The content on this page has been converted from PDF to HTML format using an artificial intelligence (AI) tool as part of our ongoing efforts to improve accessibility and usability of our publications. Note:
- No human verification has been conducted of the converted content.
- While we strive for accuracy errors or omissions may exist.
- This content is provided for informational purposes only and should not be relied upon as a definitive or authoritative source.
- For the official and verified version of the publication, refer to the original PDF document.
If you identify any inaccuracies or have concerns about the content, please contact us at [email protected].
TAC Public Meeting May 2024 Paper 3: Work plan for technical assessment of IFRS S1 and IFRS S2
Executive summary
| Date | 31 May 2024 |
| Paper reference | 2024-TAC-002 |
| Project | Technical assessment of IFRS S1 and IFRS S2 |
| Topic | Work plan for technical assessment of IFRS S1 and IFRS S2 |
Objective of the paper
This paper outlines the proposed technical work plan that will be used by the UK Sustainability Disclosure Technical Advisory Committee (TAC) to assess IFRS S1 and IFRS S2 for prospective endorsement in the UK. This work plan applies the assessment approach—which was discussed in a previous paper (reference 2024-TAC-001)—and outlines the proposed priority technical areas to be discussed in future meetings.
Decisions for the TAC
The TAC is asked to approve the proposed work plan and technical areas identified.
Appendices
Appendix 1 - Initial assessment of priority technical areas in IFRS S1 & IFRS S2
This paper has been prepared by the Secretariat for the UK Sustainability Disclosure Technical Advisory Committee (TAC) to discuss in a public meeting. This paper does not represent the views of the TAC or any individual TAC member.
Context
1The UK Sustainability Disclosure Technical Advisory Committee (TAC) has received a commission from the Minister of State for Enterprise, Markets and Small Business to undertake a technical assessment of the IFRS® Sustainability Disclosure Standards—specifically, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2)—to determine their appropriateness for use in the UK.
2The TAC will assess whether endorsing IFRS S1 and IFRS S2, to create UK Sustainability Reporting Standards, would be conducive to the long-term public good in the UK. This paper sets out the proposed technical work plan, including the scope and process of the assessment, and the technical areas that have been prioritised. This technical work plan applies the assessment approach—which was discussed in a previous paper (reference 2024-TAC-001)—and outlines which priority technical areas are proposed for discussion at future meetings.
Assessment of IFRS S1 and IFRS S2
Assessment approach
3Using the assessment approach outlined in paper 2024-TAC-001, the TAC will conduct a detailed assessment on priority technical areas that have been determined as meriting further assessment. This approach will ensure the timely delivery of advice to the Secretary of State (SoS). The TAC will assess IFRS S1 and IFRS S2 (the standards) at the same time.
4This technical assessment will only consider the content in the standards—including the appendices that are contained in the standard—but not the accompanying documentation. For clarity, this means that the basis for conclusions and accompanying guidance for IFRS S1 and IFRS S2—including the Industry-based Guidance on Implementing IFRS S2—will be excluded from this assessment. The TAC may observe a need for guidance to support the application of the standards, but is not required to complete a full assessment of all available guidance, including guidance published by ISSB.
5Any third-party sources that are referenced in the standards are also excluded from this technical assessment. This includes the Greenhouse Gas Protocol, the Sustainability Accounting Standards Board (SASB) Standards, and the Climate Disclosure Standards Board (CDSB) Framework Application Guidance. However, given the nature of the references in IFRS S1 and IFRS S2 to both the Greenhouse Gas Protocol and the SASB Standards, the TAC will need to consider the use of these documents as required by the standards. For clarity, the TAC will assess the requirements in IFRS S1 and IFRS S2 that refer to the use of the Greenhouse Gas Protocol and SASB Standards, but there will be no detailed assessment of the content contained within the Greenhouse Gas Protocol and SASB Standards.
6As requested by the Department of Business and Trade (DBT), in the absence of decisions regarding the implementation of IFRS S1 and IFRS S2, the TAC will conduct the technical assessment using Public Interest Entities (PIEs) as the relevant scope.
Prioritisation of technical areas
7The two-step prioritisation process has been used to establish which technical areas the TAC should focus on in its detailed assessment of IFRS S1 and IFRS S2. This process included the identification of the technical areas for consideration, and an initial assessment of these areas against the endorsement criteria.
Identification of technical areas
8The first step was to identify a list of technical areas that have been considered as meriting further consideration. To identify these technical areas, the Secretariat conducted several research and stakeholder engagement activities, including:
- completing a desktop analysis of the standards, including the accompanying documentation.
- reviewing third-party publications and commentaries about IFRS S1 and IFRS S2 especially from UK sources.
- reviewing responses to the TAC's call for evidence which was open from July to October 2023.
- reviewing comment letters submitted by UK stakeholders to the International Sustainability Standards Board (ISSB) on the Exposure Drafts of IFRS S1 and IFRS S2.
- attending roundtables held in Q4 2023 with UK stakeholders and having further discussions with individual preparers.
- engaging with standard setters in other jurisdictions.
9Identifying technical areas using this approach means that the detailed assessment of the standards will focus on matters that have been raised by UK stakeholders or those that have been subject to considerable debate.
10For clarity, this paper uses the term 'stakeholders' to refer to all individuals and groups that have provided views on the IFRS® Sustainability Disclosure Standards, including those that responded to the IFRS S1 and IFRS S2 Exposure Draft consultation in 2022, the TAC's call for evidence and the participants at the roundtables.
11The following paragraphs describe the research and stakeholder engagement activities undertaken by the Secretariat.
Desktop analysis of the standards
12IFRS S1 and IFRS S2 were published on 26 June 2023. Since publication, the Secretariat has analysed the requirements of the standards including:
- reviewing all published material, including the Basis for Conclusions for IFRS S1 and IFRS S2, and the accompanying guidance material.
- completing a comparison of IFRS S1 and IFRS S2 against the Exposure Drafts.
- examining IFRS Staff Papers that were presented to the ISSB for their deliberation of IFRS S1 and IFRS S2.
- reviewing the ISSB deliberations by watching recordings of the public meetings.
13This desktop analysis provided insight into requirements in the standards, including how the ISSB made decisions during its deliberation of IFRS S1 and IFRS S2.
Review of third-party publications and commentary
14Since the issue of the IFRS S1 and IFRS S2 in June 2023, there have been many webinars and publications that have commented on either the standards as a whole, or specific areas of the standards. The Secretariat has collected views shared through these channels to identify technical areas that have been subject to questions or seem to be contentious. For example, the Secretariat attended webinars hosted by third-party providers and recorded the questions asked by attendees.
UK views on the IFRS S1 and IFRS S2 Exposure Drafts
15The Exposure Drafts for IFRS S1 and IFRS S2 were published in March 2022 and were open for comment for 120 days. During that time, over 1,4001 responses were submitted to the ISSB with views from stakeholders about the requirements proposed in the Exposure Drafts.
16The Secretariat extracted the responses from UK stakeholders to understand the views from a UK context. The table below summarises the number of UK responses that were submitted to the ISSB, including the type of stakeholder that submitted the response.
| Stakeholder type | No. of responses |
|---|---|
| Company | 22 |
| Industry group - Companies | 8 |
| Investor | 8 |
| Industry group - Investors | 7 |
| Consultancy/Design agency | 4 |
| Accounting | 3 |
| Law firm | 2 |
| Academic | 1 |
| Stock exchange | 1 |
| Other | 1 |
| Total | 57 |
17Although these responses were prepared and submitted to the ISSB on the Exposure Drafts, the Secretariat was able to use these responses to identify technical areas in the standards that were raised by UK stakeholders as areas that were likely to be challenging to apply. For example, 43 out of 57 UK responses commented on the requirements on materiality, including views on the definition and application of materiality, and 37 out of 57 UK responses commented on Scope 3 requirements.
Call for evidence
18Following the publication of IFRS S1 and IFRS S2 in June 2023, the Financial Reporting Council (FRC) in its role as the Secretariat to the TAC published a call for evidence to collect views from stakeholders about the suitability of the standards for use in the UK.
19The call for evidence was published on 18 July 2023 and closed on 11 October 2023. It was aimed at those preparing corporate disclosures and primary users of general purpose financial reports (investors). Other stakeholders with an interest in sustainability-related disclosure in the UK were also encouraged to respond.
20There were 45 responses to the call for evidence. The table below shows the breakdown of the respondents by stakeholder type.
| Stakeholder type | No. of responses |
|---|---|
| Accounting | 12 |
| Investor | 7 |
| Industry group – Investors | 7 |
| Company | 5 |
| Industry group – Companies | 5 |
| Other | 4 |
| Consultancy/Design agency | 2 |
| Individual | 2 |
| Academic | 1 |
| Total | 45 |
21Once the call for evidence closed, the responses were reviewed and coded to identify commonalities and the most significant areas of concern. Except where respondents explicitly requested confidentiality, the responses to the call for evidence were made available on the FRC website.
Call for evidence roundtables
22Alongside the call for evidence, in Q4 2023 the Secretariat attended five roundtables—that were specifically about the call for evidence—to collect further views about IFRS S1 and IFRS S2 and their prospective use in the UK.
23The roundtables were hosted by:
- UK Finance—with a focus on the banking industry.
- The Investment Association—with a focus on investors.
- Accounting for Sustainability (A4S)—with a focus on companies and investors.
- Institute of Chartered Accountants in England and Wales (ICAEW)— with a focus on accounting/audit professionals.
- Institute of Chartered Accountants of Scotland (ICAS)—with a mix of companies, banks, investors, academics, and accountancy/audit professionals.
24These roundtables included 74 participants in total and represented a range of stakeholder groups including companies, investors, academics, and accounting and audit professionals. The table below summarises these participants by stakeholder type.
| Stakeholder type | No. of participants |
|---|---|
| Company | 34 |
| Investor | 21 |
| Accounting | 15 |
| Academic | 2 |
| Consultancy/Design Agency | 1 |
| Industry group - Companies | 1 |
| Total | 74 |
Engagement with other jurisdictions
25The Secretariat has monitored, and continues to monitor, reporting standards and mandatory reporting requirements being developed in other jurisdictions. In particular, the Secretariat has prioritised jurisdictions that have made explicit commitments to consider the endorsement of the IFRS Sustainability Disclosure Standards. By monitoring international standard setting activity, the Secretariat has been able to ascertain which technical areas have been the most challenging to incorporate into jurisdictional requirements.
26Additionally, the FRC represents the UK at the IFRS Foundation's Sustainability Standards Advisory Forum (SSAF) and the Jurisdictional Working Group which provide forums for discussion between jurisdictional standard setters.
Initial assessment of the technical areas of concern
27Once the technical areas were identified in Step 1, an initial assessment was conducted to further prioritise the proposed technical areas for the TAC to deliberate on. This assessment was performed on a thematic basis to minimise repetition.
28To complete this initial assessment, the Secretariat conducted an assessment against each of the endorsement criteria, taking into consideration views about:
- whether the requirements meet all the endorsement criteria.
- whether the requirements are likely to have a significant impact in the UK.
- whether there has been significant interest from stakeholders about a particular technical area.
29When performing the initial assessment, the Secretariat observed that some of the issues raised by stakeholders were overarching and cross-cutting issues that relate to one or multiple requirements, or the standards as a whole. For example, interoperability of the requirements with other jurisdictional requirements is an issue that relates to the standards as a whole, but also relates to specific technical areas (e.g., greenhouse gas emissions reporting). The Secretariat proposes to table standalone papers on specific technical areas, but given the interconnected nature of the reporting framework, it may not be possible to fully address all aspects of a given technical area in just one paper. It is likely therefore that some technical areas will need to be discussed in relation to others. For example, interoperability could be discussed in a standalone paper as it relates to the standards as a whole but could also be addressed when discussing greenhouse gas emissions reporting.
30On completion of the initial assessment, the following technical areas have been highlighted as proposed priorities for the TAC to include in its work plan. The technical areas below are listed in no particular order. Further information about the findings of the initial assessment is presented in Appendix 1. These priority technical areas will be assessed in detail against the endorsement criteria and presented to the TAC at future meetings.
| Overarching / cross-cutting technical areas | Specific technical areas |
|---|---|
| Relationship with other UK requirements | Materiality |
| International interoperability | Identifying risks and opportunities, including the industry-based approach |
| Connectivity and integration | Sources of guidance |
| Proportionality | Timing and location of reporting |
| Reliefs | Commercial sensitivity |
| Aggregation and disaggregation | Judgements, uncertainties and errors |
| Reporting boundary / consolidated group accounts | |
| Value chain, including reassessing scope of value chain | |
| Current and anticipated financial effects | |
| Resilience (scenario analysis) | |
| Greenhouse gas emissions including: - Scope 3 emissions - financed emissions - GHG Protocol and measurement methods - disaggregation by consolidated group and JV/associates |
31There were some technical areas that were identified in the first step but were not included in the priority technical areas as UK stakeholders did not provide significant feedback to prompt a detailed discussion. A summary of why these technical areas were not prioritised is included in Appendix 1. Even though these areas have not been prioritised for the purpose of the technical assessment of IFRS S1 and IFRS S2, this does not mean that the TAC considers them unimportant. Furthermore, the TAC may decide to discuss these technical areas once the assessment of IFRS S1 and IFRS S2 has been complete. The TAC may also decide before, or during, the detailed assessment that these technical areas warrant further discussion and, therefore, may add them to the work plan.
| Technical areas not prioritised |
|---|
| Targets and carbon credits |
| Transition plans |
| Cross-industry metrics in IFRS S2 (other than greenhouse gas emissions) |
32As the TAC progresses with its detailed assessment of the IFRS Sustainability Disclosure Standards, it may decide to make changes to the technical areas that need to be reviewed in detail and will apply the approach described in the paper 2024-TAC-001. The TAC will need to decide whether any additional technical areas should be added to the work plan as part of the assessment of IFRS S1 and IFRS S2, and whether they should be prioritised over other technical areas.
Context technical areas from DBT
33In the additional contextual information provided by DBT in the context letter to the TAC, DBT has also requested that the TAC have regard to specific matters during the course of the assessment, including:
- whether definitions in IFRS S1 and IFRS S2 are sufficiently clear and whether any significant incompatibilities are identified with those currently used in UK legislation and regulation.
- whether the existing transition reliefs in IFRS S1 and IFRS S2 should be maintained or extended upon a UK endorsement, including consideration of the level of preparedness of UK companies.
- the timescales involved for public interest entities (PIEs) to have the capacity, skills, and systems to be able to produce reliable Scope 3 disclosures, if they do not do so already, and whether further guidance (and data infrastructure) would be needed to facilitate Scope 3 emissions reporting.
- whether the supporting infrastructure for the disclosure of greenhouse gas emissions, including the availability of necessary data, is sufficient for UK companies to meet the disclosure requirements in IFRS S2—including a consideration of conversion factors and guidance.
- how, in practice, companies are likely to interpret and act upon elements within IFRS S1 and IFRS S2 that state that companies 'shall refer to and consider' the SASB materials, and whether permanent or temporary amendments may be required.
- whether there is need for additional ISSB-issued or UK-specific guidance should be issued to assist with specific disclosure requirements in IFRS S1 or IFRS S2.
- the degree to which disclosures against the proposed UK-endorsed IFRS S1 and IFRS S2 are capable of being assured to a reasonable assurance level.
34The Secretariat believes that these matters requested by DBT are either already addressed in the proposed priority technical areas, or are overarching and cross-cutting technical areas that are likely to be addressed during discussions in relation to other technical areas. For example, the definitions used in IFRS S1 and IFRS S2 are likely to be addressed in the relation to the technical areas.
Next steps
35If the TAC approves the work plan and priority technical areas, the next steps will be to commence a detailed assessment of the priority technical areas. The Secretariat will present papers to the TAC in future meetings that will include:
- An outline of the technical area, including what is required and any insight into the ISSB's decisions.
- a summary of UK stakeholder views.
- when appropriate, a summary of other jurisdictional approaches.
- an analysis of the requirements against the endorsement criteria.
- suggested endorsement recommendations (including options that were considered but disregarded).
36In future meetings, the TAC will be asked to review and deliberate on the detailed assessment presented in these papers and to conclude whether they agree with the assessment or whether any further aspects should be considered. The TAC will also be asked to approve, reject or amend the suggested endorsement recommendations. The tentative decisions made in these meetings will form the basis for the final endorsement recommendations that will be presented to the SoS.
Questions for the TAC
(i) Does the TAC approve the proposed work plan and priority technical areas summarised in this paper?
Appendix 1 – Initial assessment of priority technical areas in IFRS S1 & IFRS S2
| Technical area | Stakeholder and Secretariat views | Reasons for prioritisation |
|---|---|---|
| Relationship with existing UK requirements | - Application of IFRS S1 and IFRS S2 would be an evolution of existing UK requirements—building on TCFD, SECR, FCA Listing Rules, and broader strategic report requirements. - There is risk that the already fragmented and complex reporting framework in the UK could be made more complex and unduly burdensome with the introduction of IFRS S1 and IFRS S2. - The introduction of IFRS Sustainability Disclosure Requirements could be viewed as an opportunity to streamline existing requirements and remove duplication. |
The TAC's remit does not include decisions on wider disclosure requirements in the UK. However, in the assessment of IFRS S1 and IFRS S2 the TAC should be cognisant of existing UK reporting requirements, and whether the introduction of IFRS S1 and IFRS S2 will overlap, duplicate or contradict any existing requirement as this may impact the quality of reporting in the UK. The Secretariat has concluded that this is a technical area that requires further assessment. |
| International interoperability | - Interoperability, especially with EU's Corporate Sustainability Reporting Directive (CSRD), was the most common issue raised by stakeholders. - Many UK entities will be in scope of the CSRD, and even if they are not, it is possible that these entities will refer to the European Sustainability Reporting Standards (ESRS) in the absence of a full suite of IFRS Sustainability Disclosure Standards. - Additionally, other jurisdictions are developing their own standards/requirements and approach to implementing the IFRS Sustainability Disclosure Standards. Any jurisdictional differences could create significant compliance costs for large entities who are required to meet multiple jurisdictional requirements. |
Interoperability has been highlighted as a specific concern by stakeholders, especially where the IFRS Sustainability Disclosure Standards diverge from ESRS. Given that the CSRD and ESRS will have an impact on UK entities, the TAC should include interoperability as a priority technical area. Interoperability will be assessed in relation to relevant technical areas and may not necessarily be presented to the TAC as a separate paper. For example, interoperability may be included as part of the discussion on materiality, identifying sustainability-related risks and opportunities, timing and location of reporting, and greenhouse gas emissions. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Connectivity and integration | - Most stakeholders supported the principle of connectivity, noting the importance of sustainability-related information being prepared in a similar manner to financial information. - Sustainability-related information will be most helpful when integrated into the strategic report where it will give a better picture of the business. However, connectivity could lead to repetitive disclosure that could obscure material information. - There may be challenges in connecting sustainability-related information with information in the financial statements, most notably in relation to the different time horizons that are used to understand the risks and opportunities, and the difficultly in linking specific sustainability-related matters with line items in financial statements. - Stakeholders requested further guidance on connectivity, particularly as it relates to the financial statements. |
The TAC's remit does not extend to accounting standards and the content of the financial statements, and therefore an assessment of the impact of sustainability-related information in the financial statements is beyond the scope of this assessment. However, the requirements on connectivity are not just about connectivity with financial statements, but also connectivity across different sustainability topics, and the TAC should consider the requirements as a whole. Connectivity and integration will be assessed in relation to relevant technical areas and may not necessarily be presented to the TAC as a separate paper. For example, connectivity and integration may be included as part of the discussion on current and anticipated financial effects. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Proportionality | - Proportionality and scalability were common themes in the UK responses to the IFRS S1 and IFRS S2 Exposure Drafts. Stakeholders requested that these mechanisms take into account the different sizes and capabilities of entities that are preparing sustainability-related financial disclosures. - The proportionality mechanisms make the disclosure of a compliance statement difficult in practice. Stakeholders requested guidance on how an entity can assert compliance with the standards if they have used any of the proportionality mechanisms. |
The TAC should consider whether the proportionality mechanisms in IFRS S1 and IFRS S2 are sufficient and appropriate. The TAC should also consider how all the proportionality mechanisms work together and how they might impact the completeness of the disclosures. Proportionality will be assessed in relation to relevant technical areas and may not necessarily be presented to the TAC as a separate paper. For example, proportionality may be included as part of the discussion on current and anticipated financial effects, value chain and resilience. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Reliefs | - The transition relief mechanisms were welcomed by stakeholders as they are proportionate and focused on the areas that are particularly challenging and where entities require longer preparation times. - Some stakeholders suggested that the 1 year relief on certain requirements would not be enough and requested these are extended to at least 2 years. Other stakeholders requested that the reliefs are not extended as this could impact users' ability to assess an entity's risks and opportunities. - The Secretariat also noted that the transition reliefs only apply in the first year of reporting. This means that the second year of reporting will see a significant increase in requirements. |
The TAC should consider the reliefs—both transition and permanent—as they relate to specific technical areas. Additionally, the TAC should also consider how the reliefs all work together to determine whether they are sufficient or whether further reliefs are necessary. The TAC should also consider the length of the transition reliefs and whether the accelerated expectations in the second year of reporting is appropriate and proportionate. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Aggregation and disaggregation | - Stakeholders have raised concerns about the requirements to aggregate and disaggregate information in relation to consolidated accounts. - The Secretariat has observed potential practical challenges in relation to the aggregation and disaggregation requirements, in particular as to whether it is sufficiently clear when the entity should aggregate and disaggregate information. |
The TAC should consider whether the requirements on aggregation and disaggregation are technically feasible. This will include assessing the requirements in relation to identifying sustainability-related risks and opportunities, assessing materiality, and the application of the requirements in relation to sustainability-related topics other than climate change. Aggregation and disaggregation will be assessed in relation to relevant technical areas and may not necessarily be presented to the TAC as a separate paper. For example, this will include assessing the requirements in relation to identifying sustainability-related risks and opportunities, materiality, and reporting entity (boundaries). The Secretariat has concluded that this is a technical area that requires further assessment. |
| Materiality | - Overall stakeholders are supportive of the approach taken by the ISSB to align the definition of materiality to that used in the international accounting standards. - Many stakeholders recognised that there may be practical challenges in applying this definition of materiality, especially in relation to all sustainability-related topics (e.g., human rights and other more complex topics). - Many stakeholders identified a need for additional practical guidance and worked examples to assist preparers. |
Whist there is broad consensus that the definition of materiality is appropriate, there are likely to be difficulties in its application, which could lead to divergence in practice. The application of materiality is a pervasive aspect of IFRS S1 and IFRS S2 that will have an impact on the application of other technical areas. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Identifying risks and opportunities | - The large breadth of topics that could be included in the disclosures may make the process for identifying sustainability-related risks and opportunities challenging, especially throughout the value chain. - 'Sustainability-related risks and opportunities' is not well defined, and further clarity is needed as to what is meant by 'all' sustainability-related risks and opportunities. - Some stakeholders believe that IFRS S1 has a clear and well-defined expectation that entities need only disclose material information about risks and opportunities that are likely to affect the entity's prospects. - Existing UK legislation and regulations on sustainability-related reporting mean that UK entities are well placed and should already be prepared to provide sustainability-related disclosures. However, there may be some notable differences in the expectations in existing requirements which might make disclosure fragmented and confusing. |
The identification of sustainability-related risks and opportunities is fundamental to the objective of IFRS S1 and IFRS S2. The TAC should consider whether the definitions and requirements are sufficiently clear, and how the requirements are likely be applied in the UK. This technical area should also be considered in the context of materiality assessments. Additionally, the TAC may also consider the impact of other jurisdictional requirements that require the disclosure of specific sustainability-related topics. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Industry-based approach | - Most stakeholders supported an industry-based approach to sustainability-related reporting, noting that it enables comparability. However, concerns were also raised that an industry-based approach that was too prescriptive could lead to a tick-box exercise and boilerplate disclosure. - Some stakeholders warned that an industry-based approach shouldn't replace an entity-specific materiality assessment, and that a flexible approach would allow entities to define what information is material in their context. - The feedback on the SASB Standards is mixed, with some stakeholders suggesting that they are useful guidance, whereas others suggesting that they are not yet fit for purpose for use in the UK. |
Overall, the feedback from stakeholders indicates that they support an industry-based approach, but not necessarily the use of the SASB Standards. The TAC should consider industry-based requirements in IFRS S1 and IFRS S2 in the context of the requirements on materiality and identifying sustainability-related risks and opportunities. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Sources of guidance | - The sources of guidance have been the subject of significant debate in many different forums. Stakeholders generally welcomed the sources of guidance to help entities identify the relevant risks and opportunities, especially in absence of a full suite of IFRS Sustainability Disclosure Standards. - Concerns were raised about references to third-party materials within the standards, especially if these materials were not developed using the same conceptual frameworks and are not subject to the IFRS due process. - Most stakeholders welcomed the reference to the SASB Standards but requested that the instruction to use these standards is changed from 'shall' to 'may' to prevent overly prescriptive and boilerplate disclosure. Stakeholders also welcomed the reference to the EU's ESRS and GRI Standards. |
Given the mixed views on the sources of guidance, the TAC should consider the appropriateness of the sources of guidance in IFRS S1 for use in the UK. The TAC should also consider whether the instructions 'shall/may refer to and consider' is clear and how it is likely to be applied in practice. The sources of guidance are intrinsically connected to the requirements on materiality and identifying sustainability-related risks and opportunities, and therefore the TAC should consider the sources of guidance in the context of these requirements. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Timing and location of reporting | - The majority of stakeholders supported reporting of sustainability-related financial disclosures at the same time and in the same location as general purpose financial reports. However, there were different views as to which specific location was most appropriate and concerns were raised about whether the flexibility offered by IFRS S1 could lead to diverging practice that impedes comparability. - Data challenges for certain sustainability-related disclosures would mean data lags are almost inevitable, particularly in the initial years of application. - The Secretariat noted that current reporting in the UK already requires this information to be in the annual report and accounts, and deviation from this practice could be detrimental to the quality of reporting in the UK. |
Although the decision about the location of reporting will be made by DBT or the FCA (though the Companies Act or Listing Rules), as IFRS S1 specifies requirements on the timing and location of reporting the TAC should consider the technical feasibility of the requirements and whether any amendments are necessary for adoption in the UK. In particular, the TAC should consider the transition relief on the timing of reporting in the context of existing reporting in the UK. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Commercial sensitivity | - Concerns had been raised on the Exposure Drafts of IFRS S1 and IFRS S2 about the requirements for disclosure of commercially sensitive information, especially in relation to the disclosure of opportunities. - The Secretariat has observed that the requirements in IFRS S1 may not align with existing provisions in UK legislation. |
Although stakeholders have not reiterated any concerns about the requirements on commercial sensitivities in the final standards, there may be application challenges in the UK where the requirements do not necessarily align with existing provisions in the UK. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Judgements, uncertainties and errors / Revising comparatives | - Stakeholders supported the requirements for disclosure of judgements, estimates and errors in IFRS S1 as they are consistent with IFRS Accounting Standards (namely IAS 1 and IAS 8). However, some stakeholder requested additional application guidance. - There were mixed views on the requirement in IFRS S1 paragraph B50 to revise comparatives, especially in relation to a change in estimate. Some stakeholders recognised the importance of revising comparatives as a result of a change in estimate due to the heavy reliance on estimation for the calculation of sustainability-related metrics. However, this requirement is different to IFRS Accounting Standards and therefore there would be a steep learning curve and place additional burden on entities to be able to apply the requirements in practice. - Some stakeholders acknowledged that the distinction between an error and change in estimate is clear in financial reporting, but its treatment in sustainability-related reporting is different. Stakeholders recommended that further guidance is provided on how to distinguish between an error and a change in estimate, especially when the change is due to an error. |
Stakeholders have highlighted some significant challenges in the application of the requirements to disclose judgements, uncertainties and errors, especially in relation to revising comparatives as a result of a change in estimate. The TAC should consider whether it is sufficiently clear as to when an entity is required to revise a comparative. Additionally, this area is likely to have implications for any provision of assurance of the information. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Reporting boundary / consolidated group accounts | - The sometimes complex relationship between parent, intermediate parent and subsidiaries may create challenges on the disclosure of sustainability-related risks and opportunities, especially when the relevance of sustainability-related information and its connection to financial statements may be complex and misaligned. For example, one stakeholder noted that sustainability-related financial information may not be monitored at intermediate parent level as it might not have involvement in the strategy of the subsidiary, or it might not have the same external stakeholders to satisfy. - One stakeholder representing financial institutions noted that groups in their industry use a financial view of control for financial reporting that doesn't necessarily align with sustainability-related reporting which often uses an operational view of control. - One stakeholder also suggested that guidance should be provided on how to treat acquisitions and disposals under the IFRS Sustainability Disclosure Standards, in particular regard to baseline metrics and comparatives. |
The TAC should consider the requirements on the reporting entity as they pertain to the identification of risks and opportunities, materiality, value chain, connectivity, metrics and targets, and at the required level of consolidation. In particular, the TAC may consider how risks and opportunities are aggregated at the consolidated group level and if further guidance is needed on how to treat joint ventures and associates, but also acquisitions and disposals. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Value chain | - Stakeholders have consistently commented on the challenging requirements to disclose information about an entity's value chain, which some have described as the most onerous part of the IFRS Sustainability Disclosure Standards. In particular, concerns have been raised by stakeholders in regard to - identifying and understanding how risks and opportunities manifest in the value chain. - assessing materiality. - understanding the complex relationships between third parties in the value chain. - data availability and quality, including extensive use of estimate. - the cost of collecting information from the value chain. - Many stakeholders requested additional guidance to support the application of the value chain requirements. |
Stakeholders have raised significant concerns about the requirements to disclose information about an entity's value chain. The Secretariat has observed that the requirements in IFRS S1 and IFRS S2 related to the value chain extend beyond Scope 3 emissions, and further consideration may required as to how the requirements apply to wider climate-related and sustainability-related risks and opportunities. Additionally, the assessment and disclosure of value chain information goes beyond traditional accounting requirements that predominantly focus on the reporting entity, and the TAC may consider the implication for connectivity. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Current and anticipated financial effects | - Most stakeholders supported the requirements for the disclosure of information about the financial effects of sustainability-related risks and opportunities on the financial position, financial performance and cash flows. - However, there may be significant challenges in understanding and quantifying the financial effects due to higher degrees of uncertainty and significant use of judgements and estimates, especially for the forward-looking requirements. - Not all sustainability-related risks and opportunities—especially for topics such as human rights and biodiversity—are easily distinguishable in financial terms and it might be difficult to attribute a specific financial effect to a specific sustainability-related risk and opportunity. Additionally, these risks and opportunities cannot be readily quantified in financial terms. Additionally, it will be challenging to quantify the financial impact of sustainability-related matters across multiple time horizons, which will not always align with the time horizons used in financial statements. - The proportionality mechanisms available for the disclosure of current and anticipated financial effects in IFRS S1 paragraph 36-40 and IFRS S2 paragraph 17-21 were broadly welcomed. However, concerns were raised about these mechanisms being permanent in the standards, and whether this would impede the quality of reporting in the long term. |
The TAC should consider whether the requirements for the disclosure of current and anticipated financial effects are technically feasible. The TAC should take into consideration the application of these requirements on sustainability-related topics other than climate change, including whether the effects of a risk or opportunity can be separately identifiable. The TAC should also consider the proportionality mechanisms used for these requirements to determine whether they are sufficient or whether further reliefs are necessary. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Resilience and scenario analysis | - Further guidance has been requested to support the application of the requirements on resilience and scenario analysis. - Some stakeholders have suggested that the UK may consider amending the requirements in IFRS S2 to require entities to take into consideration, and align with, the UK's climate goals. |
Scenario analysis has been a challenging area since the TCFD recommendations were first published, and there is already a plethora of guidance available to the market. Limited concerns have raised about the disclosure requirements on resilience. Instead, stakeholder concerns have primarily focused on the activity of performing a scenario analysis rather than the disclosure aspect. The TAC may consider whether the requirements on resilience in IFRS S1—notably that they pertain to sustainability-related topics other than climate change—are technically feasible. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Greenhouse gas emissions including Scope 3 emissions | - The majority of stakeholders support the inclusion of greenhouse gas emissions reporting in IFRS S2 as it is considered established practice and is critical to understand an entity's exposure to climate-related risks and opportunities. Entities in the UK are already required to report greenhouse gas emissions—through the TCFD, climate-related financial disclosure, and SECR regulations—and therefore already have systems in place to measure and report on greenhouse gas emissions. The TCFD requires Scope 3 greenhouse gas emissions to be disclosed only 'if appropriate'. - Most stakeholders agreed that Scope 3 emissions reporting is essential, but also recognised that it is the most onerous part of an entity's carbon footprint. The biggest challenges are associated with data availability and quality, meaning that disclosures may not be complete or reliable. - Some stakeholders supported the use of “impracticable" in relation to use of estimates to measure Scope 3 emissions. However, some stakeholders requested further guidance on what "impracticable” means. Stakeholders also requested further guidance on the use of estimates, in addition to specific industry guidance which stakeholders believe to be vital to ensure meaningful approach. - The majority of stakeholders welcomed the relief in IFRS S2 that allows phased-in disclosure of Scope 3 emissions. Some stakeholders requested that the period of relief be extended for all or some entities, whilst others warned that any extension to the relief period could impact others ability to disclose their Scope 3 emissions and financed emissions. |
The TAC should consider whether the greenhouse gas emissions disclosure requirements are aligned with the existing reporting requirements in the UK, including whether UK entities are sufficiently prepared to disclose Scope 3 emissions. The TAC should also consider the available relief mechanisms, including the phased Scope 3 emissions requirements, to determine whether they are sufficient or whether further reliefs are necessary. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Financed emissions | - Most stakeholders noted that the financed emissions requirements, whilst challenging, are technically feasible. - Stakeholders highlighted that financial entities have extensive and complex value chains which present challenges with data availability and quality. Whilst IFRS S2 does not mandate a particular approach to financed emissions, some stakeholders have requested that the UK include more references to the PCAF guidance. - Stakeholders have suggested that this should be an area for continued monitoring as practice is established. |
The TAC should consider whether the application of the requirements on financed emissions is likely to improve the quality of reporting in the UK. The Secretariat has concluded that this is a technical area that requires further assessment. |
| GHG Protocol and measurement methods | - The reference to the GHG Protocol in IFRS S2 is supported by most stakeholders who emphasised that the GHG Protocol is internationally recognised and used as standard practice in the market. - Further consideration is needed on how to align the requirements between the SECR with IFRS S2. - Some stakeholders recognised the challenges of including an external reference in IFRS S2, especially as the GHG Protocol does not use the same conceptual framework as the IFRS Sustainability Disclosure Standards. Some stakeholders also insisted that the GHG Protocol needs to go through full endorsement assessment in the UK for legal certainty. |
The reference to a third-party standard creates some challenges in the application of IFRS S2. The TAC should consider the technical feasibility of using the GHG Protocol to apply the requirements in IFRS S2, with specific focus on where the two standards are different. The TAC should also consider the requirements on Global Warming Potential (GWP) and consider how it relates to the conversion factors used in the UK. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Greenhouse gas emissions—disaggregation by consolidated group and other investees | - There were mixed views on requirement to disaggregate greenhouse gas emissions by consolidated group and other investees. - These requirements may be inconsistent with the ESRS requirements and SEC rules, which could make interoperability difficult. - These boundary requirements may also be inconsistent with the requirements in the GHG Protocol and SECR, and therefore stakeholders requested further guidance on how to apply the requirements. |
The TAC should consider the technical feasibility of the requirement to disaggregate greenhouse gas emissions by consolidated group and other investees, including how these requirements align with existing requirements in the UK. The TAC may also consider the interoperability of this requirement and whether UK entities will be required to present this information in multiple ways to satisfy different requirements. The Secretariat has concluded that this is a technical area that requires further assessment. |
| Targets and carbon credits | - In response to IFRS S2 Exposure Draft, some stakeholders believed that the requirement to compare an entity's targets to the latest international agreement on climate change was too prescriptive, whereas others wanted the standard to go further and specify that the targets should be aligned to the Paris Agreement. - No concerns were raised by stakeholders during the call for evidence. |
Although stakeholders raised concerns the requirements in IFRS S2 Exposure Draft, these concerns were not echoed in the call for evidence or roundtable discussion on the finalised standards. The Secretariat has concluded that this is a technical area that does not require further assessment. However, the TAC should note this as an area that should be reviewed as practice develops. |
| Transition plans | - Whilst welcoming the requirements in IFRS S2 on transition planning, some stakeholders requested further application guidance on how to report on transition plans. - Some stakeholders noted the work of the Transition Plan Taskforce (TPT) as helpful guidance, especially as it builds on the requirements in IFRS S1 and IFRS S2 and includes good practice examples. However, some stakeholders requested that the TPT guidance is maintained as non-mandatory guidance as entities should have the discretion to select from a range of resources to meet the requirements. |
The requirements in IFRS S2 are suitably non-prescriptive which allows for flexible application. Although stakeholders have requested further application guidance on transition planning, the potential use of the TPT guidance in the UK does not fall within the scope of the TAC's assessment. The Secretariat has concluded that this is a technical area that does not require further assessment. However, the TAC should note this as an area that should be reviewed as practice develops. |
| Cross-industry metrics in IFRS S2 (other than greenhouse gas emissions) | - Some stakeholders welcomed the cross-industry metrics as they are broadly aligned with the TCFD recommendations and therefore will be familiar to UK entities. - Some stakeholders raised concerns about data challenges associated with these cross-industry metrics, especially in regard to understanding how risks will manifest in the value chain. - Some stakeholders requested more clarity on some of the terms used in these requirements—notably 'vulnerable' and 'aligned with'—and suggested that more guidance is provided on how to determine materiality of these metrics. - Some stakeholders also suggested that the requirement for disclosure of internal carbon pricing is incorrectly categorised as 'cross-industry' as it is only relevant to certain, high-impact industries and not necessarily material for all entities. |
Although there are some concerns from stakeholders about the lack of specificity in the cross-industry metrics, others have welcomed the flexibility of these requirements. The TAC might consider whether the requirements are sufficiently clear, and how these cross-industry metrics connect with the strategy disclosure requirements and with information in the financial statements. The Secretariat has concluded that this is a technical area that might require further assessment. |
-
The 1,400 responses received by the ISSB related to either IFRS S1 Exposure Draft, IFRS S2 Exposure Draft or both. ↩