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With the publication of the ISSB’s first two IFRS Sustainability Disclosure Standards in June 2023, UK companies are considering how they are impacted. This page answers common questions relating to the adoption of IFRS S1 and IFRS S2 for use by UK reporters.

Endorsement of IFRS S1 and IFRS S2 in the UK

For IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2) to be available to UK companies, they must first be endorsed for use in the UK.

In its March 2023 Green Finance Strategy, the UK Government reconfirmed its commitment to assess and decide whether to endorse the standards. The Secretary of State for the Department for Business and Trade (DBT) will be responsible for this endorsement decision. In guidance issued in August 2023, DBT confirmed the aim for endorsement decisions to create the first two UK Sustainability Disclosure Standards (UK SDS) to be made by July 2024. UK SDS will be based on the International Sustainability Standards Board’s (ISSB) standards and will only divert from the global baseline if absolutely necessary for UK specific matters.

The Secretary of State’s endorsement decision will be informed by the UK Sustainability Disclosure Technical Advisory Committee (TAC), which will assess the suitability of the standards for application in the UK. As a first step in its assessment, the TAC secretariat has published a call for evidence to seek the views of stakeholders with an interest in sustainability reporting in the UK.

TAC will then provide recommendations to the Secretary of State, via DBT, to inform the decision on whether to endorse the ISSB’s standards for use in the UK.

The UK Endorsement Board (UKEB), which endorses IFRS Accounting Standards for use by UK companies, will be a member of TAC. While UKEB will not have responsibility for endorsement of the sustainability standards, it will be considering connectivity issues between IFRS Sustainability Disclosure Standards and IFRS Accounting Standards.

In addition to TAC, a second advisory committee - the UK Sustainability Disclosure Policy and Implementation Committee (PIC) – has been established by the government to support decision-making both on the endorsement of the standards and on subsequent implementation.

Scope and implementation

If the Secretary of State endorses the standards, UK SDS may be referred to in any legal or regulatory requirements for UK entities.

Decisions on scope and implementation of any mandatory reporting requirements against the UK-endorsed standards will be taken following further consultation. Decisions mandating disclosure will be taken independently by the UK government - for UK registered companies and limited liability partnerships - and the Financial Conduct Authority (FCA) for UK listed companies. This would include decisions on, for example, whether the standards would apply on a ‘comply or explain’ basis, and whether wholly-owned subsidiaries should benefit from a reporting exemption if the parent also reports using the standards. PIC will coordinate the implementation of UK SDS by the UK government and the FCA.

As ISSB standards are designed to be GAAP agnostic, the scope of companies potentially required to adopt the standards will not be dependent on whether the entity uses IFRS or UK GAAP.

Decisions on implementation will include any effective date for UK SDS. The effective date of 1 January 2024 stated in the ISSB standards therefore is not relevant in the context of UK reporting.

The location of disclosures within company reporting will also be subject to consultation. However, the Strategic Report is a key component of UK reporting and already contains information which is similar in nature to that required by the standards. While no decisions have yet been taken on how to implement IFRS S1 and IFRS S2 in the UK, a separate ‘sustainability’ report would not be consistent with the current UK framework.

Transitional reliefs

IFRS S1 and IFRS S2 as issued by the ISSB contain a suite of transitional reliefs, including a one-year relief on disclosure of comparative information and Scope 3 greenhouse gas emissions. TAC’s call for evidence asks for views on whether the reliefs set out in the standards are sufficient to allow companies to develop the systems and capabilities necessary to report.

Interaction with existing requirements

Reporters will see a degree of commonality between IFRS S2 and the UK’s Climate-related Financial Disclosure Regulations as both are based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

While IFRS S2 goes beyond the requirements of the TCFD recommendations, the comparison of IFRS S2 to the TCFD recommendations published by the IFRS Foundation demonstrates how IFRS S2 integrates the TCFD recommendations. Reporters who already apply the TCFD recommendations or the UK’s Climate-related Financial Disclosure Regulations will therefore be well-placed to apply UK SDS in future, particularly any requirements based on IFRS S2.

No decisions have been made on the future of the UK’s existing Climate-related Financial Disclosure Regulations, although implementation decisions on IFRS S1 and IFRS S2 will seek to avoid duplication of reporting obligations. PIC’s work will include an analysis of the interactions between IFRS Sustainability Disclosure Standards and existing UK legislation and regulation.

Assurance requirements in the UK

No decisions have been taken on whether assurance will be required on sustainability disclosures. Mandatory assurance will only be introduced following consultation.

Draft regulations, that in part require companies to produce a triennial Audit and Assurance Policy Statement explaining how the company proposes to assure non-financial reporting, were laid before parliament in July 2023. The draft regulations require disclosure of what assurance has been sought, but do not require companies to obtain additional assurance on sustainability reporting.

To support assurance providers in their work on sustainability assurance engagements, the International Auditing and Assurance Standards Board is currently exposing a draft of International Standard on Sustainability Assurance 5000, General Requirements for Sustainability Assurance Engagement for consultation. The consultation is open until 1 December 2023.

Future projects

In due course, the ISSB will conduct a post-implementation review of IFRS S1 and IFRS S2.

The International Accounting Standards Board has a project on climate related risks in the financial statements on its agenda which will consider the extent to which IFRS standards may need to change as a result of the growing focus on ESG. It is also considering connectivity issues, including the connections between sustainability commitments and constructive obligations.

The information contained on this webpage is based on publicly available information but is also informed by conversations between ICAEW, government and the Financial Reporting Council.

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