June 2023 saw the publication of the International Sustainability Standards Board’s (ISSB) first two International Sustainability Disclosure Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2).

The UK government has committed to assessing whether to endorse IFRS S1 and IFRS S2 for use in the UK. To inform this decision, the UK Sustainability Disclosure Technical Advisory Committee (TAC) has published a call for evidence on the suitability of the standards for application in the UK. In particular, the call for evidence seeks views on whether the disclosures required by IFRS S1 and IFRS S2:

• will result in disclosures that are understandable, relevant, reliable and comparable for investors;
• are technically feasible to prepare;
• can be prepared on a timely basis and at the same time as general purpose financial reports; and
• are expected to generate benefits that are proportionate to the costs that are likely to be incurred.

The call for evidence also asks stakeholders to comment on whether the transition reliefs set out in the standards are considered sufficient.

IFRS S1 and IFRS S2 in the UK context

In partnership with the ISSB, ICAEW hosted an event last month to introduce IFRS S1 and IFRS S2. This event offered the opportunity to better understand the standards in a UK context. Several key themes emerged, including scope and implementation in the UK, materiality and assurance requirements.

Scope and implementation in the UK

As IFRS S1 and IFRS S2 are yet to be endorsed for use in the UK, no decisions have been made on when reporting will be mandatory in the UK or which companies will be required to report. Any decisions on the scope of mandatory reporting will be made following further consultation once the standards are endorsed for use in the UK. This would include decisions on whether wholly owned subsidiaries should benefit from a reporting exemption if the parent also reports using the standards. However, as ISSB standards are designed to be GAAP agnostic, the accounting framework used by a company will not be a factor in determining whether it is in scope.

Materiality 

The ISSB’s standards have a financial materiality focus. This is not the same as the double materiality focus of the European Sustainability Reporting Standards (which combine both financial materiality and impact materiality). While the ISSB’s standards use the same financial materiality as IFRS Accounting Standards, both companies and users of the information will have a learning journey to understand how financial materiality operates in the context of sustainability disclosures.

Assurance requirements 

No decision has yet been taken on whether information reported under IFRS Sustainability Disclosure Standards will be subject to assurance, or at what level – limited or reasonable. Mandatory assurance would only be introduced following further consultation. 

Next steps

The call for evidence closes on 11 October 2023.

Once the suitability of IFRS S1 and IFRS S2 has been assessed by the TAC, recommendations will be provided to the Secretary of State for the Department for Business and Trade, who will be responsible for the endorsement decision. The aim is to make a decision on the endorsement of the International Sustainability Disclosure Standards for use in the UK within 12 months of their publication. 

Further information on the IFRS Sustainability Disclosure Standards can be found in ICAEW’s non-financial reporting hub.

Read more about IFRS S1 and IFRS S2 in the UK.