UK urged to adopt ISSB standards by sustainable investment industry

Groups respond to TAC consultation saying IFRS S1 and IFRS S2 should become UK regulatory requirements

Investment firms and sustainable industry bodies have “strongly” encouraged the UK to adopt the IFRS Disclosure Standards, which were launched by the International Sustainability Standards Board (ISSB) in June this year.

In July 2023 the Secretariat to the UK Sustainability Disclosure Technical Advisory Committee published a call for evidence to seek UK views on IFRS S1 and IFRS S2 and their prospective use in the UK. These are the first two sustainability disclosure standards developed by the ISSB and are intended to serve as a global baseline of sustainability disclosures for the capital markets.

IFRS S1 prescribes how companies prepare and report their sustainability-related financial disclosures. IFRS S2 sets out the requirements for companies to disclose information about their climate-related risks and opportunities, while building on the requirements in IFRS S1.

See also: – To ISSB or not to be

“We strongly encourage the UK to endorse the IFRS Disclosure Standards in view of their higher granularity and inclusion of sustainability information beyond climate,” Carine Smith Ihenacho, chief governance and compliance officer, and Elisa Cencig, senior ESG policy adviser at Norges Bank Investment Management said in the firm’s consultation response, a sentiment echoed by Legal & General Group.

The Principles for Responsible Investment added the UK should endorse the standards and “transpose them into UK regulatory requirements as soon as practicable”.

While groups with consultations published on the Financial Reporting Council’s website unanimously supported the adoption, some differed on the timing of enforcement.

“The UK should seriously consider recent calls from a number of organisations to implement the standards on an economy-wide basis by 2025,” James Alexander, CEO of The UK Sustainable Investment and Finance Association said in the group’s response.

He added: “More specifically for issuers, convergence towards the ISSB’s disclosure standards could help UK-based issuers to attract investment from abroad.”

Convergence of the standards was echoed by others, with Norges Bank IM supporting requirements to use SASB standards for the identification of sustainability-related risks and opportunities and related metrics, and M&G calling for a coordination of requirements between other regulations UK entities are subject to.

Both groups also requested ISSB provide guidance on its definition of materiality.

“Our interpretation of the ISSB definition is that it should include ‘inside-out’ impacts to the extent that these affect the decisions of investors, however this needs to be clarified to ensure consistency in practice,” M&G said.

“Further, disclosure of information which is not decision-useful for investors will lead to longer reports that are more difficult to digest. Guidance should explicitly encourage entities to not report on areas which are not material to the business.”

Finally T. Rowe Price, which already recommends investee companies look to adopt the ISSB disclosure, suggested publicly-listed companies should report scopes 1 and 2 at the same time as their financial results and regulators should consider providing guidance to publicly listed corporate issuers on the use of estimating methodologies for scope 3 GHG emissions.


Natasha Turner

Natasha was global editor at ESG Clarity, part of Mark Allen Financial, and a financial journalist for seven years. She has been shortlisted for Story of the Year and Investment Journalist of the Year...