Accountants Accounting and Reporting Policy Annual and Wider Corporate Reporting International Sustainability Standards Setting Factsheet

International Sustainability Standards Setting Factsheet

Introduction

This factsheet has been prepared by FRC staff to inform our UK company stakeholders of developments in sustainability standard setting by the International Financial Reporting Standards Foundation (‘IFRS Foundation’). This is a fast moving agenda that has the potential to impact corporate reporting significantly in the future. Originally published in November 2021, this factsheet has been updated to reflect recent developments.

What is the IFRS Foundation’s role in sustainability reporting?

In response to calls from investors for consistent and comparable sustainability information, the IFRS Foundation has established an International Sustainability Standards Board (ISSB) to develop international sustainability disclosure standards.

These IFRS Sustainability Disclosure Standards aim to deliver a global baseline of disclosure standards that will focus on reporting that is aimed at investors and other capital market participants, enabling them to assess the impact of sustainability matters on enterprise value.

The IFRS Foundation announced the formation of the ISSB on 3 November 2021 at COP26. The ISSB will have a multi‑location presence with the key functions being in Frankfurt (seat of the Board and office of the Chair) and Montreal.

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When will International Sustainability Standards be issued?

On 31 March 2022, the ISSB released exposure drafts for two Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. Both exposure drafts build on the preliminary work and prototype standards created by the Technical Readiness Working Group (TRWG) and are open for comment until the 29 July 2022.

The ISSB expects to review feedback on the proposals in the second half of 2022 and aims to issue the new Standards by the end of the year, subject to the feedback.

It is expected that the ISSB will develop a suite of standards on a range of sustainability topics. A consultation on the technical agenda is expected by the end of 2022.

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How will the standards impact UK companies?

As with the adoption of International Accounting Standards (IAS/IFRS), it will be for individual jurisdictions to determine whether the IFRS Sustainability Disclosure Standards are mandated for use, the scope of companies affected and the timeframe over which this might take place.
This will be something for the UK to consider.

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What about the existing voluntary frameworks that companies have been using to report on sustainability matters?

A number of existing voluntary reporting frameworks will form the building blocks of the international standards. The Climate Disclosure Standards Board (CDSB) was consolidated into the ISSB in February 2022, and it is expected that the Value Reporting Foundation (housing the International Integrated Reporting Framework and Sustainability Accounting Standards Board (SASB) Standards) will consolidate into the ISSB by June 2022. The international standards will also build on the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).

In the transition phase while the international standards are being developed, the ISSB encourages report preparers to continue to use the voluntary standards and application guidance.

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How does this interact with other UK non-financial reporting developments?

For accounting periods beginning on or after 1 January 2021, UK premium listed companies are required to provide TCFD disclosures on a ‘comply or explain’ basis as part of the Financial Conduct Authority’s Listing Rules. This requirement was expanded to include standard listed issuers, in addition to new rules for asset managers, life insurers and FCA‑regulated pension providers, to apply for accounting periods beginning on or after 1 January 2022.

The Government has also set TCFD disclosure requirements through The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/31). This places requirements on certain publicly quoted companies, large private companies and LLPs to incorporate TCFD-aligned climate disclosures in their Strategic Reports for accounting periods beginning on or after 6 April 2022.

Both the IFRS Sustainability Disclosure Standards and the UK mandatory disclosure requirements build upon the recommendations of the TCFD and therefore have significant alignment.

In the 2020 FRC Statement on Non-Financial Reporting Frameworks, the FRC encouraged companies to use the TCFD and SASB frameworks. The FRC continues to encourage companies to explore the SASB standards.

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What are the views on international standards being set by the IFRS Foundation?

The IFRS Foundation’s consultations on its role in setting sustainability disclosure standards (December 2020) and changing its Constitution to accommodate an ISSB (April 2021) received significant global support.

The FRC is strongly supportive of the development of high-quality global standards for sustainability reporting and the establishment of the ISSB.

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What are the FRC’s current activities relating to International Sustainability Standard Setting?

The FRC is watching the developments at the IFRS Foundation with interest, influencing as appropriate and considering the implications for the future reporting frameworks.

The FRC outlined preliminary thoughts on the prototype standards which were published by the TRWG in November 2020.

The FRC welcomes the opportunity to comment on the first two proposed Standards and will be submitting a response to the consultations. The FRC encourages others to submit their responses to the ISSB by the deadline 29 July 2022.

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Further information

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