As climate change accelerates, Canadian regulators are making it clear that companies must consider the physical risks associated with a changing climate. Focusing only on emissions or transition plans is no longer enough. Businesses are now required to disclose how physical climate threats, such as floods, storms, heatwaves, wildfires, and sea-level rise, impact their assets, operations, and profits.
In 2025, the Canadian Sustainability Standards Board finalized CSDS 2 – Climate-related Disclosures, modeled on the ISSB’s IFRS S2. This standard requires Canadian businesses to disclose both acute and chronic physical climate risks. Acute risks refer to short-term, severe events, such as hurricanes, floods, wildfires, and ice storms, while chronic risks describe long-term, gradual changes, including sea-level rise, sustained heat stress, and permafrost thaw. These disclosures must do more than identify hazards. Companies are required to explain how these risks impact their operations, supply chains, and financial performance, including capital expenditures, operating costs, asset valuations, and resilience investments.
The Office of the Superintendent of Financial Institutions, or OSFI, has already raised the standards for Canada’s financial sector. Banks, insurers, and pension funds subject to federal regulation must now disclose how physical climate risks impact their lending portfolios, insured assets, and capital planning. For instance, a bank may need to show how flooding could impact its mortgage portfolio, while an insurer may have to demonstrate how wildfire exposure could affect its liabilities. These requirements ensure that climate risks are incorporated into the core of financial risk management.
The Canadian Securities Administrators, or CSA, is also aligning with CSDS 2. Public companies will need to disclose the materiality of physical climate risks and perform forward-looking scenario analysis. This involves demonstrating whether the company can remain resilient under various warming scenarios, such as two degrees, three degrees, or higher. Scenario analysis is no longer just a “best practice” but now a regulatory expectation for businesses that want to maintain credibility with investors and stakeholders.
Canada’s approach is also designed to align with global disclosure frameworks. CSDS 2 mirrors ISSB IFRS S2 while remaining interoperable with the European Union’s CSRD and disclosure laws such as California’s SB 261. For Canadian businesses that operate internationally, this alignment means greater consistency and efficiency in reporting. However, the fact that the standards are globally aligned does not reduce the urgency of compliance. Companies must act now to identify, measure, and disclose their exposure to physical risks to stay competitive.
Physical climate risk is no longer just an abstract concern or distant threat. It directly impacts assets, operations, and financial results. Facilities, ports, and infrastructure are exposed to various hazards. Supply chains are susceptible to disruptions. Higher capital and operating costs, insurance issues, and asset devaluation increasingly threaten economic performance. By incorporating physical climate risk into their disclosures, businesses not only comply with regulatory requirements but also improve their understanding of vulnerabilities and identify opportunities for resilience.
Starting in 2026, Canadian companies will be required to disclose physical climate risks under CSDS 2. Companies that proactively measure and report these risks will be better positioned to protect assets, reassure investors, and stay competitive in a world affected by climate change. In doing so, they will demonstrate leadership in adapting to a changing climate while building trust with regulators, stakeholders, and the broader society.
References
- Blakes. (2024, December 18). Canadian Sustainability Standards Board publishes inaugural sustainability disclosure standards. Blakes.
- Canadian Sustainability Standards Board. (2024, December 18). CSDS 1: General requirements for disclosure of sustainability-related financial information; CSDS 2: Climate-related disclosures. CPA Canada.
- Gowling WLG. (2025, January). Navigating Canada’s new sustainability disclosure standards. Gowling WLG.
- KPMG Canada. (2025, March). Get ready for CSSB sustainability disclosures. KPMG.
- Office of the Superintendent of Financial Institutions. (2025, March 7). Climate risk management: OSFI disclosure expectations. Government of Canada.
Ready to get started? To learn how ClimaTwin can help you assess the physical and financial impacts of future weather and climate extremes on your infrastructure assets, capital programs, and investment portfolio, please visit www.climatwin.com today.
© 2025 ClimaTwin Corp. All rights reserved worldwide.
ClimaTwin® is a registered trademark of ClimaTwin Corp. The ClimaTwin logos, ClimaTwin Solutions™, Climate Risk Intelligence™, Climate Business Intelligence™, Future-proofing assets today for tomorrow’s climate extremes™ are trademarks of ClimaTwin Corp. All trademarks, service marks, and logos are protected by applicable laws and international treaties, and may not be used without prior written permission of ClimaTwin Corp.
###