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Government responds to ISSB exposure drafts

Author: ICAEW Insights

Published: 03 Aug 2022

The UK government has welcomed the publication of the exposure drafts and provided suggestions for the strategic direction of the standards setter.

The International Sustainability Standards Board (ISSB) should follow a four-pillar strategic approach in order to be successful, the UK government has advised in its response to the standards setter’s recent exposure drafts on climate and general sustainability disclosure requirements. 

The response, which came in the form of a letter from Lord Callanan, Minister for Business, Energy and Industrial Strategy (BEIS), was compiled following input from various stakeholders, including ICAEW. 

“Information on sustainability increasingly needs to be on the same reliable, decision-useful footing as financial reporting is today, with a standard that all jurisdictions can integrate, and against which all companies are able to report,” Lord Callanan writes. “The ISSB remains the most appropriate body to issue global sustainability standards, and we are encouraged to see that other standard setters have folded into and supported this process.”

The UK government’s discussion with various stakeholders revealed a “clear and strong desire for a step change in sustainability reporting”. Stakeholders indicated that from a strategic point, the ISSB should follow four suggestions.

Set a baseline standard which is accessible for use on a global scale

Disclosure standards need to be suitable to be adopted by all jurisdictions and organisations, including those in emerging and developing markets. Some elements of the exposure drafts could be challenging for even large UK companies to follow. One such element is the monetisation of risks and opportunities. 

“We support an ISSB standard that is comprehensive, but we must also mitigate against the risk that this will prove too challenging to adopt in full for some jurisdictions and organisations, at least initially, which could lead to further disclosure fragmentation.”

Be implemented in a proportionate and scalable way to accommodate the circumstances of different organisations and jurisdictions 

Challenges expressed by UK companies suggest that the ISSB will need to consider options to scale certain requirements or implement the standards in a phased manner, to ensure their accessibility. “As part of this, the ISSB could usefully outline which elements form the core and minimum standard that would apply globally from the outset as a fundamental component of doing business in international capital markets.”

Be principles based 

Principles-based standards accompanied by application guidance is the preferred approach for UK stakeholders. It will enable jurisdictions to adopt standards in a manner that aligns with local legislative frameworks, while maintaining global standards for climate and sustainability disclosures. 

Provide precise definitions and clarity on what is required to achieve compliance 

Certain areas within the exposure drafts require additional clarity, according to the government’s consultations. UK regulators have offered observations on areas where more precise definitions might be needed. The government will begin consultation on its adoption process in the coming months, including creating a mechanism to access, adopt and endorse the standards in the UK. 

“The UK assessment process will consider costs and benefits of reporting against each disclosure standard, and whether the standards provide sufficient clarity to achieve compliance,” Lord Callanan writes. The views of stakeholders, through a UK consultation process, and the expert opinions of UK regulators, will form an important part of this process.”

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