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TAC Public Meeting November 2024 Paper 6: Summary of stakeholder feedback on the adoption of IFRS S1 and IFRS 2 in the UK
Executive summary
| Header | Value |
|---|---|
| Date | 05 November 2024 |
| Paper reference | 2024-TAC-027 |
| Project | Technical assessment of IFRS S1 and IFRS S2 |
| Topic | Summary of stakeholder feedback on the adoption of IFRS S1 and IFRS S2 in the UK |
Objective of the paper
This paper presents a consolidated summary of UK stakeholder views on IFRS S1 and IFRS S2. These views were submitted in response to the TAC's 2023 call for evidence and associated roundtable discussions, and also the subsequent stakeholder engagement held in 2024.
Decisions for the TAC
This paper is for information purposes only and no decision is required.
Appendices
- Appendix 1 – Summary of stakeholder engagement activities
- Appendix 2 – Summary of stakeholder feedback by topic
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Context
1Following the publication of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2), the Financial Reporting Council (FRC) in its role as the Secretariat to the UK Sustainability Disclosure Technical Advisory Committee (TAC) engaged with stakeholders in 2023 through a call for evidence and roundtable discussions to collect their views on the use of these standards in the UK. In 2024 the TAC requested that the Secretariat conduct additional stakeholder engagement activities to complement and update the 2023 feedback. The additional stakeholder activities included direct meetings with individual preparers, roundtable discussions and a snapshot survey aimed at capturing any potential implementation challenges or technical areas we had not already identified.
2This document provides a consolidated summary of all stakeholder views gathered in 2023 and 2024. The term 'stakeholders' refers to respondents to the call for evidence and snapshot survey, as well as participants in roundtable discussions and direct meetings. All stakeholder views presented in this paper have been anonymised.
3Appended to this paper is an analysis of stakeholders that provided feedback in appendix 1 and a summary of stakeholder views by topic in appendix 2.
Overview of the responses
4UK stakeholders were supportive about the creation of UK Sustainability Reporting Standards (UK SRS) by assessing and endorsing the global baseline of IFRS Sustainability Disclosure Standards. Stakeholders acknowledged that these standards facilitate globally consistent, comparable and reliable sustainability-related information. While some challenges for adopting them in the UK were highlighted, the stakeholders indicated that, on balance, they were sufficiently prepared for their adoption. The current sustainability reporting landscape in the UK as mandated by the Companies Act 2006 and the Financial Conduct Authority's (FCA) listing rules was considered as a good foundation for adopting these standards. The detailed current sustainability reporting requirements in the UK are outlined in 2024-TAC-004a and 2024-TAC-004b.
5The TAC Secretariat requested feedback from stakeholders that considered whether:
- the stakeholders are generally prepared for the adoption of the standards
- the standards including their key technical areas are understandable, relevant, reliable and comparable for investor
- the standards are technically feasible to prepare
- the standards can be prepared on a timely basis and at the same time as general purpose financial reports, and
- the expected benefits will be proportionate to the costs likely to be incurred.
6The findings of the TAC Secretariat encompassing general preparedness of adoption of the standards and stakeholder views on various technical areas are summarised in the next section with detailed feedback by topic outlined in Appendix 2.
Summary of key findings
7The stakeholder feedback collected by the TAC Secretariat show that stakeholders support the adoption of the IFRS Sustainability Disclosure Standards in the UK. While stakeholders' views on key technical areas, were mostly positive, some concerns were raised. Nevertheless, these concerns were not regarded as substantial obstacles to adopting the standards in the UK.
8The majority of stakeholders expressed confidence in their readiness to adopt the standards in the UK, noting that the UK's advanced current sustainability reporting requirements provide a solid foundation for this transition. Some stakeholders shared that their efforts to comply with the EU Corporate Sustainability Reporting Directive (CSRD) are helping them prepare for IFRS Sustainability Disclosure Standards, especially where reporting requirements overlap.
9Stakeholders agree that these global baseline standards will enable consistent, comparable, and reliable sustainability-related information on the prospects of entities. The 'climate first' approach, where IFRS 2 builds on the TCFD recommendations was welcomed as a practical approach given the current requirements for UK listed companies and large companies to report under the TCFD recommendations and Climate-related Financial Disclosures (CFD) Regulations respectively. In addition, stakeholders appreciated the proportionality mechanisms in the standards that include the transition reliefs and the use of proportionality mechanisms such as 'reasonable and supportable information' for complex disclosures like current and anticipated financial effects. Stakeholders also supported the principle of connectivity between sustainability-related information and financial information seeing this as providing consistent and connected information about an entity. However, concerns were raised about the challenges in connecting sustainability-related risks and opportunities with other financial information due to the challenges of measuring their financial effects.
10The alignment of materiality concepts with those in IFRS Accounting Standards was viewed positively by stakeholders as they consider this as strengthening the connection between financial and sustainability-related disclosures. Yet, some highlighted challenges with assessing materiality over long time horizons, for complex sustainability-related matters and for some cross-industry metrics. Similarly, while identifying sustainability-related risks and opportunities beyond climate was also acknowledged as challenging, stakeholders welcomed the sources of guidance in IFRS S1, which include the requirement to consider SASB Standards and the option to refer to the Climate Disclosure Standards Board (CDSB) framework, other investor-focussed frameworks, industry or local practice, European Sustainability Reporting Standards (ESRS) and Global Reporting Initiative (GRI) Standards.
11Interoperability emerged as a significant concern for stakeholders, especially for multinational entities subject to multiple jurisdictional reporting requirements. The EU's CSRD, the US SEC climate-related disclosures rule, and in some specific industries the GRI Standards were highlighted as some of the key reporting requirements that require interoperability with the IFRS Sustainability Disclosure Standards to minimise reporting burdens.
12For financed emissions, stakeholders highlighted the challenges inherent in complex value chains and expressed interest in the UK supporting the use of the Partnership for Carbon Accounting Financials (PCAF) guidance, as IFRS S2 does not mandate a specific methodology. In terms of emissions measurement, stakeholders were supportive of referencing the GHG Protocol Corporate Standard in IFRS 2, although some expressed concern about legal standing and potential complexities involved.
13The majority of stakeholders were in favour of aligning reporting timelines for sustainability-related information and financial statements. To this end, stakeholders mentioned the benefit of interim data collection, validation and assurance (where required) ahead of year end to reduce reporting pressures.
14Regarding reporting boundaries, many stakeholders suggested that subsidiaries within a group should be exempt from separate IFRS sustainability-related disclosures if consolidated group-level information is provided.
15Overall, stakeholders expressed support for adopting IFRS S1 and IFRS S2 in the UK, recognising these as a foundation for consistent, high-quality sustainability reporting that enhances transparency and comparability across markets. At the same time, stakeholders also identified areas where further guidance could ease the adoption process. Detailed stakeholder feedback on each area is provided in Appendix 2.
Appendix 1 - Summary of stakeholder engagement activities
2023 stakeholder engagement activities
Call for evidence
The call for evidence was published on 18 July 2023 and closed on 11 October 2023. It was aimed at those preparing corporate disclosures (preparers) and primary users of general purpose financial reports (investors). Other stakeholders with an interest in sustainability-related disclosure in the UK were also welcomed to respond.
In total, 45 responses were received. Figure 1 shows the breakdown of the respondents by stakeholder type.
Figure 1 Breakdown of respondents to the call for evidence by stakeholder type.
Not all respondents commented on every question in the call for evidence. Consequently, the number of respondents who commented on a particular question varies and is not necessarily indicative of the views of all respondents.
Roundtable discussions
Alongside the call for evidence, the FRC (in its role as the Secretariat to the TAC) and representatives from DBT attended five roundtables to collect further views about the IFRS Sustainability Disclosure Standards and their prospective use in the UK.
The roundtables had a total of 75 participants who represented a range of stakeholder groups including companies, investors, academics, and accounting and audit professionals. The 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
- The 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.
2024 stakeholder engagement activities
These additional stakeholder engagement activities were conducted to supplement the 2023 feedback with an updated understanding of current perspectives and to identify any new and emerging issues in the UK that might have arisen after the close of the call for evidence. The engagement activities included individual meetings with preparers, a snapshot survey and two roundtable discussions hosted by the Confederation British Industries (CBI) and another one by the UK Corporate Reporting Users' Forum (CRUF).
Individual discussions with preparers
The TAC Secretariat reached out to 20 companies from various sectors to arrange direct meetings, with seven companies accepting. These included six publicly listed companies and one large private company, spanning across the healthcare, aviation, asset management, mining and metals, energy and infrastructure sectors. Discussions focussed on each of the companies' readiness to adopt the standards, any newly identified issues or technical considerations since the close of the 2023 call for evidence, and other perspectives stakeholders deemed relevant to the assessment and endorsement of the standards.
Update snapshot survey
The TAC Secretariat conducted a snapshot survey to assess stakeholders' readiness for adopting the IFRS Sustainability Disclosure Standards and capture any new or emerging issues and technical considerations that have arisen since the close of the 2023 call for evidence. In total, 18 responses were received, with Figure 2 below showing the breakdown of the respondents by stakeholder type.
Figure 2 Breakdown of snapshot survey respondents by stakeholder type.
Roundtable discussions
One roundtable discussion was hosted by the Confederation of British Industry (CBI) in September 2024 and was attended by stakeholders representing preparers and corporate reports users. The TAC Secretariat also attended the Corporate Reporting Users' Forum (CRUF) meeting in September 2024 where discussion of current views on UK endorsement of IFRS Sustainability Disclosure Standards was on the agenda. A total of 36 stakeholders representing preparers, investors, academics, and accounting professionals participated in these two events.
Appendix 2 – Summary of stakeholder feedback
Preparedness for adoption of the standards in the UK
2023 feedback:
The majority of stakeholders mentioned that they are already reporting under a relatively advanced sustainability reporting landscape in the UK when compared to other jurisdictions. Therefore, the UK's established sustainability reporting requirements are expected to support the adoption of the IFRS Sustainability Disclosure Standards. While stakeholders recognised IFRS S1 as introducing some new requirements, they indicated that adopting IFRS S2 should be more manageable as it builds on the TCFD recommendations that are already adopted in the UK.
2024 update:
The feedback update on preparedness to adopt IFRS Sustainability Disclosure Standards was consistent with the views gathered in 2023. In our snapshot survey, the majority of stakeholders rated their level of preparedness as moderate to highly prepared in areas of:
- understanding the standards
- skills and resources availability
- systems and controls development, and
- governance readiness.
On the other hand, on average, the stakeholders considered their level of preparedness on data quality and data availability as moderate to requiring improvement.
Stakeholders that are preparing to report under the EU Corporate Sustainability Reporting Directive (CSRD) mentioned that their preparation for the impending CSRD is also aiding them to prepare for IFRS Sustainability Disclosure Standards, particularly on areas where reporting requirements overlap.
Some stakeholders with multiple jurisdictional reporting requirements pointed to the lack of clarity on timelines and scope of entities as one of the limitations in preparing for the adoption of IFRS S1 and IFRS S2. They highlighted that while the standards can be voluntarily adopted, preparers are interested in knowing the UK effective adoption dates and entities in scope so that they can prioritise and allocate resources accordingly.
Related TAC Papers: Current reporting practice in the UK (2024-TAC-004b), Current reporting framework in the UK (2024-TAC-004a)
Global baseline
2023 feedback:
Stakeholders agree that there is a need for globally consistent, comparable, and reliable information on environmental and social issues that are financially material to the prospects of entities. Therefore, stakeholders support the global-baseline and ISSB's approach, with particular appreciation for the ISSB's principle-based approach. However, many stakeholders also requested additional implementation guidance on the more challenging elements of the standards.
Recognising the importance of the global baseline to enhance comparability and reduce the reporting burden, stakeholders requested that the UK endorsement process ensure limited deviation from the global standards. Stakeholders requested minimal and temporary changes to the standards for use in the UK, but only if absolutely necessary. Some stakeholders suggested that the UK could add additional, jurisdictional-specific requirements, but cautioned that these would need to be proportional and not overly burdensome.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Assessment approach (2024-TAC-001)
'Climate first' approach
2023 feedback:
Some stakeholders noted that IFRS S1 would be more challenging than IFRS S2. Most stakeholders agreed that IFRS S2 builds upon the TCFD recommendations and therefore large and listed UK entities should be prepared to apply the requirements in IFRS S2. However, stakeholders recognise that IFRS S1 is likely to be challenging to implement as it requires broader sustainability-related reporting of a range of matters other than climate change. Stakeholders noted that many of these matters are currently less mature than climate-related reporting in terms of systems, processes and available data. Additionally, some stakeholders suggested that without IFRS Sustainability Disclosure Standards on other sustainability-related topics, there is likely to be inconsistency and disparity in reporting in the initial years of adoption.
Although most stakeholders agreed that IFRS S2 would be easier to implement in the UK, they also recommend that the UK adopt both IFRS S1 and IFRS S2 at the same time. Many stakeholders support the transition relief in IFRS S1 that allows entities to only disclose climate-related matters in the first year, noting that they are likely to take advantage of this relief.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Current reporting practice in the UK (2024-TAC-004b), Identifying sustainability-related risks and opportunities (2024-TAC-010), Mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements (2024-TAC-021)
Interaction with existing UK requirements
2023 feedback:
Stakeholders have observed that the UK is a leader in requiring sustainability-related disclosures, and the implementation of the IFRS Sustainability Disclosure Standards would be an evolution of existing UK requirements. In particular, stakeholders noted that the UK reporting framework already includes various sustainability-related reporting requirements, including the FCA's listing rules, the SECR requirements and other strategic report requirements.
However, stakeholders also reflected on the fragmented and complex reporting requirements in the UK that are difficult to navigate and are often overlapping and duplicative, which leads to an increased burden and increased cost of compliance. The majority of stakeholders recommended that government departments and regulators use the implementation of the IFRS Sustainability Disclosure Standards as an opportunity to consolidate and streamline mandatory reporting and reduce the duplication that currently exists in UK legislation and regulation. In particular, stakeholders recommended that there should be a comprehensive review of current disclosure requirements to ensure that the introduction of new requirements are complementary and are not unduly burdensome or excessive.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Current reporting framework in the UK (2024-TAC-004a), Current reporting practice in the UK (2024-TAC-004b)
Interoperability
2023 feedback:
Many stakeholders highlighted concerns about interoperability, especially regarding the EU requirements. The EU's reporting requirements are significantly more comprehensive than the IFRS Sustainability Disclosure Standards, and UK multinational companies are concerned about the burden of reporting against multiple reporting frameworks. Some stakeholders noted that jurisdictional differences could create significant compliance costs for large, multinational companies, but these costs could be minimised by maintaining the global baseline. A few stakeholders suggested that UK companies are likely to use the EU requirements regardless of whether they are in scope, especially where the EU standards cover ten topic-specific sustainability disclosure standards and the IFRS Sustainability Disclosure Standards currently has only one on climate.
Some stakeholders insisted that any UK standards should be proportional and should consider the additional burden on entities when applying multiple disclosure frameworks. Additionally, some stakeholders have encouraged the UK to proactively seek appropriate equivalence mechanisms to reduce burdens on entities and to preserve the global baseline of the IFRS Sustainability Disclosure Standards.
One stakeholder also raised concerns that UK entities might report information for a different standard that might look like the same information but is prepared using a different approach (double materiality). The stakeholder suggests that this could distort comparability and be confusing for those relying on that information.
2024 update:
Some stakeholders in Mining and Metals sector mentioned that in addition to the EU sustainability reporting requirements in European Sustainability Reporting Standards (ESRSs), they are required by the International Council on Mining and Metals (ICMM) to report under GRI Standards, and in the UK to report under the Climate-related financial disclosures (CFD) and TCFD recommendations. Therefore, emphasising the need for interoperability considerations to minimise reporting burdens.
Another company with UK, EU and US securities listings mentioned that they would have to report all three jurisdictional requirements. Given their imminency, the current focus was on preparing for reporting using ESRSs. The stakeholder emphasised the need for interoperability among these requirements to minimise duplication.
Related TAC Papers: Interoperability (2024-TAC-024) - available in November
Connectivity
2023 feedback:
Most stakeholders supported the principle of connectivity, noting the importance of sustainability-related information being prepared on a similar basis to financial information. Many stakeholders believe that the sustainability-related information will be most helpful when integrated into the strategic report where it will complement and enhance existing disclosures required by the Companies Act and will give a better picture of the business.
Some stakeholders raised concerns about the challenges in connecting sustainability-related information with information in the financial statements. Some stakeholders noted that the time horizons for financial reporting are not primarily geared towards long-term risks and there is a high degree of uncertainty in relation to sustainability-related risks and opportunities. Some stakeholders observed that it will be difficult to tie specific sustainability-related matters with line items in financial statements. Additionally, a few stakeholders were concerned that connectivity could lead to repetitiveness and that material financial information could be obscured by sustainability-related information. Stakeholders also recognised that additional scrutiny will be placed on the financial statements, and therefore entities would need to explain any differences between the sustainability-related information and the information in the financial statements.
Some stakeholders also noted that the connectivity between financial and sustainability-related information in the annual report is a developing area and is likely to improve over time as practice develops. Stakeholders requested further guidance on connectivity, particularly as it relates to the financial statements.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Connectivity and integration (2024-TAC-023) - available in November
Proportionality
2023 feedback:
Stakeholders generally believe there are enough proportionality and relief mechanisms built into the standards to support application across the market. However, many stakeholders also requested additional implementation guidance especially on the more challenging elements of the standards. Some stakeholders advised that the proportionality mechanisms make the disclosure of a compliance statement difficult in practice. These stakeholders requested guidance on how an entity can assert compliance with the standards if they have used any of the proportionality mechanisms.
Most stakeholders welcomed the transition relief mechanisms and noted that they are proportionate and focused on the areas that are particularly challenging. However, some stakeholders suggested that the one year relief on certain elements would not be enough and requested that these are extended to two years. These stakeholders suggested that extension of the transition reliefs would be preferable to substantial 'carve out' of any requirement.
Most stakeholders agreed that a phased approach to implementation would be necessary to support smaller entities and those that have not yet reported TCFD-aligned disclosures.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements (2024-TAC-021)
Materiality
2023 feedback:
Overall, stakeholders are supportive of the approach taken by the ISSB to align the definition of materiality to that used in financial reporting. However, stakeholders recognised that there may be practical challenges in applying this materiality definition to all sustainability-related matters going forward (e.g., human rights and other more complex areas). Many stakeholders identified a need for additional practical guidance and worked examples to assist preparers.
Some stakeholders mentioned the limitations of focusing on financial materiality and highlighted benefits of using a broader materiality lens that considers wider impacts and unintended consequences of corporate actions. Stakeholders also flagged challenges for entities reporting under different international sustainability reporting frameworks where different definitions of materiality are used, most notably in the EU.
2024 update:
Some stakeholders with multi-jurisdictional reporting requirements, particularly in the EU, highlighted challenges in assessing materiality across different time horizons. For example, they described impact materiality as particularly complex, especially in how it aligns with financial materiality over the long term. They noted that, over time, the impact of the entity's activities on the external environment can ultimately influence its financial position, financial performance and cash flows - a concept referred to as 'dynamic materiality'. Consequently, these stakeholders suggested that sustainability reporting should serve a broader purpose beyond providing information to investors' capital allocation decisions. They were supportive of the EU's broader focus on the sustainability-related impacts of entities on people and the environment.
Related TAC Papers: Materiality (2024-TAC-009)
Identifying sustainability-related risks and opportunities
2023 feedback:
Stakeholders recognised that asking entities to identify sustainability-related matters will be more challenging than just asking for climate-related information. Some stakeholders noted the definition of 'sustainability-related risks and opportunities' is not well defined and also raised concerns about the vague instruction to disclose information about 'all' relevant sustainability-related risks and opportunities.
There is a large breadth of matters that could be considered by entities in their assessment of risks and opportunities, and those that are not familiar with this type of reporting may struggle to establish the internal processes and prepare their disclosures. Stakeholders suggested that this will be a challenge in relation to identifying sustainability-related risks and opportunities throughout the value chain. However, some stakeholders also noted that IFRS S1 has a clear and well-defined expectation that entities will only need to disclose material information about risks and opportunities that are likely to affect the entity's prospects.
One stakeholder also noted that the assessment of whether a given sustainability-related risk or opportunity would influence decision-making is highly dependent on the investor, firm, fund and strategy, especially when investors have different objectives, risk appetites, and time horizons. As explained by the stakeholder, this means that the identification of sustainability-related risks and opportunities and the assessment of materiality will be highly subjective and judgement based. This stakeholder requested transparency about the assumptions made about investor preferences to explain the rationale behind an entity's reporting approach.
Stakeholders noted that existing UK legislation and regulations mean that UK entities are well placed (in comparison to those in other jurisdictions) and should be prepared to identify sustainability-related disclosures. In particular, disclosure requirements in relation to non-financial reporting and section 172 mean that entities should already be considering sustainability-related matters beyond climate.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Identifying sustainability-related risks and opportunities (2024-TAC-010)
Sources of guidance
2023 feedback:
Stakeholders generally welcomed the sources of guidance to help entities identify the relevant sustainability-related risks and opportunities especially in the absence of a full suite of IFRS Sustainability Disclosure Standards. Stakeholders agreed with the ISSB's balanced approach to reference, but not require the use of these sources of guidance. 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 welcomed the reference to the ESRS and GRI Standards which are expected to reduce the reporting burden.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Sources of guidance (2024-TAC-011)
Location and timing of reporting
2023 feedback:
The majority of stakeholders support reporting of sustainability-related financial disclosures at the same time as related financial statements. However, stakeholders also flagged the data challenges for certain sustainability-related disclosures which means data lags are almost inevitable, particularly in the early years.
The majority of stakeholders were in favor of sustainability-related information being reported in the same location as general purpose financial reports. However, there were different views as to which specific location was most appropriate for the disclosures to be made. Several stakeholders suggested a hybrid approach, so that some disclosures could be included in the annual report and other disclosures included elsewhere. Overall, it appears that the flexibility offered by the standard is welcomed by stakeholders as it allows different entities to determine what approach suits them best and facilitates the range of practices currently being followed.
2024 update:
When asked how companies are able to disclose information at the same time, the majority of non-financial services sector preparers mentioned that value chain data, like Scope 3 greenhouse gas emissions, is collected, validated and (where required) assured on an interim basis during the year, in most cases quarterly and half yearly. This allows preparers to collect information throughout the year and reduces pressure where there are tight reporting timelines after year end.
Related TAC Papers: Location and timing of sustainability-related disclosures (2024-TAC-005)
Judgements, estimates and errors
2023 feedback:
Some stakeholders supported the definition of judgements, estimates and errors as they are consistent with IFRS Accounting Standards and will likely facilitate a better understanding of the assumptions used to prepare disclosures and the extent to which changes to those assumptions may affect an entity's future prospects. Many stakeholders noted that information about the judgements that are used in preparing sustainability-related disclosures is vital, especially in the first years of reporting particularly due to challenges with availability and quality of data, lack of developed methodologies and the uncertainty associated with forward-looking information. Some stakeholders also noted that significant judgement will need to be applied to the identification of sustainability-related risks and opportunities, and in the assessment of what material information should be reported.
However, some stakeholders also requested further guidance about:
- how to assess the materiality threshold for errors
- how to determine whether a change in estimate is driven by errors in the value chain
- how to disclose the impact of a change in methodology, and
- how to update estimates as science and capabilities evolve.
Some stakeholders suggested that the government and regulators should emphasise the use of judgement about what is material to report on. Some stakeholders also suggested that this area should be kept under review as practice develops.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Judgements, uncertainties and errors, including revising Comparatives (2024-TAC-007)
Revising comparatives
2023 feedback:
There were mixed views on the requirements 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 and agreed that this change should not be done without explanation. Some stakeholders also agreed that the requirement to revise comparatives and explain changes in estimates in IFRS S1 paragraph B52 will discourage entities from redefining metrics to present a better result. One stakeholder recommended that further guidance is provided on how to categorise the different causes to understand the source of restatement.
Some stakeholders noted that this requirement is different to IFRS Accounting Standards, and therefore there would be a steep learning curve for preparers. Some stakeholders acknowledged that the distinction between an error and change in estimate is clear in financial reporting, but its treatment is different in sustainability-related reporting. One stakeholder suggested that entities may describe a change in comparatives as a material change in estimate rather than an error to avoid suggestion of greenwashing. Stakeholders recommended that further guidance is provided on how to distinguish between an error and an estimate, especially when the change in estimate is due to an error.
One stakeholder also highlighted concerns about where comparative information interacts with other reporting areas in particular, when comparative data is linked to executive remuneration policies. This stakeholder was concerned about the implication for remuneration that has already been paid out if the metric is subsequently revised, and how this information should be reported on in the directors' remuneration report.
There were some concerns about the burden arising from the revision of comparatives as a result of changes in estimates. Some stakeholders requested that changes in estimates should be permitted without the constraint of revision of comparatives to encourage greater adoption of refreshed estimates. These stakeholders suggested that the use of reliable estimates will improve over time and the need to revise comparatives will be less of an issue in the future.
Some stakeholders suggested that this is an area that should be kept under review as practice develops, and further guidance may be needed on how to present revised comparatives that have resulted from changes in estimates.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Judgements, uncertainties and errors, including revising Comparatives (2024-TAC-007)
Reporting entity boundaries and consolidated reporting
2023 feedback:
Many stakeholders requested exemptions for subsidiaries within a group that provides consolidated sustainability-related disclosures, noting the unnecessary burden and duplication of reporting.
Some stakeholders also commented on the complex relationship between parent, intermediate parent and subsidiaries, noting that 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 real 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 align with sustainability-related reporting which mostly uses an operational view of control. These stakeholders requested guidance to ensure only proportionate and decision-useful information is reported.
One stakeholder also suggested that guidance should be provided on how to treat acquisitions and disposals under the IFRS Sustainability Disclosure Standards, in particular with regard to baseline metrics and comparatives.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Reporting entity boundary and consolidated reporting (2024-TAC-008)
Current and anticipated financial effects
2023 feedback:
Most stakeholders supported the requirements for entities to disclose information about the financial effects of sustainability-related risks on the financial position, financial performance and cash flows. These stakeholders noted that this information is critical to meet the objectives of the standards and would enable investors to understand the effects of sustainability-related risks and opportunities on the prospects of the entities they invest in. One stakeholder also noted that reflecting these risks and opportunities in the annual report mitigates against the risk of greenwashing and will likely improve the quality and reliability of financial information.
However, many stakeholders also highlighted the challenges in understanding and quantifying the financial effects due to higher degrees of uncertainty and the significant use of judgements and estimates, especially for the forward-looking requirements on anticipated financial effects. Stakeholders also recognised that not all sustainability-related risks and opportunities, especially for areas like human rights and biodiversity can be readily quantified in financial terms, and in many cases, it will be difficult to distinguish one type of risk from another. Some stakeholders expressed concern that existing guidance and market practice on anticipated financial effects is insufficient and the flexibility in the requirements could undermine the objective of consistency and comparability.
Some stakeholders also highlighted the challenges of quantifying the financial impact of sustainability-related matters across multiple time horizons could lead to confusion. Although companies are already reporting against the TCFD recommendations, some stakeholders noted that they were struggling to develop financial models for climate as it is difficult to reasonably draw the link between climate-related risk and financial impact. One stakeholder suggested that using percentages and ranges, rather than projections, would provide investors with enough information to understand the potential financial impact.
Some stakeholders welcomed the proportionality mechanisms available for the disclosure of current and anticipated financial effects, including the use of reasonable and supportable information, especially as they believe it will provide flexibility and will support evolution in reporting over time. However, a few stakeholders raised concerns about these mechanisms being a permanent relief in the standard. These stakeholders were concerned that entities may take advantage of applying these provisions and will not move towards quantitative data.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Current and anticipated financial effects (2024-TAC-017)
Greenhouse gas emissions including Scope 3
2023 feedback:
Stakeholders support the inclusion of greenhouse gas emissions as a metric in IFRS S2 as it is considered established practice and is critical to understanding an entity's impact and exposure to climate-related risks and opportunities. Some stakeholders noted that many entities in the UK are already required to report greenhouse gas emissions through the TCFD recommendations, climate-related financial disclosure (CFD), and SECR regulations. Therefore, they would likely have systems in place already to measure and report greenhouse gas emissions.
Most stakeholders agreed that Scope 3 emissions reporting is essential in managing systemic transition risks, but also recognised that the value chain is the onerous part of an entity's carbon footprint. Stakeholders recognised that data availability and quality is challenging, meaning that many entities will struggle with the completeness and reliability of the underlying data. Additionally, stakeholders also highlighted the challenges associated with extensive use of estimates and third-party data which contributes to a high level of uncertainty. Stakeholders suggested that this might be especially challenging when third-party data providers are not transparent about the source of the data and whether the data is complete. Some stakeholders noted that the challenges associated with Scope 3 emissions are unlikely to be fully resolved over time. Despite this, stakeholders recognised there is still benefit in entities providing Scope 3 emissions data.
Stakeholders suggested that entities should be encouraged to describe and justify their approach to calculating Scope 3 emissions, including providing insight into the data quality and reasons that the data may be incomplete. Some stakeholders supported the application guidance in IFRS S2 on Scope 3 emissions, including the use of 'impracticable' in relation to the use of estimates. 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 a 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 and financed emissions.
Some stakeholders noted concerns about legal liability relating to Scope 3 emissions, and some stakeholders requested exemption or safe harbour to encourage reporting and to recognise challenges in quality and completeness of data.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Scope 3 greenhouse gas emissions (2024-TAC-014)
Financed emissions
2023 feedback:
Most stakeholders note that the financed emissions requirements, whilst challenging, are technically and practically 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 Partnership for Carbon Accounting Financials (PCAF) guidance as it is well regarded and useful. Stakeholders noted that financed emissions should be an area for continued monitoring.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Financed emissions (2024-TAC-015)
GHG Protocol and measurement methods
2023 feedback:
Most stakeholders support the reference to the GHG Protocol Corporate Standard in IFRS S2. Stakeholders emphasised that the Standard is internationally recognised and is used as standard practice in the market, which enables international consistency and comparability. Some stakeholders highlighted that SECR regulation allows entities to select any major standard when calculating GHG emissions, and further consideration is needed on how to align SECR with IFRS S2.
However, some stakeholders recognised the challenges of including an external reference in the standard, especially as the GHG Protocol Corporate Standards was not drafted using the same conceptual framework as the IFRS Sustainability Disclosure Standards. Some stakeholders also insisted that the GHG Protocol Corporate Standard needs to go through full endorsement assessment for legal certainty. However, most stakeholders supported the reference to the GHG Protocol Corporate Standard and suggested that to remove it completely from the standard could undermine efforts towards consistency and comparability.
There were mixed views on the reporting boundary requirements in IFRS S2 relating to greenhouse gas emissions. Some stakeholders noted that requirements in IFRS S2 are inconsistent with the ESRS and proposed SEC climate disclosure rule, which will make interoperability difficult. Some stakeholders also suggested that the boundary requirements in IFRS S2 are different to the GHG Protocol Corporate Standard and requirements, and therefore further guidance would be needed on how to apply the requirements. On the other hand, some stakeholders suggested that consolidated reporting of greenhouse gas emissions can introduce risks for entities when calculating Scope 3 emissions, and careful consideration is needed on how to manage this risk.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: GHG Protocol and measurement methods (2024-TAC-013)
Cross-industry metrics (excluding greenhouse gas emissions)
2023 feedback:
Some stakeholders welcomed the cross-industry metrics as they are broadly aligned with the TCFD recommendations and therefore will be familiar to UK entities. One stakeholder also welcomed these requirements being high-level and not overly prescriptive.
However, some stakeholders noted the data challenges that these metrics will present, 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 an internal carbon price is incorrectly categorised as 'cross-industry' as it is only relevant to certain, high-impact industries.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Cross-industry metrics (excluding greenhouse gas emissions) (2024-TAC-016)
Transition plans
2023 feedback:
Whilst welcoming the requirements on transition planning, some stakeholders requested further application guidance on reporting 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 materials are maintained as non-mandatory guidance as entities should have the discretion to select from a range of resources to meet these requirements.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: Transition plans (2024-TAC-019)
Additional guidance
2023 feedback:
Many stakeholders requested additional application guidance to support the implementation of the IFRS Sustainability Disclosure Standards in the UK. In particular, stakeholders requested guidance and best practice examples in relation to:
- Application of materiality for sustainability
- Identifying reporting boundaries/value chain reporting
- Scenario analysis
- Definition of 'sustainability-related' risks and opportunities
- Scope 3 and financed greenhouse gas emissions
- Transition planning
- Applying the industry-based guidance
- Judgements, estimates and errors – including restating errors
- Connectivity
- Cross industry metrics (non-greenhouse gas)
Most stakeholders insisted that any substantial guidance should be published by the ISSB. These stakeholders suggested that UK-only guidance should only be developed when necessary for the application of the standards in the UK. For example, some stakeholders noted that non-binding implementation guidance similar to that issued by the government to support the implementation of SECR and TCFD recommendations reporting would be helpful in relation to UK specific issues. Some stakeholders also requested practical guidance on how to apply the standards within the strategic report, including best practice guidance for cross referencing and avoiding duplication.
2024 update:
No new views emerged in this area in the 2024 stakeholder feedback update.
Related TAC Papers: The TAC has discussed the need for additional guidance in relation to all technical areas.