Developments in the adoption of ISSB standards for sustainability reporting in the UK

The UK government has been considering sustainability disclosure requirements for companies for a number of years and supported the creation of the International Sustainability Standards Board (ISSB) by the IFRS. In its October 2021 roadmap to sustainable investing, "Greening Finance", the UK government stated that it would explore how to adopt and endorse the disclosure standards developed by the ISSB for use in the UK.  With the publication of the first ISSB standards in June this year, there have been a number of developments in the process for adopting these standards in the UK, which we summarise below.

ISSB's sustainability disclosure standards published

The ISSB issued the final form of its first two sustainability disclosure standards (ISSB Standards) in June 2023:

• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information; and
• IFRS S2 Climate-related Disclosures.

You can read more about the ISSB Standards in our ESG blog here.

Following the finalisation of the ISSB Standards, in July 2023 the ISSB published a draft digital taxonomy for use when making disclosures under these standards, which will facilitate structured digital reporting and the comparability of disclosures made. This ISSB consultation closes on 26 September 2023.

Department for Business and Trade announcement and guidance

As noted above, the UK government has previously announced that UK-adopted ISSB standards would form the basis of the UK's sustainability disclosure requirements and in August 2022, it confirmed the process it would take to adoption.  Following issue of the final form of IFRS S1 and S2:

• the Department for Business and Trade (DBT) has published guidance which sets out the framework for the UK adoption of the ISSB Standards.  The guidance confirms that the DBT will consider the endorsement of the ISSB Standards with the aim of creating the UK sustainability disclosure standards (UK SDSs) by July 2024; and
• to support the endorsement process, the government has created two committees:
  • the UK Sustainability Disclosure Technical Advisory Committee (TAC), supported by the Financial Reporting Council (FRC), which will work on the technical aspects of the process.  The FRC published a call for evidence on the proposed UK adoption of the ISSB Standards in July (see our blog for further information); and
  • the UK Sustainability Disclosure Policy and Implementation Committee (PIC), which will coordinate the implementation of the UK SDSs by the government and the Financial Conduct Authority (FCA).

FCA Primary Market Bulletin

The FCA has published Primary Market Bulletin 45 (PMB 45) in which it says that it plans to consult on the implementation of disclosure rules based on the UK SDSs in the first half of 2024.  Assuming that the UK endorsement of the first two ISSB Standards is completed by July 2024, the FCA aims to finalise its approach by the end of 2024. The new requirements will apply to financial years beginning on or after 1 January 2025, with the first reporting being required in 2026.

The FCA also confirmed that it will consult on its proposals for the publication of climate transition plans by listed companies, building on the work of the UK Transition Plan Taskforce (TPT).  The TPT is expected to publish its final disclosure framework for transition plans in October 2023 (see our ESG blog post for further details on the work of the TPT).

The FCA also noted in PMB 45 two related workstreams on sustainability disclosure requirements:

• the ISSB's draft digital taxonomy published in July (see further above); and
• the work of the International Auditing and Assurance Standards Board (IAASB) on international assurance standards for sustainability reporting.  The IAASB published a draft standard (ISSA 5000) in June 2023, which closes for comment in December 2023.

EU requirements

The EU's requirements in relation to sustainability reporting are contained in the Corporate Sustainability Reporting Directive (CSRD), which came into force in January 2023 (for more details on the CSRD see our corporate snapshot).  At the end of July 2023, the EU Commission adopted disclosures standards, the European Sustainability Reporting Standards (ESRS), for use by companies reporting under the CSRD (for more details on the ESRS, please see our August UK ESG newsletter).

Further information on the interaction between the sustainability disclosure requirements under the CSRD, the ISSB Standards and the SEC proposals for US issuers can be found in our ESG bulletin here.