The UK government has been actively considering sustainability disclosure requirements for companies, and it supported the creation of the International Sustainability Standards Board (ISSB) by the IFRS. In its roadmap to sustainable investing, titled “Greening Finance,” the UK government expressed its intention to explore adopting and endorsing the disclosure standards developed by the ISSB for use in the UK.
Here are some summary points about ISSB and the path to formal adoption.
Scope and Purpose
· The ISSB aims to establish a globally recognized set of sustainability reporting standards.
· These standards cover a wide range of environmental, social, and governance (ESG) topics.
Key Features
· The ISSB’s framework emphasizes integration with financial reporting.
· It provides guidance on reporting climate-related information, social impact, and other ESG factors.
· The focus is on materiality, ensuring companies disclose relevant information.
Climate Reporting
· The framework includes requirements for reporting scope 1, 2, and potentially scope 3 emissions.
· Companies must disclose their climate risks, strategies, and targets.
General ESG Reporting
· Beyond climate, the ISSB covers broader ESG aspects such as diversity, human rights, and supply chain management.
· It encourages companies to report on their positive contributions as well.
Development timeline for adoption of standards.
· ISSB Standards Published. The ISSB issued the final form of its first two sustainability disclosure standards in June 2023 as:
o IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information
o IFRS S2: Climate-related Disclosures.
· Draft Digital Taxonomy. In July 2023, the ISSB published a draft digital taxonomy to facilitate structured digital reporting and comparability of disclosures made under the ISSB Standards.
· UK Government Guidance. The Department for Business and Trade (DBT) published guidance outlining the framework for UK adoption of the ISSB Standards. The aim is to create the UK Sustainability Disclosure Standards (UK SDSs) by July 2024. To support this process, two committees have been established:
· UK Sustainability Disclosure Technical Advisory Committee (TAC). This committee, supported by the Financial Reporting Council (FRC), will work on the technical aspects of the adoption process.
· UK Sustainability Disclosure Policy and Implementation Committee (PIC). This committee will coordinate the implementation of the UK SDSs by the government and the Financial Conduct Authority (FCA).
· FCA’s Approach. Assuming that the UK endorsement of the first two ISSB Standards is completed by July 2024, the FCA aims to finalize its approach by the end of 2024. The new requirements will apply to financial years beginning on or after January 1, 2025, with the first reporting required in 2026.
In summary, the adoption of ISSB standards in UK law is progressing, and the FCA is actively working toward implementing these standards to enhance sustainability reporting by companies. The ISSB framework aims to enhance transparency, accountability, and sustainability practices across organizations, aligning with international best practices.