By James Green, RPA
The Big Picture
If you’ve been following the news, you’ve probably seen the three letters “ESG”—short for Environmental, Social, and Governance—appearing more and more in business discussions. In Canada, ESG is no longer a niche topic for global corporations. The regulatory and market environment is shifting, and small and medium-sized businesses (SMEs) are increasingly finding themselves in the crosshairs.
But here’s the twist: while mandatory ESG reporting is on pause at the national securities level, the real-world pressures are already here—through supply chains, lenders, insurers, customers, and marketing law. Understanding what ESG means today, what might be coming tomorrow, and what to put in place now can help SMEs avoid surprises and seize opportunities.
Where Things Stand Right Now
1. New standards exist—but are still voluntary
The Canadian Sustainability Standards Board (CSSB) published its first two disclosure standards in late 2024:
- CSDS 1 – General sustainability disclosure requirements
- CSDS 2 – Climate-related disclosure requirements
They are effective for annual periods beginning January 1, 2025—but only on a voluntary basis unless provincial securities regulators decide to mandate them. That decision is still pending.
2. Mandatory climate rules are paused
On April 23, 2025, the Canadian Securities Administrators (CSA) announced it was pausing work on mandatory climate and diversity disclosure rules. The reason? To avoid putting Canadian issuers at a competitive disadvantage while global regimes (like in the U.S. and EU) are still evolving.
That doesn’t mean climate disclosure disappeared. Public companies must still report material risks—and for many, that includes climate.
3. Modern slavery law already applies to larger firms
The Fighting Against Forced Labour and Child Labour in Supply Chains Act (Bill S-211) requires annual reports from Canadian-linked entities that are either listed or meet two of three thresholds:
- $20 million or more in assets
- $40 million or more in revenue
- 250 or more employees
For smaller private businesses, that may not apply yet. But many larger customers are already collecting supply-chain data to prepare their own filings.
4. Federal procurement has a $25M threshold
Since 2023, the Government of Canada’s Standard on the Disclosure of Greenhouse Gas Emissions and the Setting of Reduction Targets has required bidders on individual federal procurements over $25 million to disclose their GHGs and set reduction targets. If you’re subcontracting under one of these projects, the prime contractor may ask you for your data.
5. Banks and insurers are tightening their expectations
The Office of the Superintendent of Financial Institutions (OSFI) has made climate-related risk management and disclosure mandatory for federally regulated banks and insurers through Guideline B-15. These institutions, in turn, are asking their business clients for more ESG data so they can manage “financed emissions” and transition risks.
6. Greenwashing law is already in force
As of June 2024, the Competition Act requires that:
- Product environmental claims must be backed by adequate and proper testing.
- Business-level claims (e.g., “we’re carbon neutral”) must be supported by an internationally recognized methodology.
The Competition Bureau released guidance on June 5, 2025 spelling this out. These rules apply to all businesses, big or small.
Why SMEs Should Care Even Without a Mandate
Even if you’re below thresholds and not a listed issuer, ESG matters because:
- Access to capital and insurance. Banks and insurers are embedding ESG questions into loan renewals and underwriting. Being able to provide credible data can smooth the process and may even improve pricing.
- Customer expectations. If you sell to larger companies—especially exporters to Europe—you’re in the ESG supply chain. Expect to be asked for data on your energy use, emissions, or labour practices.
- Marketing compliance. If you ever claim your product is “eco-friendly” or “net-zero,” you need evidence to prove it. Without internal tracking, you risk fines or legal challenges.
- Operational savings. Tracking energy, waste, and safety often uncovers cost reductions and risk management wins.
- Future-proofing. Setting up a simple ESG process now is far cheaper than scrambling to build one under deadline pressure once mandates or customer requirements hit.
What SMEs Can Do Right Now
Think of ESG like basic bookkeeping: you don’t need a giant system, but you do need a consistent, auditable process. A practical starter kit for SMEs includes:
- Governance: Assign responsibility (owner, GM, or board). Document oversight in meeting notes. Adopt a short supplier code of conduct.
- Environment: Collect utility bills and fuel records. Calculate annual Scope 1 & 2 emissions (using government-published emission factors). Log waste and water volumes if material.
- Social: Track headcount, injuries, turnover, and basic training hours. Collect diversity data only if lawful and appropriate.
- Supply Chain: Keep an up-to-date supplier list, flagging high-risk geographies. Store due diligence questionnaires.
- Claims Register: Maintain a simple one-page log linking each public environmental claim to the evidence backing it.
This doesn’t need to be expensive. A well-structured Excel or cloud bookkeeping add-on can cover most needs.
What May Become Important in the Next Few Years
Looking ahead 2–5 years, SMEs should prepare for:
- Mandatory CSDS/ISSB-aligned reporting. Regulators may resume the project once global alignment stabilizes.
- External assurance. Audited ESG data (similar to financial audits) may become standard for larger customers and banks.
- Expanded procurement rules. ESG disclosure may trickle down to smaller government contracts.
- Sector-specific requirements. Energy, finance, manufacturing, and construction could see early sectoral rules.
- Global supply-chain pull. EU rules (CSRD, CSDDD) will push Canadian suppliers for more detailed ESG data, regardless of Canadian law.
How Accountants Can Help SMEs
Accountants are ideally placed to guide SMEs through ESG, because we already handle structured data, assurance, and compliance. Here’s how we can help:
- Risk scanning. Identifying which ESG rules actually apply (or may apply soon).
- System design. Building lightweight, auditable ESG tracking systems alongside financial reporting.
- Integration. Embedding ESG metrics into Xero, QuickBooks Online, or practice management software.
- Verification. Providing third-party review of ESG numbers for banks, insurers, and major customers.
- Advisory. Helping SMEs use ESG data strategically for financing, efficiency, or competitive advantage rather than just compliance.
Conclusion: ESG as Smart Business, Not Just Red Tape
For Canadian SMEs, ESG is no longer an abstract acronym. Even without a sweeping federal mandate, ESG already touches supply chains, financing, insurance, and marketing law.
The smartest move today is to treat ESG as an extension of financial management: track, evidence, and report internally. That way, you’re ready for regulators, customers, or banks tomorrow.
And just like with your financial reporting, your accountant is the partner who can help you get there efficiently, credibly, and with a clear eye on business value.
