity and to document the process thoroughly. This makes your determinations more defensible and transparent, especially if regulators inquire about why certain risks were deemed material or not.

Metrics and targets: Measuring progress

Metrics and targets are crucial components of sustainability reporting. Mature companies disclose these as tangible evidence of progress, alignment with strategic goals and effectiveness in managing risks. They also assess the feasibility of their targets and disclose any uncertainties. This involves revisiting targets to understand what’s achievable based on various factors, such as the availability of technology. 
 
Providing context makes a company’s metrics more meaningful. This includes benchmarking key performance indicators against historical data to measure improvements against past performance. Additionally, benchmarking against peers is valuable because a company’s peers often set industry norms. Understanding how an organization is positioned relative to its peers helps investors evaluate the relative ambition of a company’s targets. 
 
Additionally, setting interim targets helps companies and their stakeholders monitor progress. It also adds credibility to long-term targets. For example, a company can’t realistically wait until 2049 to start working on its 2050 net-zero target. Achieving this goal requires a detailed transition plan, gradual implementation of changes and continuous monitoring.

Many companies remain focused on their own operations, even though sustainability standards require consideration of the entire value chain. Setting targets that include upstream and downstream impacts demonstrates progress on sustainability-related risks and opportunities, including in a company’s supply chain. 

We see this in our analysis of Canadian companies’ disclosure of metrics and targets. For example, many companies disclose emissions from their direct operations (Scope 1) and from their purchased electricity, heat and cooling (Scope 2). But fewer report on indirect emissions that occur throughout their value chain (Scope 3). Our analysis likely overstates the completeness of many companies’ reporting, which often only includes certain categories of Scope 3 emissions, such as business travel. Disclosing the full picture of Scope 3 emissions adds credibility to a company’s climate transition plan and progress toward a net-zero target, helping it avoid making unsupported statements that could lead to accusations of greenwashing.

Tracking performance through targets and metrics

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External assurance is a powerful way to build trust in a company’s sustainability disclosures. Nearly three-quarters (73%) of respondents to our Global Investor Survey 2024 said reasonable assurance—the level of assurance obtained in an audit of financial statements—would give them confidence in a company’s sustainability reporting to a moderate, large or very large extent. Yet in Canada, 60% of companies do not obtain external assurance over their sustainability metrics.

These companies will soon need to assess the assurance-readiness of their disclosures as regulators worldwide incorporate assurance into sustainability reporting requirements.