UK's Introduction of Sustainability Reporting Standards

May 22, 2024
3 Minutes
Photo by Jude Arubi

Another week, another jurisdiction progressing with the implementation of the ISSB standards. Are we en route to global, apples for apples sustainability reporting? It’s starting to feel like it.  The UK has just released the framework and terms of reference for the development of UK Sustainability Reporting Standards - check them out here

Background to the Standards

The International Sustainability Standards Board (ISSB) was established at COP26 with the mission of creating a global baseline for sustainability reporting. As a standard-setting board of the International Financial Reporting Standards (IFRS) Foundation, the ISSB aims to provide standards that offer comparable and decision-useful information for investors. These standards are designed to help investors compare information between companies, support the efficient allocation of capital, and ensure the smooth functioning of capital markets.

On June 26, 2023, the ISSB published its first two standards: IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures). You can read our blog on these standards here

What’s the UK doing?

The UK government has been a strong proponent of the ISSB since the start. In the "Mobilising Green Investment: 2023 Green Finance Strategy," the UK government outlined its plans to establish a framework for assessing the suitability of IFRS S1 and IFRS S2 for endorsement in the UK.

If all goes to plan, it will lead to the creation of the first two UK Sustainability Reporting Standards (SRS), based on IFRS S1 and IFRS S2. The UK government aims to make endorsement decisions on these standards by the first quarter of 2025. These standards will be part of a broader Sustainability Disclosure Reporting framework led by HM Treasury, as detailed in the SDR Implementation Update (May 2024).

Upon completion of the assessment process and a positive endorsement decision, the Financial Conduct Authority (FCA) will be able to introduce requirements for UK-listed companies to report sustainability-related information to their investors, following a consultation process. Additionally, the government will decide on disclosure requirements for UK companies outside the FCA’s regulatory perimeter, considering factors such as reporting costs and investor benefits.

For more information on the development of UK SRS, see the Framework and Terms of Reference for the Development of UK Sustainability Reporting Standards.

Committees Assisting with Assessment and Endorsement

To assist with the assessment and endorsement of IFRS S1 and IFRS S2, and the implementation of resulting UK SRS, the UK government has established two committees:

  1. UK Sustainability Disclosure Technical Advisory Committee (TAC):some text
    • The TAC assesses IFRS Sustainability Disclosure Standards on a technical basis and provides independent recommendations on endorsement to the Business and Trade Secretary. Supported by the Financial Reporting Council (FRC), the TAC published a call for evidence on IFRS S1 and IFRS S2, which closed on October 11, 2023. Responses are available here.
  2. UK Sustainability Disclosure Policy and Implementation Committee (PIC):some text
    • The PIC, composed of UK government and regulator representatives, coordinates the implementation of UK SRS. It also considers significant interactions between the endorsement of IFRS Sustainability Disclosure Standards and the remits of its member organizations. The PIC includes members from the Bank of England, Department for Energy Security and Net Zero, Defra, DWP, FCA, FRC, HM Treasury, FCDO, and the UK Endorsement Board. 

Connecting with GHG Accounting

Under ISSB, companies reporting must disclose their GHG emissions in line with the GHG Protocol. We will start to see this kind of accounting become business as usual in order to comply. Companies will need to start engaging with their supply chain or portfolio companies, asking for their primary emissions data. Nobody wants to disclose that the majority of their emissions are based on high level averages, with high uncertainty without a pathway towards improving that. There is no credible tracking of emission reduction across scope 3 without data from suppliers. Sumday advisors can expect clients will need assistance to prepare the inventory report to an audit ready standard and sustainability/finance teams should start engaging with the supply chain now (assuming they are already reporting on scope 1 and 2).