Environmental, Social, and Governance (ESG) reporting is no longer a “big company only” issue in Canada. New climate disclosures are a significant part of the regulatory changes affecting SMEs in Canada.
With the global supply chains shifting, mandatory ESG disclosure requirements and new sustainability standards are reshaping how Canadian companies — especially SMEs — must operate.
Canadian regulators, investors, and stakeholders expect transparency on climate-related financial disclosures, sustainability risks, and governance practices. For SMEs, this means that ESG reporting has shifted from optional to essential for business survival and growth.
Key Takeaways
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ESG reporting in Canada is now a regulatory requirement with growing investor and stakeholder expectations.
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SMEs must adapt to new Canadian Sustainability Disclosure Standards (CSDS) and align with international frameworks.
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Proactive ESG disclosure builds trust, manages risks, and secures long-term financial health.
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Effective ESG reporting can create a competitive advantage for SMEs in the Canadian market.
Introduction to Environmental Social and Governance
Environmental, Social, and Governance (ESG) refers to the three core factors that measure a company’s sustainability and social responsibility. These ESG factors are used by regulators, investors, and customers to assess a company’s long-term financial health, risk management, and commitment to ethical practices.
For Canadian companies, ESG reporting is becoming central to corporate strategy. It is no longer just about compliance — it is about credibility. SMEs must recognize that transparency in ESG disclosure is critical to managing sustainability risks and demonstrating resilience in a rapidly changing economy. ESG standards also help companies communicate their company's impact on sustainability and governance to stakeholders.
The Canadian Securities Administrators (CSA) and the Canadian Sustainability Standards Board (CSSB) have made ESG reporting a regulatory priority. Their standards now align with the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, creating a unified sustainability reporting landscape that SMEs must navigate.
Canadian ESG Reporting Landscape
The Canadian ESG reporting landscape is rapidly evolving, shaped by new regulatory requirements and rising stakeholder expectations. The Canadian Securities Administrators (CSA) and the Canadian Sustainability Standards Board (CSSB) are at the forefront of these changes, setting the direction for how Canadian companies approach ESG reporting. With the introduction of the Canadian Sustainability Disclosure Standards (CSDS), there is now a greater emphasis on consistency and comparability in sustainability reporting across all sectors.
Canadian companies are expected to meet a range of ESG reporting requirements, including climate-related financial disclosures and the use of standardized ESG metrics. These requirements are designed to ensure that sustainability reporting is transparent, reliable, and meets the needs of investors, regulators, and other stakeholders. As the sustainability reporting landscape continues to mature, companies must stay informed about new sustainability standards and adapt their reporting processes to align with both national and international expectations. Meeting these evolving stakeholder expectations is now a critical part of doing business in Canada.
ESG Reporting Requirements for Canadian Companies
Canadian companies are expected to disclose ESG metrics in their annual reports. This includes climate-related financial disclosures, sustainability risks, and information about how the company operates responsibly. Sustainability reporting requirements increasingly expect companies to report on both their own operations and their broader value chain to provide a more comprehensive and credible picture of sustainability performance.
Key points for SMEs:
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Mandatory ESG disclosure: Publicly traded companies and federally regulated financial institutions must report ESG data.
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Canadian Sustainability Disclosure Standards (CSDS): These define how ESG data should be structured and reported.
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Stakeholder expectations: Beyond regulators, investors, customers, and employees demand transparency.
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Evolving sustainability reporting requirements: New mandates are aligned with international frameworks and standards, such as the TCFD and CSSB, and are designed to increase transparency and accountability.
For SMEs, failing to comply with reporting requirements can lead to lost contracts, financing challenges, and damaged reputations. Even if not directly required, many SMEs are part of supply chains for larger publicly traded companies. This upstream pressure means ESG reporting is becoming a prerequisite for doing business.
ESG Reporting Requirements for SMEs
Small and medium-sized enterprises (SMEs) in Canada are increasingly expected to engage in ESG reporting, even if they are not directly subject to the same regulations as large, publicly traded companies. Adopting ESG reporting practices allows SMEs to proactively manage climate-related risks, improve their sustainability performance, and meet the growing expectations of investors and business partners.
Frameworks such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) offer practical guidance for SMEs to structure their ESG disclosures. By leveraging these ESG frameworks, SMEs can identify and report on the sustainability issues most relevant to their operations. This not only helps manage climate-related risks but also enhances the company’s reputation and competitiveness in the marketplace. As ESG reporting requirements become more widespread, SMEs that prioritize sustainability performance will be better positioned to attract investment and secure their place in supply chains connected to larger, publicly traded companies.
ESG Regulations and Compliance
Canadian companies face a complex regulatory environment when it comes to ESG reporting. Compliance with ESG regulations is essential for maintaining trust and avoiding potential penalties. The Canadian Securities Administrators (CSA) have introduced climate-related disclosure requirements, while the Canadian Sustainability Standards Board (CSSB) has established the Canadian Sustainability Disclosure Standards (CSDS) to guide consistent ESG reporting.
In addition, the Canadian government’s Sustainable Finance Action Plan encourages financial institutions to integrate ESG considerations into their decision-making processes. Federally regulated financial institutions are now required to disclose their ESG practices, including how they manage climate-related risks and opportunities. For all Canadian companies, effective risk management and regulatory compliance are crucial to navigating these evolving ESG regulations. Failure to comply can result in reputational harm, financial penalties, and even legal consequences, making it essential for companies to stay up to date with the latest ESG requirements and best practices.
Climate-Related Risks and Opportunities
Climate change has moved from an abstract concern to a business-critical issue. Canadian SMEs must disclose their strategies for managing climate-related risks and highlight opportunities tied to sustainability.
The Task Force on Climate-related Financial Disclosures (TCFD) framework provides guidance for Canadian companies. Core expectations include:
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Scenario analysis: Evaluating how climate change impacts financial planning.
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Risk management: Identifying transition risks (such as carbon pricing) and physical risks (such as extreme weather).
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Greenhouse gas emissions disclosure: Companies are expected to disclose their greenhouse gas emissions and set targets for reduction in line with national and international standards.
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Opportunities: Highlighting cost savings from efficiency, low-carbon innovation, or sustainable supply chain practices.
For SMEs, integrating climate-related disclosures into ESG reporting builds resilience. It also strengthens investor confidence by showing the company can manage climate risks while capturing new growth opportunities.
ESG Data and Disclosure
Accurate ESG data is the foundation of credible sustainability reporting. Canadian companies must collect, verify, and disclose sustainability data consistently.
Frameworks such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) offer detailed guidance on how to structure ESG metrics. SMEs should focus on:
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Materiality assessment: Identifying which ESG issues are most relevant to their operations.
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Key performance indicators (KPIs): Selecting measurable ESG metrics aligned with industry standards.
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Audit and assurance: Ensuring ESG data is accurate, reliable, and subject to internal controls or external review.
For SMEs, ESG disclosure is not just about compliance — it builds trust with key stakeholders, including investors, regulators, and customers. ESG reports serve as the primary means for companies to communicate their sustainability performance and compliance with evolving regulations.
ESG Data Management
Effective ESG data management is the backbone of reliable ESG reporting. Canadian companies must collect, analyze, and disclose ESG data—including climate-related data, sustainability performance indicators, and ESG metrics—in a way that meets industry standards and stakeholder expectations. Leveraging ESG data management software can help streamline reporting processes, minimize errors, and ensure data quality.
Guidance from organizations such as the International Integrated Reporting Council (IIRC) and the Global Reporting Initiative (GRI) can help companies establish robust ESG data management practices. Transparent, consistent, and comparable ESG data not only supports regulatory compliance but also enhances the credibility of sustainability performance reporting. By investing in strong ESG data management systems, companies can provide stakeholders with the information they need to make informed decisions and demonstrate their commitment to sustainability.
ESG Frameworks and Standards
An ESG framework is a set of standardized guidelines and metrics that help companies structure and disclose non-financial information, making it easier to compare ESG performance across industries.
The global sustainability reporting landscape includes multiple frameworks, each designed to help companies align their ESG reporting with industry standards.
For Canadian SMEs, the most relevant ESG frameworks include:
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GRI: Widely used for global sustainability reporting.
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SASB: Sector-specific standards useful for SMEs targeting investors.
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IIRC (International Integrated Reporting Council): Helps companies integrate ESG into financial reporting.
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CDP (Carbon Disclosure Project): Focuses on climate change and emissions reporting.
Choosing the right framework depends on the company’s size, sector, and stakeholder expectations. Many SMEs use a hybrid approach, aligning with CSDS while referencing GRI or SASB standards to meet international benchmarks.
Canadian Sustainability Disclosure Standards (CSDS)
The CSDS are Canada’s response to the need for consistent, transparent ESG reporting. They align with global standards such as the IFRS Sustainability Disclosure Standards and the TCFD.
SMEs must pay attention because:
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CSDS applies directly to many publicly traded companies.
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Indirectly, SMEs in supply chains are required to provide ESG data to customers who must comply.
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CSDS ensures comparability, reliability, and transparency across Canadian companies.
Adopting CSDS helps SMEs demonstrate regulatory compliance and improve sustainability performance.
Corporate Sustainability Reporting Directive (CSRD)
Although the CSRD is an EU directive, it has global implications. Canadian companies with operations, subsidiaries, or trade in Europe must comply with CSRD requirements.
The CSRD requires detailed sustainability disclosure aligned with GRI and TCFD. The CSRD specifically mandates companies to report on their sustainability impacts to increase transparency and support sustainable growth. For SMEs exporting to the EU, this means preparing ESG reporting processes that meet both Canadian and European standards.
Ignoring CSRD compliance could risk losing European contracts, making ESG alignment a strategic necessity for internationally engaged Canadian SMEs.
ESG Disclosure and Transparency
Transparency in ESG disclosure is essential for building trust with key stakeholders, including investors, customers, and employees. Canadian companies are expected to clearly communicate their ESG practices, performance, and risks using standardized ESG frameworks and metrics. The Canadian Securities Administrators (CSA) and the Canadian Sustainability Standards Board (CSSB) provide guidance on how to achieve effective ESG disclosure and transparency, ensuring that reporting meets both regulatory and stakeholder expectations.
Frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) and the IFRS Sustainability Disclosure Standards offer structured approaches for disclosing climate-related risks and opportunities. By prioritizing clear and comprehensive ESG disclosure, companies can enhance their reputation, attract investment, and demonstrate leadership in sustainability performance. Transparent reporting standards not only fulfill regulatory requirements but also position companies for long-term success in a rapidly changing business environment.
ESG Reporting Best Practices
For SMEs, best practices in ESG reporting include:
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Transparency: Share both achievements and challenges.
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Consistency: Use standard metrics across reporting periods.
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Integration: Align ESG reporting with financial planning and risk management.
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Controls: Involve audit committees and senior management to ensure credibility.
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Stakeholder engagement: Align ESG disclosure with investor expectations and other stakeholders.
Effective ESG reporting should address a comprehensive range of sustainability topics, including environmental, social, and governance factors, to demonstrate genuine commitment and avoid greenwashing.
These practices build credibility and reduce the risk of greenwashing or environmental claims that may lack evidence.
ESG Reporting Trends and Insights
By 2025, ESG reporting in Canada has become:
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Mainstream: No longer optional for SMEs connected to regulated industries.
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Investor-driven: Asset managers and financial institutions rely on ESG data for investment decisions.
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Technology-enabled: ESG reporting software and tools streamline sustainability data collection and reporting processes.
The trend is clear: SMEs must embed ESG into core business functions or risk falling behind competitors.
ESG Investment and Finance
Investors are prioritizing ESG factors in their decisions. SMEs that integrate ESG disclosure into their operations benefit from:
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Access to financing: ESG performance improves credit ratings and investment attractiveness.
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Cost savings: Sustainable operations often reduce waste and energy costs.
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Sustainable growth: ESG integration supports long-term profitability.
Financial institutions are increasingly requiring ESG reporting from borrowers. SMEs that align ESG reporting with investor expectations strengthen their financial resilience.
ESG Ratings and Assessment
ESG ratings agencies evaluate companies on their sustainability performance. For SMEs, strong ESG ratings enhance competitiveness in securing contracts and investment.
Key considerations:
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Data quality: Reliable ESG metrics improve ESG ratings.
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Alignment: Reporting standards must match rating agency requirements.
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Continuous improvement: ESG performance evolves over time; companies must track progress.
Strong ESG ratings are a strategic asset for Canadian SMEs.
ESG Reporting Software and Tools
Technology plays a major role in modern ESG reporting processes. ESG software helps SMEs:
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Collect sustainability data from across business functions.
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Align reporting with CSDS, GRI, or SASB standards.
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Automate reporting processes and reduce errors.
However, SMEs must be cautious. Many ESG software solutions are designed for large corporations and may be costly or overly complex. SMEs should adopt tools tailored to their size and operations.
Climate-Related Risk Management
Managing climate-related risks is central to ESG reporting. Canadian SMEs should:
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Conduct scenario analysis to anticipate climate impacts.
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Implement relevant controls to manage climate-related risks.
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Align risk management with sustainability disclosure requirements.
Climate-related risks include supply chain disruptions, regulatory changes, and reputational damage. SMEs that proactively manage these risks demonstrate resilience and build stronger stakeholder trust.
Conclusion and Next Steps
For Canadian SMEs, ESG reporting in 2025 is no longer optional. Regulatory compliance, stakeholder expectations, and investor demands make ESG disclosure essential for long-term financial health.
Key next steps for SMEs:
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Review current ESG reporting processes and identify gaps.
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Align with CSDS and other industry standards.
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Engage senior management and audit committees in ESG oversight.
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Proactively manage climate-related risks and opportunities.
SMEs that integrate ESG reporting into their business strategy will not only meet regulatory requirements but also unlock growth opportunities, secure financing, and strengthen stakeholder relationships.
FAQs
1. What is ESG reporting in Canada?
ESG reporting in Canada involves disclosing environmental, social, and governance metrics to meet regulatory compliance and stakeholder expectations.
2. Are SMEs required to do ESG reporting?
Yes. While requirements focus on publicly traded companies, SMEs face indirect pressure through supply chains and investor expectations.
3. What are the Canadian Sustainability Disclosure Standards (CSDS)?
CSDS set the framework for consistent ESG reporting in Canada, aligned with international sustainability disclosure standards.
4. What climate-related disclosures are required?
Companies must disclose risks, opportunities, and scenario analyses based on frameworks such as TCFD.
5. Why is ESG reporting important for Canadian SMEs?
It builds trust with stakeholders, improves access to financing, and helps manage sustainability risks.
6. What ESG frameworks should SMEs use?
GRI, SASB, IIRC, and CDP are commonly used, alongside CSDS, depending on industry and investor needs.
7. How do ESG ratings affect Canadian companies?
Strong ESG ratings improve investment attractiveness and competitiveness in global supply chains.
8. Do Canadian SMEs need to comply with European CSRD rules?
Yes, if they operate in Europe or trade with European partners, CSRD compliance may apply.
9. What role do investors play in ESG reporting?
Investors rely on ESG data to make sustainable investment decisions, pushing companies toward greater transparency.
10. What steps should SMEs take now?
SMEs should integrate ESG into financial planning, align with CSDS, and establish reliable ESG reporting processes.
About ESG The Score
ESG the Score makes it easy for growing businesses to take ESG reporting and supply chain audits seriously while keeping costs under control. We know SMEs are under pressure from regulators, clients, and larger partners to prove their sustainability commitments and demonstrate compliance. That is why we have created affordable policy bundles, reporting toolkits, and audit guides tailored specifically for smaller businesses. Our mission is to remove the complexity and make ESG something you can act on quickly, without slowing down your growth. With ESG the Score, you gain the ability to transform sustainability from a burden into a competitive advantage.
You may also want to read our ESG Reporting Toolkits for Canada, United States, India, United Kingdom, Australia, Brazil, Singapore, Malaysia, Germany and Turkiye.