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TAC Public Meeting November 2024 Paper 7: Review of TAC's tentative decisions to date

Executive summary

Field	Value
Date	05 November 2024
Paper reference	2024-TAC-028
Project	Technical assessment of IFRS S1 and IFRS S2
Topic	Review of TAC's tentative decisions to date
Objective of the paper	The objective of the paper is to seek the TAC's views on the tentative decisions it has made to date on the endorsement recommendations.

Decisions for the TAC

The TAC is asked to share its views on the technical assessment and tentative decisions made so far on the endorsement recommendations. The TAC is also asked to prioritise the matters to raise with the International Sustainability Standards Board (ISSB), consider the responses to requests in the contextual information received from Department for Business and Trade (DBT), and prioritise the matters to raise with the UK Sustainability Disclosure Policy and Implementation Committee (PIC).

Appendices

Appendix 1 - Technical assessment and endorsement recommendations Appendix 2 – Matters to raise with the ISSB Appendix 3 – Contextual information and matters to raise with the PIC

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.

This publication contains copyright material of the IFRS Foundation®. All rights reserved. Reproduced and distributed by the FRC in its role as the secretariat for the UK Sustainability Disclosure Technical Advisory Committee with the permission of the IFRS Foundation. Reproduction and use rights are strictly limited. For more information about the IFRS Foundation and rights to use its material please visit www.ifrs.org.

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Technical assessment and endorsement recommendations

1A summary of the draft endorsement recommendations, including the proposed amendments, by technical area is as follows:

Technical area	Endorsement recommendation
International interoperability	[pending for November meeting]
Materiality	The requirements are maintained without amendment
Identifying sustainability-related risks and opportunities	The requirements are maintained without amendment
Sources of guidance	The requirements are maintained without amendment, but there are dissenting views
Location and timing of sustainability-related disclosures	The requirements are maintained without amendment
Connectivity and integration	[pending for November meeting]
Commercially sensitive information	The requirements are maintained without amendment
Judgements, uncertainties and errors, including revising comparatives	The requirements are maintained without amendment
Reporting entity boundary and consolidated reporting	The requirements are maintained without amendment
Value chain	The requirements are maintained without amendment
Current and anticipated financial effects	The requirements are maintained without amendment
Greenhouse gas emissions: GHG Protocol and measurement methods	The requirements are maintained without amendment, but there are dissenting views
Greenhouse gas emissions: Scope 3 emissions	The requirements are maintained without amendment
Greenhouse gas emissions: financed emissions	The requirements are amended
	Amend the requirement in IFRS S2 relating to the use of GICS when disaggregating gross financed emissions.
	Amend both IFRS S1 and IFRS S2 to clarify that the reporting period for financed emissions information might not be the same as the current reporting period for the financial statements.
Cross-industry metrics (excluding greenhouse gas emissions)	The requirements are maintained without amendment
Resilience and scenario analysis	The requirements are maintained without amendment
Targets	The requirements are maintained without amendment
Transition plans	The requirements are maintained without amendment, but there are dissenting views
Proportionality mechanisms and permanent reliefs	The requirements are maintained without amendment
Transition reliefs	The requirements are amended
	Remove the transition relief in IFRS S1 that permits delayed reporting in the first year (IFRS S1 paragraph E4).
	Extend the 'climate-first' reporting relief in IFRS S1 to two years.
	However, there are dissenting views.
Effective date	The requirements are amended
	The TAC defers the decision to the PIC but suggests amended wording for voluntary application of the standards.

Key

Symbol	Description
✔️	The requirements are maintained without amendment
✔️	The requirements are maintained without amendment, but there are dissenting views
❌	The requirements are amended
❌	The requirements are amended, but there are dissenting views

2Appendix 1 provides further information on the draft technical assessment of the technical areas and the endorsement recommendations, including the reasons for the proposed amendments and any dissenting views of members.

Questions for the TAC

1. The draft technical assessment and tentative decisions on endorsement recommendations made by the TAC to date are summarised in paragraph 1 and Appendix 1.

   For each technical area: 1. What are the TAC's views on the technical assessment? 2. What are the TAC's views on the endorsement recommendations? 3. Have dissenting views been recorded faithfully?

Prioritisation exercise of matters to raise with ISSB

3In its discussions, the TAC has observed several matters to raise with the ISSB, including where there might be interpretation challenges or where the ISSB could produce guidance. These matters are summarised in Appendix 2.

Questions for the TAC

1. Does the TAC agree with the summary of matters to raise with the ISSB?
2. What are the TAC's views on the priority of the matters to raise with the ISSB summarised in Appendix 2 and can any of these be removed?

Contextual information and prioritisation exercise of PIC matters

4DBT provided contextual information stating that they would appreciate the TAC's view and supporting analysis on several issues. The TAC has addressed some of these issues when discussing specific technical areas, whereas some of these issues have required further consideration. The TAC's view and supporting analysis on the issues are summarised in Appendix 3.

Questions for the TAC

1. What are the TAC's views on the responses to DBT's requests and, in particular, 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?
2. What are the TAC's views on the priority of the matters to raise with the PIC summarised in Appendix 3 and can any of these be removed?

Next steps

5We will ask TAC members to provide comments on the full draft endorsement recommendations between the 13 and 20 November 2024.

6We then expect to table a final draft of the endorsement recommendations for voting in the 5 December 2024 meeting, where it can be approved subject to any final comments.

7We also expect to present in the 5 December 2024 meeting, alongside the final draft of the endorsement recommendations, a brief summary of the due process followed in the development of these recommendations.

Appendix 1: Technical assessment and endorsement recommendations

Interoperability

Please note: this section on interoperability will be updated after the November meeting

Endorsement recommendation

[pending for November meeting]

Additional recommendations and observations

8[pending for November meeting]

Technical assessment and deliberations

9[pending for November meeting]

Materiality

Endorsement recommendation

The TAC recommends that the requirements in IFRS S1 relating to materiality are maintained without amendment.

Additional recommendations and observations

10The TAC recommends that the ISSB develop further guidance on dynamic materiality workflows.

11The TAC recommends that engagement with the ISSB focuses on the key challenges for UK entities that will report under both UK Sustainability Reporting Standards and other jurisdictional sustainability reporting frameworks which use different definitions of materiality.

12The TAC recommends that the development of educational material by the ISSB on materiality is monitored and, if a need for any further educational material is identified, the ISSB is engaged with and encouraged to develop this additional material. The TAC also recommends that the ISSB's future topic-specific standards include materiality considerations for particular sustainability-related matters, including guidance on what information could be considered material for the matters.

13The TAC recommends that the PIC consider, as an implementation matter, the difference between the approach to materiality in IFRS S1 and the application of materiality in the Task Force on Climate-related Financial Disclosures (TCFD) requirements.

Technical assessment and deliberations

14IFRS S1 paragraphs 17–19, B13–B18 and B19–B28 set out requirements for the disclosure of 'material information'.

15The TAC agrees that the materiality definitions in IFRS S1 should be maintained without amendment. Overall, UK stakeholders indicated support for the ISSB's decision to align the definition of materiality with that used in financial reporting. The TAC notes that aligning the definition of materiality in IFRS S1 with that used in IFRS Accounting Standards might assist practitioners who are already familiar with the concept of materiality in applicable UK accounting and reporting standards and the IFRS Foundation's materiality concept.

16The TAC supports consistency in the definition of materiality across IFRS Standards but cautions that different definitions between the IFRS Sustainability Disclosure Standards and European Sustainability Reporting Standards (ESRS) are likely to cause significant challenges for entities reporting under both. The ESRS financial materiality definition is aligned with the ISSB's materiality definition, so the two are not incompatible, but UK stakeholders have cited challenges with applying the ESRS impact materiality definition. The TAC notes that the concept of 'dynamic materiality' could bridge the gap between the IFRS Sustainability Disclosure Standards and ESRS. Dynamic materiality refers to the way in which material sustainability-related financial information disclosed by entities might change from one reporting period to another as circumstances and assumptions change and as materiality judgements and the assessment of enterprise value by users of general purpose financial reporting evolve. The TAC considers that a dynamic materiality approach might ease the challenge of navigating between IFRS Sustainability Disclosure Standards and ESRS, and agrees that the ISSB should develop further guidance on dynamic materiality workflows.

17The TAC does not agree that a broader definition of materiality should be inserted into IFRS S1. Some UK stakeholders questioned the appropriateness of maintaining the same materiality definition for sustainability-related information as that used for financial information. However, changing the materiality definition in IFRS S1 would diverge both from the current UK legal framework, which is investor-focused, and from the global baseline that IFRS Sustainability Disclosure Standards are seeking to establish. This could therefore compromise the international comparability of disclosures. Additionally, IFRS S1 and IFRS S2 have been developed and drafted based on the concept of materiality in IFRS Accounting Standards, and amending the standards to widen this concept would require significant amendments to the standards as whole. The TAC supports the ISSB's work on interoperability, and agrees that engagement with the ISSB should focus on the key challenges for UK entities that will report under both UK Sustainability Reporting Standards and other jurisdictional sustainability reporting frameworks which use different definitions of materiality.

18The TAC stresses the importance of not overly prescribing or defining what information is considered material as there is value in entities assessing and deciding what is material for themselves. However, to support the global baseline, the ISSB should develop further guidance on the materiality of sustainability-related matters. The ISSB is currently developing educational material on the application of materiality. The TAC agrees that the development of this educational material should be monitored and, if a need for any further material is identified, the ISSB should be engaged with and encouraged to develop this additional material. The TAC also agrees that the ISSB's future topic-specific standards should include materiality considerations for particular sustainability-related matters, including guidance on what information might be considered to be material for the matters.

19The TAC notes that the approach to materiality in IFRS S1 is different from the application of materiality in the TCFD requirements. The TCFD requirements, in contrast to the requirements in IFRS S1, do not require an assessment of materiality for the disclosure of governance and risk management requirements. The TAC agrees to raise this with the PIC for its consideration as an implementation issue.

20The TAC agrees not to recommend that UK-specific guidance on materiality is developed. This option is not considered appropriate at this stage as it could compromise the international comparability of disclosures.

Identifying sustainability-related risks and opportunities

Endorsement recommendation

The TAC recommends that the requirements in IFRS S1 and IFRS S2 relating to sustainability-related risks and opportunities are maintained without amendment.

Additional recommendations and observations

21The TAC recommends that the PIC consider, as an implementation matter, developing jurisdictional guidance on what sustainability-related information entities are required to disclose in line with the current UK legal framework.

22The TAC recommends that the ISSB consider how an entity might identify and disclose broader (non-climate) sustainability-related risks and opportunities that could reasonably be expected to affect the entity's prospects as part of its research on topic-specific standards. The TAC recommends that the ISSB's future topic-specific standards provide further guidance as to the expected disclosures related to broader sustainability-related risks and opportunities, alongside topic-specific guidance on materiality.

Technical assessment and deliberations

23IFRS S1 paragraphs 2–3, 11–13, 30–31, 43–44, B1–12 and E5 set out requirements for the disclosure of a complete set of sustainability-related financial disclosures about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity's cash flows, its access to finance or cost of capital over the short, medium or long-term. IFRS S2 paragraphs 10–12 set out the requirements for the disclosure of climate-related risks and opportunities in addition to a definition for climate-related risks and opportunities in Appendix A.

24In the TAC's call for evidence, some UK stakeholders were concerned that the lack of a clear definition for 'sustainability-related matters' and specific IFRS Sustainability Disclosure Standards on other sustainability-related information could compromise the quality of reporting. A definition for 'sustainability-related matters' already exists in UK law—namely, Financial Services and Markets Act 2023 section 416B(2)—which could be applied to IFRS S1 as UK entities are already disclosing sustainability-related matters using this definition. However, the TAC agrees that this definition should not be inserted in IFRS S1 as it is unnecessary and could compromise the international comparability of disclosures. The TAC agrees that the requirements on identifying sustainability-related risks and opportunities should be maintained without amendment, but cautions that it will be challenging to align reporting under the IFRS Sustainability Disclosure Standards with reporting under existing UK reporting requirements, especially in relation to Section 172 of the Companies Act 2006. The TAC agrees that the PIC should consider, as an implementation matter, developing jurisdictional guidance on what sustainability-related information entities are required to disclose in line with the current UK legal framework.

25The TAC agrees that it is more challenging in practice for entities to identify risks and opportunities relating to broader (non-climate) sustainability-related matters that could reasonably be expected to affect the entity's cash flows, its access to finance or cost of capital over the short, medium or long term—especially those relating to social-related matters. This is because the necessary data and processes are less well established. The TAC agrees that the ISSB should consider how an entity might identify and disclose broader sustainability-related risks and opportunities that could reasonably be expected to affect the entity's prospects as part of its research on topic-specific standards. The TAC also agrees that the ISSB's future topic-specific standards should provide further guidance as to the expected disclosures related to broader sustainability-related risks and opportunities, alongside the topic-specific guidance on materiality referenced in paragraph 18. For example, the TAC encourages the ISSB to consider and address how an entity might assess whether a social-related matter could affect an entity's prospects in its research on risks and opportunities associated with human capital. This might include examples from the ISSB as to how risks and opportunities associated with human capital could affect an entity's prospects. The TAC notes, however, that the research on human capital is narrow in scope and does not include all social-related matters, and therefore further work might be needed in the future on other social aspects.

26The TAC agrees that the requirements in IFRS S1 paragraph 30(c) and IFRS S2 paragraph 10(d) that require an entity to explain which time horizons it has applied when identifying sustainability-related risks and opportunities should be maintained without amendment and that the UK Sustainability Reporting Standards should not specify what time horizons an entity is required to use. Although UK stakeholders commented on the lack of defined time horizons in IFRS S1 and IFRS S2—noting that defined time horizons could improve the comparability of disclosures—the flexibility in the requirements allows entities to apply the time horizons that are appropriate in their circumstance. Prescribed time horizons might reduce the relevance of the disclosures if the time horizons used are not appropriate for all entities. Additionally, UK entities that are in scope of ESRS will be required to use the definitions in ESRS 1 General requirements (ESRS 1). Therefore, inserting definitions for time horizons could create undue cost and effort to UK entities applying ESRS and compromise the international comparability of disclosures, if these definitions do not align with those in ESRS 1.

Sources of guidance

Endorsement recommendation

The TAC recommends that the requirements in IFRS S1 and IFRS S2 relating to sources of guidance are maintained without amendment. However, this recommendation is not unanimous.

Additional recommendations and observations

27The TAC recommends that attention is drawn to the ISSB's assertion that entities are not required to use the SASB Standards, but only refer to and consider them.

28The TAC recommends that the FRC consider developing further guidance regarding assurance expectations.

29The TAC recommends that it engages with the ISSB on the enhancement of the SASB materials.

30The TAC recommends that the PIC consider, as an implementation matter, obtaining a legal opinion on whether the UK Sustainability Reporting Standards can refer to a secondary set of materials over which the UK has no proprietary control.

Technical assessment and deliberations

31IFRS S1 paragraphs 54–59 and IFRS S2 paragraphs 12, 23, 32, 37 and B65(d) include sources of guidance for entities to use or refer to when identifying sustainability-related risks and opportunities, and when identifying applicable disclosure requirements.

32The sources of guidance referenced in IFRS S1 have been the subject of significant debate. UK stakeholders generally welcomed the sources of guidance as a helpful starting point, especially in the absence of a full and comprehensive suite of IFRS Sustainability Disclosure Standards. Some stakeholders considered that the approach taken by the ISSB balances the demand for prescriptive requirements and the need for flexibility in the application of IFRS S1 and IFRS S2. However, other stakeholders raised concerns about references to third-party materials within IFRS S1 and IFRS S2, especially when these materials were not developed using the same conceptual frameworks and have not been or are not subject to IFRS due process.

33Although not unanimous, the TAC agrees that the instruction in IFRS S1 and IFRS S2 ‘shall refer to and consider' regarding the SASB materials should be maintained without amendment. The intention of the ISSB is that entities are required to consider the disclosure topics and metrics in the SASB materials, but entities are not required to use the SASB materials. Feedback from UK stakeholders was mixed, with some believing that the instruction is clear and others commenting on the potential confusion as to whether the instruction is mandatory. Additionally, some stakeholders were concerned that the application of the SASB materials would lead to undue cost or effort, and that the use of the SASB materials could replace an entity-specific materiality assessment.

34A minority of TAC members dissent in favour of amending the instruction in IFRS S1 and / or IFRS S2 from 'shall refer to and consider' to 'may refer to and consider'. Some favour amending the instruction in IFRS S1 but not IFRS S2 due to the greater level of understanding and consensus around climate-related reporting metrics. Amending the instruction for both IFRS S1 and IFRS S2 might reduce the confusion that has been identified by stakeholders, and also allay stakeholder concerns about undue cost or effort and concerns about entity-specific materiality assessment being replaced.

35Overall, the TAC agrees that the criteria for amending the standards—notably that changes are considered necessary for the effective application within the UK and that failure to amend the standard would be detrimental to the long-term public good—have not been met in this instance. The word 'consider' already suggests that entities are not required to use the SASB materials and as such the amendment from “shall' to “may' would not meaningfully change the requirement and so does not meet the threshold for amendment. Additionally, maintaining the instruction could support the international comparability of disclosures. However, the argument that the SASB materials promote international comparability assumes that entities will use the SASB materials to identify sustainability-related risks and opportunities and related disclosure requirements. If the intention from the ISSB is that the SASB materials are not required to be used, then international comparability is not necessarily going to be achieved.

36The ISSB has attempted to clarify its position that the use of the SASB materials is not mandatory in several documents, however, confusion about the instruction remains. The TAC agrees that attention should be drawn to the ISSB's assertion that entities are not required to use the SASB materials, but only refer to and consider them. The TAC also notes that the instruction 'shall' will have implications for assurance and agrees that the FRC should consider developing further guidance regarding assurance expectations. TAC members have mixed views on the SASB materials. Some consider them to provide a useful common starting point in the achievement of a global baseline, whereas others consider them to be overly focused on the US context. The assessment of the content within the SASB materials is outside of the scope of this technical assessment, and therefore the TAC does not present concluding views on the usefulness of the SASB materials. However, the TAC suggests that entities approach the SASB Standards as guidance rather than as a prescriptive list of material disclosure topics. The TAC also agrees that it should engage with the ISSB on the enhancement of the SASB materials.

37The TAC agrees that the references to the other sources of guidance, including the Global Reporting Initiative (GRI) Standards and ESRS, should be maintained without amendment. Stakeholders have agreed that these sources of guidance are helpful. As intended by the ISSB, these sources of guidance could support interoperability and international comparability which will likely improve the quality of reporting if applied in accordance with the objectives of IFRS S1.

38The TAC agrees that the PIC should consider, as an implementation matter, obtaining a legal opinion on whether the UK Sustainability Reporting Standards can refer to a secondary set of materials, in this case the SASB materials, over which the UK has no proprietary control. This matter is also discussed in relation to the reference to the Greenhouse Gas (GHG) Protocol materials in paragraph 105.

Location of sustainability-related disclosures

Endorsement recommendation

The TAC recommends that the location of sustainability-related financial disclosure requirements in IFRS S1 are maintained without amendment.

Additional recommendations and observations

39The TAC recommends that the PIC consider how to simplify and streamline the existing rules in the UK relating to the location of disclosures. This includes consideration of the requirements in the Companies Act 2006 and FCA Listing Rules, and the possible implications for future assurance requirements. In considering the location of disclosures, the PIC should also consider the interoperability challenges with other jurisdictional requirements, and the availability of safe harbour provisions for information in the strategic report that is currently in the Companies Act 2006.

Technical assessment and deliberations

40IFRS S1 paragraphs 60–63, B27 and B45–B47 sets out requirements for the appropriate location of sustainability-related financial disclosures.

41The TAC believes that providing disclosures in a consistent location is very helpful, especially for users of general purpose financial reports. However, the TAC acknowledges that the location of disclosures is also dependent on whether information is determined as material, which might result in different approaches being taken by different entities. It is noted that users would find it helpful if information that is material for financial purposes should be in the general purpose financial report, whereas information that is not financially material should be in a different report.

42The TAC notes that entities that are required to disclose information in accordance with the EU's CSRD are required to do so in the management report. If UK entities are not disclosing information in the general purpose financial report, they could be at a competitive disadvantage—in terms of information that is available to users—with entities in other jurisdictions that require the disclosure in the general purpose financial report. Additionally, the PIC might consider the interoperability challenges for entities that are required to comply with both the EU and UK requirements.

43The TAC agrees that all material information should be included in the strategic report. Over the years the length of the strategic report has increased significantly as entities provide more information than is strictly necessary, which can result in difficulty in locating material information. The TAC highlights the benefit of simplifying and streamlining the existing rules in the UK, including in the Companies Act 2006 and FCA Listing Rules, which would greatly assist in the implementation of these standards and would minimise duplication or confusion as to where information should be disclosed. The TAC recommends that the PIC consider the location of disclosures in the context of existing reporting rules. Additionally, the TAC highlight that the provisions in section 463 of the Companies Act 2006 provides safe harbour protections on any information in the strategic report. If the PIC suggest that sustainability-related disclosures should be located in the strategic report, this information should already be covered by the provisions in section 463 of the Companies Act 2006.

44The TAC considered but does not recommend prescribing a specific location for disclosures in IFRS S1. Ultimately the decision about the location of disclosures is an implementation issue to be addressed by the PIC.

Timing of reporting

Endorsement recommendation

The TAC recommends that the timing of reporting requirements in IFRS S1 are maintained without amendment.

Additional recommendations and observations

45The TAC observes that entities might experience significant issues in disclosing certain sustainability-related information at the same time as financial information. Despite these issues, the TAC agrees that coterminous reporting is ideal and that that delays in collecting data might be transitional in nature, or in circumstances when coterminous reporting is not possible that it is important to emphasise the use of estimates if actual data is not readily available.

46The TAC recommends that the ISSB provide clarity as to the intention of IFRS S1 paragraphs 66–67, including when it can be applied by an entity.

Additionally, the TAC recommends that the ISSB considers how the requirement in IFRS S2 paragraph B19 can be applied to sustainability-related matters other than greenhouse gas emissions. This might be through clarification of the existing requirements or as part of the upcoming research on biodiversity, ecosystems and ecosystem services, and human capital.

47The TAC recommends that practice relating to the use of different reporting periods for sustainability-related disclosures is observed and fed back to the ISSB as part of its post-implementation review.

Technical assessment and deliberations

48IFRS S1 paragraphs 64–69 sets out requirements for the timing of sustainability-related financial disclosures.

49The TAC agrees that, to the extent possible, coterminous reporting is ideal and that users would benefit from sustainability-related information being disclosed at the same time as financial information so that the two can be compared. Aligning the timing of financial and sustainability-related reporting will assist with international comparability and improve the quality of corporate reporting within the UK in the long term as it will enable connectivity between the two disclosures. However, aligning the timing might give rise to additional cost and effort for entities particularly in the early years of reporting, although this would be expected to improve over time.

50The TAC notes that processes for data collection and internal controls on sustainability-related information are relatively immature and will take time to embed and develop, which means that entities will have a steep learning curve. In that regard, the TAC suggests that delays in collecting data might be transitional in nature for certain information. However, the TAC also acknowledges that for some disclosures, such as Scope 3 emissions and financed emissions, there is likely to always be a delay in acquiring the data from entities in the value chain. The TAC agrees that increased transparency through explanation of the approach used is important when the timing of sustainability-related information does not align with financial reporting, and therefore the information is not directly comparable.

51The TAC wishes to highlight that the supporting mechanisms in both IFRS S1 and IFRS S2, including the use of ‘all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort’ and application guidance, are likely to support entities in providing sustainability-related information in a timely manner. The TAC also recognises the importance of using estimates to report data if actual data is not readily available, while noting that it is not always possible or appropriate to estimate certain information. If an entity uses a different reporting period, or uses a significant amount of estimates due to time lags in data collection, the entity should provide disclosures of these approaches in accordance with the requirements in IFRS S1 paragraph 74 relating to the judgements applied in the process of preparing disclosures.

52The TAC also recognises the helpful permission in IFRS S2 paragraph B19 that allows an entity to use information from a different reporting period for greenhouse gas emissions data from entities in its value chain. However, the TAC recommends that the ISSB considers how this permission can be applied to sustainability-related matters other than greenhouse gas emissions. The TAC recognises that this permission is intended to require entities to use the latest available information, and that IFRS S2 paragraph B42 requires entities to apply judgement as to the inputs used to calculate greenhouse gas emissions, including the trade-offs between timely data and data directly collected from the specific activities in the value chain.

53The TAC recommends that the ISSB provide clarity as to the intention of IFRS S1 paragraphs 66–67, including when it can be applied by an entity. Depending on the interpretation, this requirement could help entities to disclose sustainability-related information at the same time as financial information. However, it is unclear whether these requirements apply to the sustainability-related disclosure as a whole or if it can be applied to specific elements of the disclosure (e.g., a specific metric). Additionally, it is unclear whether this permission is intended for specific circumstances—e.g., when an acquisition occurs in the middle of a reporting period and therefore data is not available for the whole period—or whether an entity can use it in any circumstance—e.g., when a limited amount of actual data is available and it is inappropriate to use estimates to complete the data for the reporting period.

Connectivity and integration

Please note: this section on connectivity and integration will be updated after the November meeting

Endorsement recommendation

[pending for November meeting]

Additional recommendations and observations

54[pending for November meeting]

Technical assessment and deliberations

55[pending for November meeting]

Commercially sensitive information

Endorsement recommendation

The TAC recommends that the requirements in IFRS S1 relating to commercially sensitive information are maintained without amendment.

Additional recommendations and observations

56The TAC recommends engagement with the ISSB on possible inconsistencies between IFRS S1 and IFRS Accounting Standards. The TAC also recommends that the ISSB develop guidance to support entities with applying the exemption.

57The TAC recommends that the PIC consider, as an implementation matter, inconsistencies with IFRS S1 and the UK's legal framework.

Technical assessment and deliberations

58IFRS S1 paragraphs 73 and B34–B37 set out the disclosure exemption that allows entities, in limited circumstances, to omit information about sustainability-related opportunities that are determined as commercially sensitive.

59The TAC agrees that the exemption and requirements in IFRS S1 relating to commercially sensitive information should be maintained without amendment. As noted by the ISSB, the use of the exemption on commercially sensitive information is expected to be rare. Removing the exemption from IFRS S1 could mean that UK entities would not be permitted to omit commercially sensitive information from their sustainability-related disclosure, which could impact the economic growth and international competitiveness of UK entities. However, if UK entities apply the exemption, this could compromise the quality of reporting—especially if its use creates a disconnect and imbalance in the disclosure. On balance, the TAC concludes that the exemption in IFRS S1 is sufficiently narrow in scope to satisfy concerns about the quality of reporting and the economic growth and international competitiveness of UK entities.

60The TAC notes that protections are necessary to prevent the disclosure of material that would be seriously prejudicial, and that information may be exempt from disclosure in accordance with IFRS Accounting Standards but required to be disclosed in accordance with IFRS S1. The TAC agrees that the ISSB should be engaged with on such inconsistencies.

61The TAC also notes that issues around the disclosure of commercially sensitive information are challenging and IFRS S1 does not provide any criteria to support entities in determining whether information is commercially sensitive. The TAC agrees that the ISSB should develop guidance to support entities with applying the exemption. The guidance could include scenarios and illustrations and clearly defined categories of commercially sensitive information. One such category could include legally privileged information.

62There are a number of similarly worded exemptions in the Companies Act 2006, for example, around suppliers and customers. The TAC agrees that the PIC should consider, as an implementation matter, inconsistencies with IFRS S1 and the UK’s legal framework but notes that the exemptions in the Companies Act 2006 should not prevent entities from complying with IFRS S1. Although inconsistencies have been identified, the adoption of these requirements would still likely be coherent with, and suitable for inclusion in, UK domestic legislation and regulation.

Judgements, uncertainties and errors, including revising comparatives

Endorsement recommendation

The TAC recommends that the requirements in IFRS S1 relating to judgements, measurement uncertainty, errors and revising comparative amounts due to changes in estimate are maintained without amendment.

Additional recommendations and observations

63The TAC recommends that the ISSB develop guidance on the requirements to revise comparatives that would support the application of the requirements. Ideally such guidance would be developed as practice evolves.

64The TAC recommends that the PIC consider, as an implementation matter, the wording of the SECR requirements that the comparative information shall be 'as disclosed in last year's report'.

65The TAC recommends that market practice relating to judgements, measurement uncertainty, errors and revising comparative amounts due to changes in estimate is an area for continued monitoring to provide feedback to the ISSB on during its post-implementation review of IFRS S1.

Technical assessment and deliberations

66IFRS S1 sets out requirements for the disclosure and application of judgements and the use of assumptions and estimates in the preparation of an entity’s sustainability-related disclosures. IFRS S1 also sets out the requirements for how entities should address errors and changes in estimates in the disclosure of comparative information. The relevant references are IFRS S1 paragraphs 74–76 on judgements, paragraphs 77–82 on measurement uncertainty, paragraphs 83–86 and B55–B59 on errors and paragraphs B49–59 on comparative information.

67The TAC agrees that the requirements in IFRS S1 relating to judgements, measurement uncertainty, errors and revising comparative amounts due to changes in estimate should be maintained without amendment. By maintaining the requirements, the UK Sustainability Reporting Standards are likely to support entities in making disclosures that are understandable, reliable and comparable—therefore, improving the quality of corporate reporting in the UK. The TAC welcomes the use of these concepts from IFRS Accounting Standards to enable connectivity.

68The TAC agrees that data quality continues to change, particularly data from third parties such as customers and suppliers, and that there will be a natural evolution in data quality. Noting these challenges, the TAC recommends that the ISSB develop further guidance on the requirements to revise comparatives that would support the application of the requirements. This guidance could include information about how entities treat changes in data quality and how to determine whether these changes represent changes in estimates rather than errors. This guidance could also include the differences between changes in estimates and errors, and the difference between restatements and revisions, and how this might affect an entity’s assessment of what information is considered material. The TAC notes that providing an explanation for changes in estimation is challenging but important as it will likely provide information about whether changes are due to a change in scope, a change in methodology or a change in the business. The TAC also expressed concerns around the requirements to revise or restate data collected from different reporting periods (especially from the value chain) as this information cannot be used for strategic decision making and might not be important for users. This collection of data from different reporting periods could be another factor for entities to consider alongside what information might be considered material when restating comparatives.

69The TAC highlights one example where there are particular challenges around the revision of comparative amounts due to changes in estimates which relates to Scope 3 emissions reporting. Scope 3 emissions reporting is subject to significant use of estimates as all data is reliant on information received from counterparties in the value chain. IFRS S1 requires entities to revise comparative amounts unless this would be impracticable or the amounts are not material. It can be difficult to know when revisions have become material when considering small changes across a large number of counterparties, which might not be material in isolation and individually, but are material when collated. Regular revisions of Scope 3 emissions data could impact metrics and targets, including those linked to executive remuneration, especially as data from the value chain is subject to time lags which might lead to continuous need for restatement or revision of the comparatives. Whilst the ISSB’s Transition Implementation Group on IFRS S1 and IFRS S2 (TIG) in June 2024 discussed a simple scenario consisting of a change in previously reported estimated greenhouse gas emissions in the value chain for a single issuer and a single loan, further guidance from the ISSB could clarify when entities should undertake revisions and how they should explain their decisions regarding revisions in more complex scenarios.

70The TAC agrees that the PIC should consider, as an implementation matter, the wording of the SECR requirements that the comparative information shall be ‘as disclosed in last year’s report’ as it might not be compatible with the requirements in IFRS S1 that require the revision of comparative information due to changes in estimate.

71Finally, the TAC agrees that market practice relating to judgements, measurement uncertainty, errors and revising comparative amounts due to changes in estimate should be an area for continued monitoring to provide feedback to the ISSB during its post-implementation review of IFRS S1. This would facilitate an understanding of how the requirements are being applied by entities and whether further and more granular requirements or guidance are necessary.

Reporting entity boundary and consolidated reporting

Endorsement recommendation

The TAC recommends that the requirements in IFRS S1 for the entity for which sustainability-related reporting should be disclosed are maintained without amendment.

Additional recommendations and observations

72The TAC recommends that the PIC consider, as an implementation matter, the interaction between the scope of application of IFRS S1 for reporting entities and the current UK legal framework. The TAC also recommends that the PIC consider, as an implementation matter, the introduction of an exemption for certain subsidiaries where the parent company is reporting on an equivalent basis for the consolidated group.

73The TAC recommends that the ISSB develop guidance on how to treat conglomerates and other complex entities that have highly diverse operations.

74The TAC observes that an operational control approach is often used for sustainability-related disclosures but recommends that entities should be 'encouraged' to report sustainability-related information using a financial control approach over time. Additionally, the ISSB should be encouraged to consider the requirements relating to reporting entity boundaries when updating IFRS S1 and IFRS S2 or developing future topic-specific standards.

Technical assessment and deliberations

75IFRS S1 paragraphs 20 and B38 set out requirements for the entity for which sustainability-related reporting should be disclosed.

76The TAC agrees that the requirements in IFRS S1 for the entity for which sustainability-related reporting should be disclosed should be maintained without amendment, noting the disclosures should be for the same reporting entity as the related financial statements to enable connectivity. If reporting entity boundaries are misaligned, then the resulting disclosures might not be as understandable and connected to the related financial information.

77The TAC agrees that the PIC should consider, as an implementation matter, the interaction between the scope of application of IFRS S1 for reporting entities and the current UK legal framework. Existing legislation, which is incoherent and might have to be updated, includes exemptions in section 401 of the Companies Act 2006 and other exemptions, such as those related to the strategic report and the Non-Financial and Sustainability Information Statement, related to reporting requirements for subsidiaries.

78The TAC also recommends that the PIC consider, as an implementation matter, the introduction of an exemption for certain subsidiaries where the parent company is reporting on an equivalent basis for the consolidated group. UK stakeholder views on subsidiary-level reporting are mixed. Some stakeholders have suggested that the quality of UK reporting might be improved overall if subsidiaries are required to provide disclosures. However, other stakeholders have argued that some standalone subsidiary reporting might not be useful or meaningful and is likely to incur undue cost or effort to prepare because the reporting does not reflect how these risks and opportunities are managed within the group. Overall, UK stakeholders seek an exemption for certain subsidiaries where the parent company is reporting on an equivalent basis for the consolidated group. The TAC agrees that the PIC should consider the introduction of an exemption for certain subsidiaries where the parent company is reporting on an equivalent basis for the consolidated group. However, the PIC should take into consideration:

• the impact of different subsidiary-level reporting requirements in other jurisdictions which could affect international comparability;
• the impact on economic growth and international competitiveness if a UK entity is required to disclose sustainability-related financial disclosures but not financial disclosures;
• the challenges and potential duplication of information when disaggregating disclosures at subsidiary level, especially when strategic decisions are made at the group level (e.g., when metrics and targets are set at a group level); and
• the value of subsidiary-level information for users (e.g., for subsidiaries which are raising capital separately or subsidiaries which are partly owned and do not apply group policies).

79The TAC agrees that guidance from the ISSB on how to treat conglomerates and other complex entities might be of value. The TAC believe that guidance could address the challenges faced by consolidated groups that have highly diverse operations across multiple jurisdictions. For example, information about the topography of sustainability-related risk and opportunities within such groups is important for users but might not align with the group structure and there might be value in users understanding the extent to which those risk and opportunities differ significantly across geographic or business segments.

80The TAC emphasises the value of consistency between sustainability-related reporting and financial reporting, and therefore entities should be strongly encouraged to report using the financial view of control. The TAC notes that IFRS S1 and IFRS S2 ask for disclosure of financial risks and opportunities, so it is appropriate to require entities to focus on the financial view of control. The TAC also discussed the current flexibility in IFRS S2 that allows entities to select a reporting entity boundary approach when using the GHG Protocol Corporate Standard to measure greenhouse gas emissions. Although the TAC recommends that flexibility is maintained in IFRS S2 to allow entities to use an operational control approach for the disclosure of greenhouse gas emissions, the TAC also emphasises that the preferred approach across all reporting would be a financial control approach as required in IFRS S1, to enable alignment with the approach taken in the disclosure of financial statements. The TAC recommends that UK entities should be ‘encouraged’ to report sustainability-related information using a financial control approach over time, and that the ISSB should be encouraged to consider the reporting entity boundaries when updating IFRS S1 and IFRS S2 or developing future topic-specific standards.

Value chain

Endorsement recommendation

The TAC recommends that the requirements in IFRS S1 and IFRS S2 relating to value chain are maintained without amendment.

Additional recommendations and observations

81The TAC recommends that the ISSB develop further guidance, including on how an entity might disclose information about broader (non-climate) sustainability-related matters in the value chain, and how to align value chain reporting with information in the financial statements.

82The TAC recommends that the PIC consider, as an implementation matter, appropriate support around value chain disclosures, including the establishment of safe harbours protections for initial value chain disclosures.

Technical assessment and deliberations

83IFRS S1 paragraphs 2, 32, B6–7, B11–12 and Appendix A and IFRS S2 paragraphs 13 and Appendix A set out requirements for the disclosure of sustainability-related risks and opportunities in an entity’s value chain. IFRS S1 also includes a definition for 'value chain' and sets out the requirements for how an entity might reassess the scope of its value chain.

84The TAC agrees that the requirements in IFRS S1 and IFRS S2 for entities to disclose information about sustainability-related risks and opportunities in the value chain should be maintained without amendment. The TAC notes that there are significant challenges relating to the quality and collection of data in the value chain. This might cause gaps and inconsistencies in reporting, and challenges around data collection might create potential lags in reporting. Despite the challenges relating to data collection, most UK stakeholders agree that relevant information about sustainability-related risks and opportunities in the value chain is important to understand the full picture and to improve the quality of sustainability-related disclosures. Additionally, the ISSB allows entities to use reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort in relation to the requirements relating to the value chain. This relief should reduce the anticipated cost and effort for entities.

85The TAC also agrees that the definition for ‘value chain’ should be maintained, but agrees that the ISSB should develop further guidance, including on how an entity might disclose information about broader (non-climate) sustainability-related matters in the value chain, and how to align value chain reporting with information in the financial statements. UK stakeholders were concerned that the definition for 'value chain' is too broad and that there is insufficient guidance beyond Scope 3 GHG emissions. The TAC notes that there is uncertainty around the scope of value chain reporting and a recognition that the scope of reporting will evolve. The GHG Protocol has been used as a proxy by preparers for reporting boundaries beyond GHG emissions, but as this approach does not align with methods used in consolidated financial reporting this creates questions around issues such as leased assets and financed emissions.

86Finally, the TAC agrees that the requirement for entities to reassess the scope of the sustainability-related risks and opportunities in the value chain on the occurrence of a significant event or change in circumstance should be maintained without amendment. The TAC notes that there is uncertainty around the meaning of 'significant event' with regard to when sustainability-related risks and opportunities in the value chain should be reassessed and that there are practical challenges around reassessment. Although it would be ideal for entities to reassess the risks and opportunities at every reporting date, reassessing the scope of the sustainability-related risks and opportunities in the value chain is likely to require substantial resource and might prevent entities from disclosing information within the timeframes in which they normally report without undue cost or effort.

87The TAC believes that entities will need support in establishing value chain reporting. The TAC agrees that the PIC should consider, as an implementation matter, appropriate support around value chain disclosures, including the establishment of safe harbours protections for initial value chain disclosures. Further recommendations relating to safe harbour provisions, including the provisions in section 463 of the Companies Act 2006, are discussed in paragraph 43.

Current and anticipated financial effects

Endorsement recommendation

The TAC recommends that the requirements in IFRS S1 and IFRS S2 for the disclosure of current and anticipated financial effects of sustainability-related risks and opportunities are maintained without amendment.

Additional recommendations and observations

88The TAC recommends that the ISSB develop further guidance and worked examples on current and anticipated financial effects; including whether information about the combined financial effects 'would not be useful'.

89The TAC recommends that market practice related to current and anticipated financial effects, including the use of mechanisms to support the application of the requirements, is an area for continued monitoring to provide feedback to the ISSB during its post-implementation review of IFRS S1 and IFRS S2.

Technical assessment and deliberations

90IFRS S1 paragraphs 28–40 and IFRS S2 paragraphs 15-21 set out requirements for the disclosure of current and anticipated financial effects of sustainability-related risks and opportunities.

91The TAC agrees that the requirements in IFRS S1 and IFRS S2 in relation to current and anticipated financial effects should be maintained without amendment. Although there are challenges in providing these disclosures, connectivity between the sustainability-related financial disclosures and financial statements is key to ensuring holistic, comprehensive and coherent general purpose financial reports. These disclosures can contribute to an improvement in the quality of corporate reporting and assist in disclosures being internationally comparable.

92The TAC also agrees that the ISSB should develop further guidance and worked examples on current and anticipated financial effects; including whether information about the combined financial effects 'would not be useful'. The implementation of this mechanism might result in different assessments and conclusions being reached by entities in making these disclosures. Additional clarity and guidance in this area would ensure that entities apply these mechanisms in a consistent and comparable way. This would support the provision of disclosures that are understandable, relevant, reliable and comparable and would likely improve the quality of corporate reporting within the UK in the long-term.

93Finally, the TAC agrees that the mechanisms in IFRS S1 and IFRS S2 to support the application of the requirements should not be limited. Stakeholders have welcomed these mechanisms, however, it is expected that some of these mechanisms might not be needed beyond the early implementation years. Consideration was given to imposing a time limit on some of these mechanisms for UK implementation, however, recognising the challenges of providing these disclosures and with a view to ensuring international consistency, this option has not been pursued. Instead, the TAC agrees that market practice related to current and anticipated financial effects, including the use of the mechanisms to support the application of the requirements, should be an area for continued monitoring to provide feedback to the ISSB during its post-implementation review of IFRS S1 and IFRS S2. This would facilitate an understanding of how the requirements are being applied by entities and whether the mechanisms to support the application of the requirements are being applied as intended.

Greenhouse gas emissions: GHG Protocol and measurement methods

Endorsement recommendation

The TAC recommends that the requirements in IFRS S2 for the disclosure of greenhouse gas emissions using the GHG Protocol Standard are maintained without amendment. However, this recommendation is not unanimous.

The TAC recommends that the requirements in IFRS S2 for the disclosure of Scope 2 emissions are maintained without amendment.

Additional recommendations and observations

94The TAC recommends that the ISSB provides further clarification and guidance on the requirement to disaggregate Scope 1 and Scope 2 emissions by consolidated accounting group and other investees. The TAC also recommends that the ISSB engages with EFRAG regarding discrepancies between the two climate reporting standards.

95The TAC recommends that both the ISSB and GHG Protocol are engaged with on the revisions to the GHG Protocol Corporate Standard to ensure compatibility with the principles in IFRS S1.

96The TAC recommends that the UK Government review the process for updating the greenhouse gas conversion factors, including providing clear rationale as to why the latest Global Warming Potential (GWP) values are not used. The UK Government might also consider the potential opportunity to use government-level emissions data for all corporate reporting processes.

97The TAC recommends that the PIC consider, as an implementation matter, obtaining a legal opinion on whether the UK Sustainability Reporting Standards can refer to a secondary set of materials over which the UK has no proprietary control.

Technical assessment and deliberations

98IFRS S2 paragraphs 29(a) and B19–B37 set out requirements for the disclosure of information about greenhouse gas emissions.

99Although not unanimous, the TAC recommends that the reference to the GHG Protocol Corporate Standard is maintained without changing the instruction from 'shall measure its greenhouse gas emissions in accordance with the Greenhouse Gas Protocol ...' to 'shall consider measuring in accordance with ...'. UK stakeholders indicated support for the reference to the GHG Protocol Corporate Standard, emphasising that it is internationally recognised and used as standard practice in the market. However, stakeholders also raised concerns about mandating a third-party resource in the standard, noting that the GHG Protocol sits outside of the governance and due process of the IFRS Foundation. The TAC acknowledges that there are significant challenges with the GHG Protocol Corporate Standard, and some TAC members declare strong reservations about the reference to the GHG Protocol Corporate Standard in IFRS S2. Concerns have been raised by stakeholders and the TAC about the reference to the GHG Protocol Corporate Standard, including:

• the lack of technical analysis by the ISSB on the GHG Protocol Corporate Standard to date;
• that the GHG Protocol Corporate Standard was not originally designed to operate as a reporting standard and requires a review of its governance processes;
• that the use of the GHG Protocol Corporate Standard does not necessarily lead to consistency or comparability due to the different approaches that are permitted by it;
• that the content needs to be reviewed and aligned with financial reporting standards—especially with regard to the reporting boundaries which currently does not lend itself to comparability—and that further work is needed to align it with the principles in IFRS S1; and
• the need for clarity on how the ISSB will update the reference in IFRS S2 GHG Protocol Corporate Standard from the currently referenced 2004 version.

100However, despite the challenges and concerns with the GHG Protocol Corporate Standard, the majority of TAC members agree that the reference in IFRS S2 to a specific calculation method—even if the method is imperfect—would lead to greater comparability. This decision is supported by stakeholder feedback that indicated that removing the reference completely from IFRS S2 might undermine efforts towards consistency and comparability. The TAC also notes that entities are already coalescing around the GHG Protocol Corporate Standard, and to suggest another approach was available could impact comparability that already exists in practice.

101The TAC notes that the process and principles for considering third-party references and any future update to these references is important. The TAC highlights two concerns about referencing third-party materials in the standards. Firstly, if the future revisions to the GHG Protocol Corporate Standard were considered insufficient, this might mean that the UK standards are ‘stuck’ with the old reference that is currently in IFRS S2. Secondly, it is not clear how an updated version would be reviewed in the UK, and there is a risk that any delay to reviewing and updating the UK standards would lead to delays in UK entities being able to adopt the newer version(s).

102IFRS S2 paragraph 29(a)(v) sets out requirements for the disclosure of Scope 2 emissions. The TAC agrees that market-based Scope 2 emissions data alongside location-based data would be helpful for users. However, the TAC does not agree to amend the standard or to actively encourage entities to use both approaches as entities will likely disclose market-based emissions voluntarily. The TAC acknowledges that the ISSB’s approach is nuanced and appropriate as disclosures on a location-based approach will offer consistency across the data. Current practice in the UK demonstrates that many UK entities are already voluntarily disclosing both approaches (market and location-based) for Scope 2 emissions. The TAC acknowledges that just because UK entities generally have the maturity and ability to report market-based data this does not mean it needs to be mandated, and entities will continue to disclose this information if it is considered helpful to understand the entities actions to mitigate greenhouse gas emissions. The TAC highlights that there might be some usefulness of market-based data to policy development, and this should be an area of practice to observe.

103The TAC recommends that the ISSB provides further clarification and guidance in relation to the requirement in IFRS S2 paragraph 29(iv) to disaggregate Scope 1 and Scope 2 emissions between the consolidated accounting group and other investees. In particular, the TAC highlights that the flexibility in reporting boundary approach provided by the GHG Protocol Corporate Standard might not align with the requirement to disaggregate greenhouse gas emissions by associates and joint ventures, especially if the ISSB expects the entity to take the same approach that is used for the preparation of financial statements. It is noted that in line with the general approach set out in IFRS S1, the aim of the standards should be to align sustainability-related reporting boundaries with those used for financial reporting boundaries (as described in paragraph 76). The TAC also agreed to encourage the ISSB to engage with EFRAG regarding differences between IFRS S2 and ESRS E1.

104The TAC agrees to recommend that the UK Government review the process for updating the greenhouse gas conversion factors, including providing clear rationale as to why the latest GWP values are not used. The TAC also agrees to recommend the Government look at the potential opportunity to use government-level emissions data for all corporate reporting processes, noting the potential opportunities associated with the forthcoming Carbon Border Adjustment Mechanism.

105The TAC agrees that the PIC should consider, as an implementation matter, obtaining a legal opinion on whether the UK Sustainability Reporting Standards can refer to a secondary set of materials, in this case the GHG Protocol materials, over which the UK has no proprietary control. This matter is also discussed in relation to the reference to the SASB materials in paragraph 38.

Greenhouse gas emissions: Scope 3 greenhouse gas emissions

Endorsement recommendation

The TAC recommends that the requirements in IFRS S2 for the disclosure of Scope 3 emissions are maintained without amendment.

Additional recommendations and observations

106The TAC recommends that the GHG Protocol and ISSB should be encouraged to provide further alignment and guidance, especially focusing on the industry-based relevance of the Scope 3 categories (including the treatment of leased assets).

107The TAC observes that Scope 3 emissions reporting is complex and difficult, and therefore entities will need significant support to meet these requirements. Guidance on Scope 3 emissions reporting should be clear about the challenges and imperfections of reporting Scope 3 emissions data to support investors in understanding the limits of Scope 3 emissions reporting. The TAC also recommends that any guidance considers the usefulness of narrative reporting to provide additional context and insight to Scope 3 emissions information.

Technical assessment and deliberations

108IFRS S2 paragraphs 29(a), B19, B32–B57 set out requirements for the disclosure of Scope 3 emissions.

109The TAC recognises the significant issue of time lags in collecting and disclosing Scope 3 emissions information, including the challenges with applying the permanent relief in IFRS S2 that permits the use of a different reporting period for greenhouse gas emissions from the value chain. The issue of time lags in Scope 3 emissions reporting is pervasive and is due to data availability and the process of acquiring information from the value chain. Further views on issues related to the timing of reporting is presented in paragraphs 48–53.

110The TAC agrees that disaggregating Scope 3 emissions information by Scope 3 category is important, particularly to highlight key areas to target mitigation action. Disaggregating Scope 3 emissions information by category is also important as the basis for preparation for Scope 3 categories is different. Additionally, Scope 3 emissions data is aggregated upwards rather than broken down and therefore it is likely that entities are already collecting data by category. Despite the importance of disaggregating Scope 3 emissions information, the TAC does not recommend amending IFRS S2, but instead highlights the guiding principles in IFRS S1 paragraph B29 and B30. These guiding principles indicate that 'information shall not be aggregated if doing so would obscure information that is material', and 'information shall be aggregated if items of information have shared characteristics and shall not be aggregated if they do not have shared characteristics'. Entities might therefore need to disaggregate Scope 3 emissions data by category on this basis, removing the need to amend IFRS S2.

111The TAC agrees it would be helpful to encourage more consistency in how Scope 3 emissions are presented within sectors, while allowing entities the flexibility to adapt their reporting based on their own specific contexts. Therefore, the TAC recommends that the GHG Protocol and ISSB should be encouraged to develop further industry-based guidance for Scope 3 emissions reporting,

specifically to be more prescriptive about which of the Scope 3 categories might be relevant to different industries and sectors.

112Responding to the request from DBT relating to preparedness for Scope 3 emissions reporting, the TAC concludes that PIEs in the UK should already have the capacity, skills and systems to produce Scope 3 emissions disclosures, although further progress is needed to ensure this data is ‘reliable’. The TAC notes that Scope 3 reporting is difficult to produce and that entities will need significant support in learning how to report reliable Scope 3 information. Feedback received from stakeholders suggests that while reporting practice will improve over time, some of the challenges with Scope 3 emissions data are unlikely to be fully resolved. However, the Scope 3 measurement framework in IFRS S2 could provide helpful guidance that, if applied faithfully, could improve the consistency and comparability of Scope 3 emissions disclosures. The TAC recommends that guidance is transparent about the challenges of reporting Scope 3 emissions information to support investors in understanding the limits of Scope 3 emissions reporting. The TAC also suggests that guidance points to narrative reporting as a useful approach to provide additional context and insight into Scope 3 emissions information.

113Additionally, in response to DBT’s request for views on what, if any, further guidance and data infrastructure would be needed to facilitate Scope 3 emissions reporting, the TAC believes that Scope 3 guidance and data infrastructure should be developed by an international body, like the GHG Protocol, which might be more appropriate than UK-specific guidance. The challenges associated with Scope 3 emissions are not unique to the UK, and therefore, it is appropriate for an international body to develop guidance or data infrastructure.

Greenhouse gas emissions: financed emissions

Please note: this section on financed emissions will be updated after the November meeting

Endorsement recommendation

The TAC recommends that the financed emissions requirements in IFRS S2 are amended so that entities are not required to use GICS when disaggregating gross financed emissions but may use GICS or a different classification system, for example, one they are already using for existing regulatory reporting purposes.

The TAC recommends that both IFRS S1 paragraph 64 and IFRS S2 paragraphs B61–B63 are amended to clarify that the reporting period for financed emissions information might not be the same as the current reporting period for the financial statements.

Additional recommendations and observations

114The TAC recommends that entities consider using guidance provided by established industry standards on the expected level of coverage of emissions included in financed emissions disclosures, and suggest to the ISSB that this could be an area that is considered as part of the development of the ISSB’s industry-based standards.

115The TAC observes that:

• consistent with IFRS S1 paragraph B29 and B30 entities should disaggregate their assets under management financed emissions disclosures consistent with the accounting treatment of those assets, e.g., distinguishing between assets that are owned and controlled by the entity and by assets that are not owned or controlled by the entity.
• UK stakeholders have suggested that the development of global frameworks and standards for the calculation of financed emissions for different financial products should be an area for continued monitoring as practice is established.
• in accordance with IFRS S2 paragraph 29(a)(iii) entities should disclose appropriate explanation and context as to why disaggregated financed emissions figures are disclosed.
• comparability and consistency in the calculation of financed emissions for undrawn facilities is likely to be challenging given divergent practices.

Technical assessment and deliberations

116IFRS S2 paragraphs B58–B63 sets out requirements for the disclosure of financed emissions.

117The TAC broadly supports the requirements related to financed emissions, but notes that this is a nascent area. The TAC agrees that two amendments to the financed emissions requirements are necessary for the endorsement of IFRS S2 in the UK.

118Firstly, the TAC agrees that IFRS S2 paragraphs B62 and B63—which requires commercial banks and insurers to use the ‘Global Industry Classification Standard (GICS)’ when disaggregating gross financed emissions—should be amended to allow entities to select an appropriate approach. For example, one they already use for an existing regulatory or financial reporting (e.g., Basel Pillar 3). There are several alternative industry classification standards being used by UK entities and mandating the use of one specific commercial standard over others might increase costs to entities. Additionally, allowing entities to use an approach that they already use for existing regulatory reporting will improve consistency within entities’ own reporting and enable connectivity. Additionally, the use of GICS does not align with the SASB’s own classification system, SICS, which is being used by other initiatives in an attempt to align with ISSB. The recommended amendment would support more flexibility in the use of classification standards rather than mandating only one. As entities are still in the early stages of reporting in this area, proposing more flexibility in the approach used is not expected to hamper comparability.

119The TAC agrees that, as currently drafted, it is not always possible for an entity to meet the financed emissions requirements as set out in IFRS S2. Current practice means that in the sustainability-related financial disclosure, the loans and investments that give rise to the financed emissions can be based on the reporting entity’s prior year(s) balance sheet holding percentages. Therefore, the financed emissions data will not relate to that same reporting period as the financial statements, but to a balance sheet from a year or two years earlier. This also means that the financed emissions data will not align with the current year’s greenhouse gas emissions. IFRS S1 paragraph 64 states that ‘the entity’s sustainability-related financial disclosures shall cover the same reporting period as the related financial statements.’ However, with the inevitable delay in obtaining financed emissions data it is not always possible for an entity to provide these disclosures and comply with IFRS S1 paragraph 64. Therefore, the TAC recommends that amendments are made to IFRS S1 paragraph 64 and IFRS S2 paragraphs B61–B63 to clarify that the reporting period for financed emissions information might not be the same as the current reporting period for the financial statements.

120The TAC recognises that in relation to the financed emissions disclosures of assets under management, whether an entity owns or controls another entity should be aligned with the financial accounting treatment. If an entity is included in the financial consolidation as per IFRS 10 Consolidated Financial Statements, then for sustainability reporting purposes that entity might also be considered to be controlled by the reporting entity. The TAC also notes that consistent with IFRS S1 paragraph B29 and B30 entities should disaggregate their assets under management financed emissions disclosures consistent with the accounting treatment of those assets—that is, distinguishing between assets that are owned and controlled by the entity and by assets that are not owned or controlled by the entity.

121There is currently no standardised methodology for the calculation of financed emissions for undrawn facilities and therefore it is expected that there will be diversity in practice which will compromise comparability and consistency. The TAC notes the importance of entities disclosing the methodology and assumptions they have used in their calculations to support comparability.

122The TAC agrees that current flexibility in IFRS S2 that allows entities to determine their approach to calculating financed emissions is appropriate. This flexibility allows market practice to develop and new approaches to emerge and innovate. UK stakeholders have referenced the materials from Partnership for Carbon Accounting Financials (PCAF) as a useful framework and some stakeholders have requested that more explicit references to the PCAF guidance be made in IFRS S2. Given the nascent nature of financed emissions disclosure and the continuing development of the PCAF framework, the TAC agrees that it is appropriate to retain the flexibility that currently exists in IFRS S2 for financial institutions to use PCAF if they find it useful and appropriate, but also to explore other approaches that might develop over time. The TAC agrees that the development of global frameworks and standards for the calculation of financed emissions for different financial products should be an area for continued monitoring as practice is established.

123IFRS S2 requires the disclosure of financed emissions disaggregated by Scope 1, Scope 2 and Scope 3 emissions. While this breakdown is intended to provide more granular information to investors, if appropriate context and explanation is not provided with the disclosure, it might not be clear that the Scope 1 and Scope 2 figures being disclosed are not the Scope 1 and Scope 2 figures of the reporting entity itself. The TAC notes that in accordance with IFRS S2 paragraph 29(a)(iii) entities should disclose appropriate explanation and context as to why disaggregated financed emissions figures are disclosed.

Cross-industry metrics (excluding greenhouse gas emissions)

Endorsement recommendation

The TAC recommends that the requirements for the disclosure of information relating to the cross-industry metric categories in IFRS S2 paragraphs 29(b)–(g) are maintained without amendment.

Additional recommendations and observations

124The TAC recommends that the ISSB and IASB provide guidance on how entities deal with inevitable discrepancies between the information disclosed relating to the cross-industry metrics and the information in the financial statements.

125The TAC recommends that the ISSB should be encouraged to provide clarity as to why IFRS S2 paragraph 29(e) is not subject to the permission to use all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort.

126The TAC recommends that the ISSB should be encouraged to update the Industry-based Guidance on Implementing IFRS S2 to include metrics that support entities in reporting against the cross-industry metric categories in IFRS S2 paragraphs 29(b)–(e).

Technical assessment and deliberations

127IFRS S2 paragraphs 29(b)–(g) and B64–B65 sets out requirements for the disclosure of information about cross-industry metric categories, excluding greenhouse gas emission requirements.

128The TAC highlights concern that information in the financial statements and cross-industry metrics might be inconsistent which would mean that there is a lack of connectivity between the two sets of information. It is understandable that sustainability-related reporting might use a range of estimates in some cases, whereas reporting of recognised amounts in the primary financial statements requires the disclosure of a single point estimate, and therefore there is an expected difference between sustainability-related information and information in the financial statements. IFRS S1 paragraph B42 already requires entities to disclose where there are differences between sustainability-related information and information in the financial statements. The TAC recommends that the ISSB provide guidance—which could be joint ISSB/IASB guidance—around how entities deal with these inevitable discrepancies between the cross-industry metrics and the financial statements. The ISSB could also consider and align with IASB literature, notably IFRS 9 Financial Instruments, where there is existing practice on how to use multiple scenarios.

129The TAC recommends that the ISSB clarifies why IFRS S2 paragraph 29(e) is not subject to the permission to use all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort. IFRS S2 paragraph 30 permits an entity to use all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort for the requirements in paragraph 29(b)–(d) only. This relief does not extend to paragraph 29(e) in relation to the disclosure of the amount of capital expenditure, financing or investment deployed towards climate-related risks and opportunities. The ISSB has so far not provided an explanation as to why paragraph 29(e) is not included.

130The TAC does not agree to request further clarification from the ISSB as to the meaning of the objective of Metrics and Targets in terms of whether certain information is required to be disclosed regardless of an entity’s materiality assessment. IFRS S1 paragraph B25 resolves this issue by clarifying an entity need not disclose information otherwise required by an IFRS Sustainability Disclosure Standard if the information is not material.

131Although not unanimous, the TAC does not agree to request that the ISSB provide further clarification or guidance on the terminology used, including the terms ‘vulnerable’, ‘aligned with’ and ‘deployed’. Market practice on how entities interpret these terms will develop, which can be monitored and fed back to the ISSB. Some TAC members believe that further clarity on the terminology might be needed as they are too vague and open to various interpretations. However, other TAC members noted the TIG decision that the definitions of these words are deliberately non-specific so that management can form their own view of what it means within their own risk framework. Prescribing definitions for these terms would be too rigid—for example ‘vulnerability’ is not just dependent on the sector or industry an entity is in, but also the value chain and geographical footprint—and definitions do not necessarily lead to comparable disclosure (e.g., as evidenced in the application of prescriptive taxonomies). Although leaving these terms open for interpretation could lead to huge amounts of variation within the same industry—which would be unhelpful to users—market convergence on how to interpret them might happen over time. Additionally, entities in the UK should already be assessing climate-related risks and opportunities as part of the TCFD disclosures and should therefore have clear parameters for assessing those risks and opportunities including defining terms like ‘vulnerable’ and ‘aligned with’.

Resilience and scenario analysis

Endorsement recommendation

The TAC recommends that the requirements in IFRS S1 and IFRS S2 for the disclosure of resilience and scenario analysis are maintained without amendment.

Additional recommendations and observations

132The TAC recommends engaging with the ISSB to develop a definition for ‘resilience’ in IFRS S1, noting that specific definitions of resilience for future topic-specific standards could be developed for particular sustainability-related matters. This might also include how scenario analysis can be used to identify sustainability-related opportunities for particular sustainability-related matters.

Technical assessment and deliberations

133IFRS S1 paragraphs 28, 29(e), 41–43, 44(a)(ii) and Appendix A and IFRS S2 paragraphs 8, 9(e), 22–24, 25(a)(ii) (b), Appendix A and B1–B18 set out requirements for the disclosure of resilience and scenario analysis.

134The TAC agrees that the requirements in IFRS S1 and IFRS S2 in relation to resilience and scenario analysis should be maintained without amendment. Although stakeholder feedback identified challenges with the resilience and scenario analysis disclosures, there was support for making the disclosures. As such maintaining the requirements should improve the quality of corporate reporting within the UK in the long-term and maintain the global baseline.

135The TAC also agrees that the ISSB should be engaged with regarding developing a definition for ‘resilience’ in IFRS S1. The TAC has mixed views about whether the definition of ‘resilience’ in IFRS S1 should align with the definition of climate resilience in IFRS S2. The TAC notes that the IFRS S1 definition of resilience could be used as the starting point for definitions of resilience in the ISSB’s future topic-specific standards and that these definitions could be developed for the particular sustainability-related matters of each standard.

136The TAC agrees not to recommend that the ISSB need clarify why the disclosure regarding whether the entity uses scenario analysis to identify sustainability-related opportunities is not required in IFRS S1 and notes that IFRS S1 does not preclude this disclosure. The TAC notes, however, that this disclosure could be considered in regard to the ISSB’s future topic-specific standards and could be included or excluded based on the particular sustainability-related matters of each standard.

137Finally, the TAC agrees not to recommend that the ISSB need develop further guidance on the use of scenario analysis as a tool to identify sustainability-related risks and opportunities and agrees not to recommend that the PIC need prescribe specific scenario analysis and periodically set a standardised climate-related scenario against which entities could undertake climate scenario analysis. The TAC favours flexibility over prescription in the selection and use of scenarios, noting that scenario analysis might not be comparable across entities as scenario analysis is a risk management tool and will be entity specific.

Targets

Endorsement recommendation

The TAC recommends that the requirements in IFRS S1 and IFRS S2 for the disclosure of sustainability-related targets are maintained without amendment.

Additional recommendations and observations

138The TAC recommends that the ISSB clarifies the term ‘targets’ and the way it differs from other terms, including ‘ambitions’.

139The TAC recommends that the ISSB consider how an entity might identify and disclose metrics and targets related to broader (non-climate) sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects as part of its research on topic-specific standards. The TAC also recommends that the ISSB’s future topic-specific standards provide further guidance as to the expected disclosures relating to broader sustainability-related targets.

140The TAC recommends that market practice related to targets, notably the use of carbon credits and connectivity with identified risks and opportunities, is an area for continued monitoring to provide feedback to the ISSB on during its post-implementation review of IFRS S1 and IFRS S2.

Technical assessment and deliberations

141IFRS S1 paragraphs 45, 51–53 and B52 and IFRS S2 paragraphs 27, 33–37, Appendix A and B66–B71 set out requirements for the disclosure of sustainability-related targets.

142The TAC agrees that the requirements in IFRS S1 and IFRS S2 in relation to sustainability-related targets should be maintained without amendment. Despite recognising that current practice relating to targets is insufficient, it might not be appropriate to amend the requirements at this stage. It is expected that the requirements in both IFRS S1 and IFRS S2 relating to targets, if applied fully, should improve the quality of disclosures as they include more granular requirements than existing disclosure requirements. If applied fully, the requirements in IFRS S1 and IFRS S2 relating to targets should support entities in providing disclosures that are understandable, relevant, reliable and comparable.

143The TAC also agrees that the ISSB should clarify the term ‘targets’ and the way it differs from other terms, including ‘ambitions’. The ISSB could develop further guidance and worked examples on these terms. There might also be a link between these terms and time horizons, which the TAC considered in its deliberations on identifying sustainability-related risks and opportunities. Additional clarity and guidance in this area could ensure that entities apply these terms in a consistent and comparable way. This could support the provision of disclosures that are understandable, relevant, reliable and comparable and would likely improve the quality of corporate reporting within the UK in the long-term.

144The TAC also agrees that the ISSB should consider how an entity might identify and disclose metrics and targets related to broader (non-climate) sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects as part of its research on topic-specific standards. In its deliberations on identifying sustainability-related risk and opportunities, the TAC agreed that it is more challenging in practice for entities to identify risks and opportunities relating to broader sustainability-related matters that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term, especially relating to social-related matters. The TAC agrees that the ISSB’s future topic-specific standards should include considerations on how to identify sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects, alongside topic-specific guidance on materiality. The TAC also agrees that the ISSB’s future topic-specific standards should provide further guidance as to the expected disclosures relating to broader sustainability-related metrics and targets.

145The TAC agrees that market practice related to targets, notably the use of carbon credits and connectivity with identified risks and opportunities, should be an area for continued monitoring to provide feedback to the ISSB during its post-implementation review of IFRS S1 and IFRS S2. This would facilitate an understanding of how the requirements are being applied by entities and whether further and more granular requirements or guidance are necessary.

Transition plans

Endorsement recommendation

The TAC recommends that the requirements in IFRS S2 for the disclosure of transition plans are maintained without amendment. However, this recommendation is not unanimous.

Additional recommendations and observations

146There are no additional recommendations or observations.

Technical assessment and deliberations

147IFRS S2 paragraph 14 and Appendix A set out requirements for the disclosure of transition plans in relation to how entities have responded to, or plan to respond to, climate-related risks and opportunities.

148The TAC notes that, while the disclosure framework from the Transition Plan Taskforce (TPT) suggests that entities should disclose separate standalone transition plans (outside of the general purpose financial report), material information about transition plans should be disclosed in the general purpose financial report. This is consistent with IFRS S1, which requires material information about transition plans to be disclosed in the general purpose financial report.

149Although not unanimous, the TAC agrees that the requirements in IFRS S2 for the disclosure of transition plans, only if such plans exist, should be maintained without amendment. Other than requesting further application guidance on reporting transition plans, stakeholders did not provide significant concerns directly relating to the requirements in IFRS S2. Additionally, no direct concerns relating to the requirements in IFRS S2 have been observed, but certain areas might require further consideration as practice develops.

150A minority of TAC members dissent in favour of amending IFRS S2 by inserting a reference to the TPT materials. They claim that further guidance in this area might ensure that entities prepare their transition plans in a consistent and comparable way. This could support the provision of disclosures that are understandable, relevant, reliable and comparable and would likely improve the quality of corporate reporting within the UK in the long-term.

151Overall, the TAC agrees that the criteria for amending the standards—notably that changes are considered necessary for the effective application within the UK and that failure to amend the standard would be detrimental to the long-term public good—have not been met in this instance. Although some stakeholders have requested further application guidance on reporting transition plans, as well as noting the helpful materials produced by the TPT, it is not considered to be appropriate to add a reference in IFRS S2 to the TPT materials at this time. Given the announcement by the ISSB that it will utilise the TPT materials to develop its own educational material, and perhaps in the future application guidance, it is not considered appropriate for the UK to create its own guidance or reference the TPT materials as part of the endorsement of IFRS S2. Additionally, some stakeholders requested that the TPT materials are only maintained as non-mandatory guidance as they believe that entities should have the discretion to select from the range of resources that are currently available to the market. The TAC notes that the status of the TPT materials will be considered as an implementation matter and, on balance, the TAC agrees with this being considered at the implementation stage.

Proportionality mechanisms and permanent reliefs

Endorsement recommendation

The TAC recommends that the proportionality requirements and permanent reliefs in IFRS S1 and IFRS S2 are maintained without amendment.

Additional recommendations and observations

152The TAC recommends that the application of the proportionality mechanisms is observed as practice develops, and if there appears to be inappropriate use of these mechanisms that this is shared with the ISSB during its post-implementation review of IFRS S1 and IFRS S2.

Technical assessment and deliberations

153The relevant requirements relating to the proportionality mechanisms and permanent reliefs are set out in IFRS S1 paragraphs 34–40, 77–82, B6–B7, B8–B10, and IFRS S2 paragraphs 10–11, 15–21, 22, 29(b)–(g), 30, B1, and B6–B7.

154The TAC generally welcomes the proportionality mechanisms and permanent reliefs that are designed to enable entities with different circumstances to be able to apply the requirements in the standards.

155However, the TAC also notes concern that the standards do not always require entities to disclose which mechanisms have been used, which could lead to unexplained gaps or omissions in the disclosures. It would be helpful for users to understand when a mechanism has been applied to explain why a different approach has been taken by an entity. For example, it would be useful for users to understand why an entity only provided qualitative information about the current and anticipated financial effects of sustainability-related information if the entity has applied the permanent reliefs that are available in the standards. The TAC observes that IFRS S1 paragraph 74 requires the disclosure of information about the judgements made in the process of preparing sustainability-related disclosures, which might include information about which of the mechanisms the entity has applied.

156The TAC is satisfied that the use of the mechanisms, and the resulting gaps or omissions in disclosure, will likely reduce in the future and therefore there is no need to place a time limit on the use of the proportionality mechanisms and permanent reliefs. However, there might be some benefit in the development of application guidance for entities to understand how to provide information about the application of the mechanisms.

157The TAC agrees that further guidance is not necessary for the application of the concept of ‘reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort’. Although some UK stakeholders were concerned that inconsistent application of this concept could lead to inconsistent disclosure practice, it might not be appropriate to provide further guidance that is too prescriptive. Instead, practice might be observed as it develops to understand whether any amendments are required in the future.

Transition reliefs

Endorsement recommendation

The TAC recommends removing the transition relief in IFRS S1 paragraph E4 that permits an entity to report its annual sustainability-related financial disclosures after it has published the related financial statements in the first year of reporting.

The TAC also recommends amending the transition relief in IFRS S1 to extend the ‘climate-first’ reporting relief to two years and therefore require disclosure of all sustainability-related risks and opportunities in the third year of reporting.

However, these recommendations are not unanimous.

Additional recommendations and observations

158The TAC recommend that the PIC considers the implication of voluntary reporting on the entity’s ability to apply transition reliefs and assert compliance with the standards.

Technical assessment and deliberations

159The TAC welcomes the transition reliefs in IFRS S1 and IFRS S2, noting that they are proportionate and focused on the areas in the standards that are particularly challenging. However, considering all transition reliefs together the TAC believes that some amendments are necessary to support the application of the standards in the UK.

160The TAC broadly supports removing the timing relief in IFRS S1 paragraph E4 to support connectivity objectives. Allowing entities to disclose sustainability-related information at a later time compromises the principle of connectivity and removes comparability with the financial statements and other narrative reporting that an entity provides in the Strategic Report. Additionally, this transition relief might not be necessary as UK entities should already be familiar with climate-related reporting as part of their annual reporting, and the application guidance and proportionality mechanisms available in the standards already provide sufficient support to entities on the more challenging areas. However, the TAC also note that non-PIEs might benefit from this relief, especially if these entities are not familiar with this type of reporting.

161The TAC is divided as to whether it is necessary to extend the transition reliefs. Some TAC members believe that the proportionality mechanisms in the standards would be enough to support the application of the standards. However, UK entities—including large entities that have already disclosed sustainability-related information for several years—are likely to take advantage of at least some of the reliefs available in the standards as the application of IFRS S1 and IFRS S2 would be a significant change compared to current practice and would require further and more granular data collection. Some stakeholders have requested that some transition reliefs are extended to two years to support implementation. Responding to stakeholder requests for a ‘phased approach’, the TAC believes that extending one of the transition reliefs is preferable to introducing phased effective dates that would cover the entire standards. While recognising the concerns of investors that delays to reporting are not ideal, the TAC believes that the extension is a reasonable and balanced approach.

162The TAC has observed that reporting of broader (non-climate) sustainability-related risks and opportunities is nascent and therefore providing more time for entities to prepare these disclosures would be welcomed. The TAC also acknowledges that IFRS S1 is a helpful stepping stone for disclosure of sustainability-related information beyond climate and will likely improve comparability to a certain extent, i.e., current practice would be improved. However, in the absence of other IFRS Sustainability Disclosure Standards that provide topic specific disclosure requirements and guidance, IFRS S1 will not immediately lead to comparable and consistent disclosure.

163The TAC broadly agrees that extending the Scope 3 emissions reporting relief will not improve reporting or reduce the reporting burden but will only delay the challenges associated with Scope 3 reporting. Additionally, Scope 3 emissions information from entities in the value chain is required by reporting entities for their own disclosure, and therefore delayed reporting will create further complications for users of that information who themselves need to disclose their greenhouse gas emissions information.

164Although not unanimous, the TAC recommends extending the ‘climate first’ reporting relief in IFRS S1 which will result in all climate-related disclosures (including Scope 3 emissions) being prioritised before introducing broader sustainability-related requirements. This would provide additional time for entities to prepare full disclosures that are compliant with IFRS S1.

165The TAC notes that these recommended amendments to the transition reliefs are not considered ‘jurisdictional modifications’ by the IFRS Foundation as stated in the inaugural jurisdictional adoption guide. Therefore, if the UK were to extend any of the transition reliefs, this would not be seen as compromising the global baseline.

Effective date

Endorsement recommendation

The TAC recommends removing the effective date in IFRS S1 and IFRS S2. Noting that the effective date for mandatory reporting is for the PIC to decide on, the TAC recommends that it is not necessary to insert a specific date into the standards for voluntary application.

Additional recommendations and observations

166The TAC has observed that if an entity makes an unequivocal statement of compliance with IFRS Sustainability Disclosure Standards (as issued by the ISSB), then the entity cannot apply the transition reliefs that will be available in the UK Sustainability Reporting Standards or utilise the reliefs again.

Technical assessment and deliberations

167These views on the effective date reflect the TAC’s view on when entities might be prepared to apply the standard, rather than providing views on the specific effective date itself. The TAC notes that this view is separate from the decisions that will be taken by DBT and the FCA on the implementation date for UK Sustainability Reporting Standards.

168The TAC recognises that the wording in IFRS S1 and IFRS S2 needs to change as the effective date has passed. The TAC agrees that, in absence of mandatory reporting requirements, the wording in UK Sustainability Reporting Standards should reflect that the two standards should be applied at the same time. The TAC has not provided a specific effective date for voluntary adoption, noting that a decision on the effective/implementation date should be a decision for the PIC.

169TAC emphasises that UK entities are not prohibited from starting to voluntarily apply IFRS Sustainability Disclosure Standards. However, the TAC also notes that if an entity makes an unequivocal statement of compliance with IFRS Sustainability Disclosure Standards (as issued by the ISSB), the entity cannot apply the transition reliefs that will be available in the UK Sustainability Reporting Standards or utilise the reliefs again. Therefore, the TAC encourages voluntary adoption of IFRS Sustainability Disclosure Standards, noting that entities do not need to state full compliance with the standards.

Appendix 2: Matters to raise with the ISSB

170In its discussions, the TAC has observed several matters to raise with the ISSB, including where there might be interpretation challenges or where the ISSB could produce guidance. These matters are summarised below.

Clarifying requirements in IFRS S1 and IFRS S2

171The TAC has observed some requirements in IFRS S1 and IFRS S2 that require further clarification from the ISSB, including:

• the intention of IFRS S1 paragraphs 66–67 in relation to changes in reporting periods, including when it can be applied by an entity;
• inconsistencies between IFRS S1 and IFRS Accounting Standards on the use of the exemption for commercially sensitive information;
• whether IFRS S2 paragraph B19 relates to differences in the reporting period or to different financial years;
• why IFRS S2 paragraph 29(e) is not subject to the permission to use all reasonable and supportable information that is available to the entity at the reporting date without undue cost or effort; and
• the definition of the term ‘targets’, including how it differs from other terms including ‘ambitions’.

Monitoring practice of specific areas as it develops

172The TAC has observed some areas within IFRS S1 and IFRS S2 that should be monitored as practice develops to check whether the requirements are being consistently applied and the resulting disclosures are of good quality. These areas include:

• the timing of reporting, including the use of different reporting periods for certain sustainability-related disclosures;
• the disclosure of judgements, measurement uncertainty, errors and revising comparative amounts due to changes in estimate;
• the disclosure of current and anticipated financial effects;
• the disclosure of sustainability-related targets, including the use of carbon credits and the connectivity with the identified sustainability-related risks and opportunities; and
• the application of the proportionality mechanisms and permanent reliefs.

Developing additional guidance or educational material

173The TAC has observed some areas within IFRS S1 and IFRS S2 that would benefit from additional guidance. These areas include guidance on:

• dynamic materiality workflows to support the connection between financial and impact materiality;
• supporting entities with applying the exemption on commercially sensitive information;
• the requirements to revise comparatives due to a change in estimates, which might include guidance on how to treat changes in data quality, how to determine whether these changes represent changes in estimates rather than errors, the difference between restatements and revisions, and how this might affect an entity's assessment of what information is considered to be material;
• in relation to reporting entity boundary and consolidated reporting, how to treat conglomerates and other complex entities that have highly diverse operations;
• information from the value chain, including information about sustainability-related matters other than climate change in the value chain, and how to align value chain reporting with information in the financial statements;
• current and anticipated financial effects, including worked examples and guidance on whether information about the combined financial effects 'would not be useful';
• how to disaggregate Scope 1 and Scope 2 emissions by consolidated accounting group and other investees aligned with the financial statements;
• Scope 3 emissions reporting, including industry-based relevance of the Scope 3 categories;
• on the expected level of coverage of emissions included in financed emissions disclosures, and which could be an area that is considered as part of the development of ISSB's industry-based standards;
• the cross-industry metric categories in IFRS S2 via an update to the Industry-based Guidance on Implementing IFRS S2; and
• how entities deal with inevitable discrepancies between the information disclosed relating to the cross-industry metrics and the information in the financial statements, which could be joint ISSB and IASB guidance.

Considerations for future IFRS Sustainability Disclosure Standards

174When researching and developing future IFRS Sustainability Disclosure Standards, the TAC recommends that the ISSB consider:

• materiality considerations for particular sustainability-related matters, including guidance on what information could be considered material for these matters;
• how an entity might identify and disclose (non-climate) sustainability-related risks and opportunities that could reasonably be expected to affect the entity's prospects;
• the requirements relating to reporting entity boundaries and the alignment with the approach taken in preparing financial statements;
• how (non-climate) sustainability-related risks and opportunities are identified in the value chain;
• how the requirement in IFRS S2 paragraph B19 can be applied to sustainability-related matters other than greenhouse gas emissions;
• how an entity might identify and disclose metrics targets related to (non-climate) sustainability-related risks and opportunities that could reasonably be expected to affect the entity's prospects as part of its research on topic-specific standards;
• the definition for ‘resilience' in IFRS S1 which might need to be amended for future topic-specific standards to relate to the particular sustainability-related matters; and
• how scenario analysis can be used to identify sustainability-related opportunities for particular sustainability-related matters.

Supporting efforts towards international interoperability

Please note: this section will be updated after the November meeting

175As part of the work on international interoperability, engagement with the ISSB should focus on the key challenges for entities that will report under both UK Sustainability Reporting Standards and other jurisdictional sustainability reporting frameworks which use different definitions of materiality.

176The TAC also recommends that the ISSB engages with EFRAG regarding discrepancies between the two climate reporting standards (IFRS S2 and ESRS E1), in particular the different requirements relating to disaggregating Scope 1 and Scope 2 data by consolidated reporting entity.

Encouraging greater connectivity and integration of sustainability-related information

Please note: this section will be updated after the November meeting

Aligning reporting entity boundary approaches

177The TAC emphasises the value of consistency between sustainability-related reporting and financial reporting, and therefore entities should be strongly encouraged to report using the financial view of control. The TAC notes that IFRS S1 and IFRS S2 ask for the disclosure of information about financial risks and opportunities, so it is appropriate to require entities to focus on the financial view of control. Although IFRS S1 requires entities use the same reporting entity, IFRS S2 includes a certain level of flexibility, especially for greenhouse gas emissions reporting. The TAC observes that in current practice an operational control approach is often used for sustainability-related disclosures but strongly recommends that entities should report sustainability-related information using a financial control approach over time. This is an area that the ISSB should consider in its post-implementation review of IFRS S1 and IFRS S2, but also in developing future IFRS Sustainability Disclosure Standards.

Interaction between IFRS Sustainability Disclosure Standards and the GHG Protocol

178The TAC recommends that both the ISSB and GHG Protocol work closely together on the revisions to the GHG Protocol Corporate Standard to ensure further alignment and compatibility with the principles in IFRS S1. For example, further compatibility is expected on reporting entity boundary approaches with emphasis on the alignment between reporting greenhouse gas emissions reporting and financial reporting.

179Additionally, the ISSB and GHG Protocol are encouraged to work together to develop guidance on Scope 3 emissions reporting, including guidance on the industry-based relevance of Scope 3 categories (including the treatment of leased assets). Guidance on Scope 3 emissions reporting should be clear about the challenges and imperfections of reporting Scope 3 emissions data to support investors in understanding the limits of Scope 3 emissions reporting. The TAC also recommends that any guidance considers the usefulness of narrative reporting to provide additional context and insight to Scope 3 emissions information.

Appendix 3: Contextual information and matters to raise with the PIC

180DBT provided contextual information stating that they would appreciate the TAC's view and supporting analysis on several issues. The TAC has addressed some of these issues when discussing specific technical areas, whereas some of these issues have required further consideration. The TAC's view and supporting analysis on the issues are summarised below, including cross referencing to the sections of this report where further analysis is provided.

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.

181The TAC considered the definitions in IFRS S1 and IFRS S2 in relation to each technical area, as relevant. For example, the TAC specifically considered the definitions for:

• materiality;
• sustainability-related matters;
• commercially sensitive information;
• value chain;
• specific words used in relation to the requirements for cross-industry metric categories; and
• resilience.

182Overall, the TAC believes that the definitions in IFRS S1 and IFRS S2 are sufficiently clear. However, there are two areas for the PIC to consider in its deliberations on IFRS S1 and IFRS S2.

183The TAC has some concerns about the lack of specific definition for 'sustainability-related' which might compromise the consistency and comparability of disclosures, especially in relation to the application of IFRS S1. However, the TAC notes that IFRS S1 includes a description of 'sustainability' which is adapted from the Integrated Reporting Framework, and the flexibility provided by this description allows entities to determine which sustainability-related risks and opportunities are relevant for the entity. Notably, the TAC highlights that a definition for 'sustainability-related matters' already exists in the Financial Services and Markets Act 2023 section 416B(2). This definition could be used by entities when applying IFRS S1, as UK entities are already disclosing sustainability-related matters using this definition. The TAC agrees that this definition should not be inserted in IFRS S1 as it unnecessary and could compromise the international comparability of disclosures, but the TAC cautions that it might be challenging to align reporting under IFRS Sustainability Disclosure Standards with reporting under existing UK reporting requirements. The TAC agrees that the PIC should consider developing jurisdictional guidance on what sustainability-related information entities are required to disclose in line with the current UK legal framework and how this aligns with IFRS Sustainability Disclosure Standards.

184Additionally, the TAC wishes to highlight to the PIC the exemptions in the Companies Act 2006 relating to commercially sensitive information, for example, around suppliers and customers. The TAC agrees that the PIC should consider inconsistencies with IFRS S1 and the UK's legal framework but notes that the exemptions in the Companies Act 2006 should not prevent entities from complying with IFRS S1. Although inconsistencies have been identified, the adoption of these requirements would still likely be coherent with, and suitable for inclusion in, UK domestic 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.

185The TAC considered the existing transition reliefs in IFRS S1 and IFRS S2 in the context of all of the support mechanisms available in the standards (e.g., proportionality mechanisms and permanent reliefs).

186The TAC concludes that the transition reliefs in IFRS S1 and IFRS S2 are proportionate and focused on the areas that are considered particularly challenging. However, on balance the TAC believes that some amendments to these reliefs are necessary to support the application of the standards in the UK. In particular, the TAC recommends two amendments to IFRS S1, which are to:

• remove the transition relief in IFRS S1 paragraph E4 that permits an entity to report its annual sustainability-related financial disclosures after it has published the related financial statements in the first year of reporting; and
• extend the transition relief in IFRS S1 relating to 'climate-first' reporting to two years and therefore requiring disclosure of all sustainability-related risks and opportunities in the third year of reporting.

187This decision is not unanimous as some TAC members do not believe the criteria for amendment have been met.

188Further description of the TAC's analysis and conclusions relating to transition reliefs is provided in Appendix 1 paragraphs 159–165.

189Further to the request from DBT, the TAC also recommends that the PIC considers the implication of voluntary reporting on an entity's ability to apply transition reliefs and assert compliance with the standards. The TAC has observed that if an entity makes an unequivocal statement of compliance with IFRS Sustainability Disclosure Standards (as issued by the ISSB) voluntarily, then the entity cannot apply the transition reliefs that will be available in the UK Sustainability Reporting Standards, or utilise the reliefs again. The TAC suggests that the PIC consider this as part of its decisions on implementation matters.

The timescales involved for 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.

190In response to DBT's request, the TAC concludes that PIEs in the UK should already have the capacity, skills and systems to produce Scope 3 emissions disclosures, although further progress is needed to ensure this data is 'reliable'. The TAC notes that Scope 3 reporting is difficult to produce and that entities will need significant support in learning how to report reliable Scope 3 information. Further guidance and data infrastructure would be needed to facilitate Scope 3 emissions reporting but, given that the challenges associated with Scope 3 emissions are not unique to the UK, it might be more appropriate to encourage an international body, like the GHG Protocol, to develop this guidance and data infrastructure.

191It is also noted that the challenges associated with Scope 3 emissions reporting are unlikely to be fully resolved over time, and there should be a clear understanding of the limits of Scope 3 emissions data. The TAC recommends that any guidance on Scope 3 emissions reporting is transparent about the limitations of Scope 3 emissions data.

192Further description of the TAC's analysis and conclusions relating to Scope 3 emissions reporting is provided in Appendix 1 paragraphs 108–113.

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.

193The TAC discussed the supporting infrastructure necessary for the disclosure of greenhouse gas emissions in the UK. Specifically, the TAC discussed the UK Government's conversion factors. These conversion factors are often published using data that is out of date, which compromises the timeliness and comparability of greenhouse gas emissions information. The TAC recommends that the UK Government review the process for updating its greenhouse gas conversion factors, including providing clear rationale as to why the latest Global Warming Potential (GWP) values are not used. The TAC also recommend that the UK Government consider the potential opportunity to use government-level emissions data for all corporate reporting processes.

194Further description of the TAC's analysis and conclusions relating to greenhouse gas emissions reporting, including measurement methods, is provided in Appendix 1 paragraphs 98–105.

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

195There are varying views from the TAC members in relation to the instruction in IFRS S1 and IFRS S2 that entities 'shall refer to and consider' the SASB materials. Some TAC members believe that the instruction is clear, and that entity's need not use the SASB materials but only refer to them. Other TAC members are concerned that the instruction is ambiguous and will add a burden of proof for entities to prove that they have ‘referred to' and 'considered' the materials.

196Despite the differing views, the TAC agrees that the instruction in IFRS S1 and IFRS S2 of 'shall refer to and consider' regarding the SASB materials should be maintained without amendment. However, the TAC recommends that attention is drawn to the ISSB's assertion that entities are not required to use the SASB Standards, but only refer to and consider them. The TAC also recommends that the FRC consider developing further guidance regarding assurance expectations.

197This decision is not unanimous as a minority of TAC members dissent in favour of amending the instruction in IFRS S1 and / or IFRS S2 from 'shall refer to and consider' to 'may refer to and consider'.

198Further description of the TAC's analysis and conclusions relating to the references to the SASB materials is provided in Appendix 1 paragraphs 31–38.

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

199As a general point, the TAC agrees that any guidance produced by the ISSB should focus on interpretation of the standards and any guidance produced by a UK body should focus on implementation of the standards and consistency with UK domestic regulations and legislation.

200Any guidance suggested by the TAC is considered helpful, rather than necessary, for the implementation of IFRS S1 and IFSR S2 in the UK.

201The matters that have been observed by the TAC, including where there might be interpretation challenges or where the ISSB could produce guidance, will be raised with the ISSB and are collated in Appendix 2.

202In relation to UK-specific guidance, as noted in paragraph 183, the TAC recommends that the PIC consider developing jurisdictional guidance on what sustainability-related information entities are required to disclose in line with the current UK legal framework and how this aligns with IFRS Sustainability Disclosure Standards. This guidance should support entities in complying with IFRS Sustainability Disclosure Standards and existing reporting requirements in the UK.

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

203During its discussion on certain technical areas, the TAC considered the implications of adopting IFRS S1 and IFRS S2 on assurance. For example, the possible level of assurance required was considered in the technical analysis relating to the location and timing of sustainability-related disclosures.

204Overall, the TAC has not observed any major barriers to the provision of assurance and concludes that the disclosures against IFRS S1 and IFRS S2 are capable of being assured. However, the TAC would like to highlight some areas for further consideration, including:

• the ultimate location of disclosures might impact the level of assurance that is necessary in the UK (e.g., if the disclosures are required to be part of the strategic report);
• the timing of reporting is notably challenging, and entities will need to use significant amounts of estimation to be able to complete their disclosures which might make assurance complex; and
• the instruction ‘shall refer to and consider' might create undue cost and burden on entities who will need to prove to assurance providers that they have referred to and considered the SASB materials.

Further to the specific issues requested by DBT for TAC consideration, the TAC would also like to raise the following matters with the PIC for its consideration

205The TAC has observed that the implementation of IFRS S1 and IFRS S2 in the UK is an opportune time to simplify and streamline existing reporting rules in the UK which are considered unnecessarily complex and confusing. This includes consideration of requirements in both the Companies Act 2006 and FCA Listing Rules. This also includes consideration of the entities that are in scope of the existing reporting requirements and the exemptions that are available, which are not always internally consistent within the regulations.

206The TAC also recommends that the PIC consider the introduction of an exemption for certain subsidiaries where the parent company is reporting on an equivalent basis for the consolidated group. Further analysis on this issue is provided in Appendix 1 paragraph 78.

207During its discussions, the TAC has observed a number of specific areas where practice should be observed as it develops, and feedback be provided to the ISSB when it initiates its post-implementation review of IFRS S1 and IFRS S2.

In particular, the TAC highlights that practice in relation to the following areas are observed, including:

• the timing of reporting, including the use of different reporting periods for certain sustainability-related disclosures;
• the disclosure of judgements, measurement uncertainty, errors and revising comparative amounts due to changes in estimate;
• the disclosure of current and anticipated financial effects;
• the disclosure of sustainability-related targets, including the use of carbon credits and the connectivity with the identified sustainability-related risks and opportunities; and
• the application of the proportionality mechanisms and permanent reliefs.

208The TAC has observed that there is a difference between the approach to the application of materiality in IFRS S1 and the application of materiality in the Task Force on Climate-related Financial Disclosures (TCFD) requirements which are current required in the UK through the Companies Act 2006 and FCA Listing Rules requirements. The TCFD requires the disclosure of governance and risk management information regardless of an entity's application of materiality, as this information provides contextual information about how the entity identifies and manages climate-related risks and opportunities. The application of materiality in IFRS S1 means that entities may omit all information if it is determined as not material. On this particular matter, the TAC suggests that the move from TCFD requirements to IFRS Sustainability Disclosure Standards could lead to less reporting in the UK. The TAC recommends that the PIC consider the implications of moving from TCFD requirements to IFRS Sustainability Disclosure Standards.

209The TAC has some concerns about referencing third-party materials within the standards and recommends that the PIC obtain a legal opinion on whether the UK Sustainability Reporting Standards can refer to materials over which the UK has no proprietary control. This matter is specifically discussed in relation to the references in IFRS S1 and IFRS S2 to the SASB materials and GHG Protocol materials.

210The TAC defers the decision about the location of reporting to the PIC as part of its implementation decisions. However, the TAC recognises that material sustainability-related information might be best placed in the strategic report (provided that that existing reporting rules are streamlined and simplified). In considering the location of disclosures, the PIC should consider possible implications for future assurance requirements, the interoperability challenges with other jurisdictional requirements, and the availability of safe harbour provisions for information in the strategic report that are currently in the Companies Act 2006.

211In relation to consistency with existing reporting requirements in the UK, the TAC recommends that the PIC consider the current wording in the SECR requirements that requires that comparative information shall be “as disclosed in last year's report”. This might not align with the requirements in IFRS S1 that requires entities to revise comparative information for a change in estimate.

212The TAC defers the decision about effective date to the PIC as a matter of implementation. However, the TAC also notes that an effective date is not necessary for voluntary application of the standards and emphasises that an effective date should not create a barrier for voluntary application.

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Name TAC Public Meeting November 2024 Paper 7: Review of TAC's tentative decisions to date

Publication date 29 October 2024

Format PDF, 608.8 KB

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