Expert Group Backs UK ISSB Adoption

UK Technical Advisory Committee recommends three-year climate-first reporting timeline, but exercises caution on financed emissions disclosures.

The International Sustainability Standards Board’s (ISSB) global reporting standards have been endorsed by a UK-based expert committee, pending proposed changes to ensure the new disclosure requirements fit within existing domestic rules and norms.

The recommendations were commissioned in May by the then Minister for Enterprise, Markets and Small Businesses, and will be considered by the UK’s Secretary of State for Business and Trade.

The UK Sustainability Disclosure Technical Advisory Committee (TAC) – formed of 15 government-appointed experts spanning finance, business and regulation – agreed to full alignment with the majority of the ISSB standards’ criteria, including its stance on the materiality of sustainability-related financial information.

But the TAC called for adaptation of the ISSB’s suggested reporting relief timelines and its overview of financed emissions disclosures.

“One of the most important areas of discussion concerned the timing of the application of the standards in the UK,” TAC member Paul Lee, Head of Stewardship and Sustainable Investment Strategy at investment consultancy firm Redington, told ESG Investor.

Unlike the ISSB standards, which propose that reporting entities provide climate-related disclosures covering Scope 1-3 emissions during year one, with a one-year delay for broader sustainability-related disclosures, the TAC has suggested the UK stretch the introduction of reporting requirements over three years.

“We have taken a climate-first approach with our recommendation that entities focus on climate-related reporting in the first and second years – Scopes 1 and 2 in year one and Scope 3 in year two – with broader sustainability reporting delayed until the third year,” Lee said.

“The TAC wanted to make the reporting requirements more digestible for entities and to complete the suite of climate reporting before moving on to broader sustainability themes.”

This approach reflects the more nascent nature of sustainability-related disclosures and allows more time for specific guidance to be developed, he added.

UK-based financial institutions and companies are already mandated to provide annual climate reports aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). ISSB assumed responsibility for TCFD last year.

“There is great value in [the UK] having global standards. We have global investors investing globally, and they need the confidence that the reporting they are seeing from UK companies is consistent with other companies in other jurisdictions, but also with their financial statements,” said Lee.

“The connectivity aspect of sustainability reporting with financial statements is really important and the ISSB standards are really the first looking to knit the two together.”

The ISSB’s IFRS S1 standard outlines general sustainability reporting requirements, whereas S2 focuses on climate-focused disclosures.

Financed emissions

A further difference could arise from the TAC’s views on financed emissions disclosures, which cover pollution attributable to the finance sector’s lending, investing or insuring activities.

The committee has proposed more flexibility than in the ISSB rules to allow UK-based entities to use classification systems they already use for existing regulatory or financial reporting.

“One of our proposed amendments is to remove the requirement in IFRS S2 to use the GICS [Global Industry Classification Standard], for disaggregating financed emissions for banks and insurance companies, because mandating one system, such as GICS, might be costly if UK entities are not already using it for reporting,” said TAC Chair Sally Duckworth.

In addition, the TAC said the ISSB’s requirement that financed emissions disclosures should cover the same period as related financial statements does not sufficiently account for data lags in financial institutions’ value chains. As such, some members suggested amendments to allow reporting entities to disclose in advance when the reporting period for financed emissions differs from that for financial statements.

However, since this is a developing area of practice, the TAC reached consensus to maintain the requirements in the standards, and agreed to monitor the area.

“There were ultimately very few areas where the TAC thought there was a UK-specific point that needed to be adjusted, as [the ISSB standards] are written in a way that allows for adaptability,” added Duckworth.

The ISSB is set to extend its remit to themes such as human capital, nature and transition plans over the next two years. Speaking at ESG Investor’s recent Nature Data for Institutional Investors event, Nicolaj Sebrell, the ISSB’s Director of Investor Relationships, EMEA, said the board’s work on nature reporting would soon be reflected in updates to the standards of the Sustainability Accounting Standards Board (SASB).

“The TAC is aware of other recent developments at the ISSB, but we have been focused on the task we were given: to assess IFRS S1 and S2,” said Jenny Carter, TAC member and Director of Accounting and Reporting Policy at the Financial Reporting Council (FRC), which has served as secretariat to the TAC.

“While these other developments may have future effects, they don’t necessarily affect the decision on whether the existing standards as currently written are suitable for UK adoption.”

International applicability

Ensuring interoperability of sustainability reporting requirements across jurisdictions was also a priority, committee members told ESG Investor.

In particular, the TAC placed emphasis on ensuring interoperability of UK reporting requirements with the European Sustainability Reporting Standards (ESRS), used by corporates to comply with the Corporate Sustainability Reporting Directive (CSRD). ESRS–ISSB Standards Interoperability Guidance was released in May 2024.

Some members of the UK committee also called for additional guidance from the ISSB to ensure clarity and cohesion across jurisdictions adopting its standards.

“One of these areas [was] interpretation – for example, the definition of ‘resilience’ in IFRS S1 is different to the definition used on S2, as [the latter] is more climate-specific,” said Duckworth.

“Some committee members said they want the ISSB to define [terms like] resilience more similarly across all standards.”

The ISSB has published a preview version of its Inaugural Jurisdictional Guide – which was designed to assist jurisdictions in their adoption of IFRS S1 and IFRS S2 – and a taxonomy to help investors search, extract and compare ISSB-aligned disclosures.

The TAC acknowledged that the application of the ISSB standards will be “an evolutionary process”.

The UK government is expected to publish a public consultation on the implementation of the ISSB standards via Sustainability Reporting Standards (SRS) next year. The Financial Conduct Authority plans to consult on incorporating these into reporting requirements for listed firms.

“The biggest changes for companies [following the implementation of the ISSB standards] will be seen in governance processes – making sure executives and the board understand what the issues are, how they affect the business, and how they’re going to report on them, making sure they have the right oversight processes in place and access to data,” said TAC member Hilary Eastman, UK Head of ESG Reporting at KPMG.

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