Investment firms and sustainability sector organizations have ‘strongly’ encouraged Britain 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 of the UK Sustainability Disclosure Technical Advisory Committee published a call for evidence seeking UK views on IFRS S1 and IFRS S2 and their future use in the UK. These are the first two sustainability disclosure standards developed by the ISSB and are intended to provide a global foundation for sustainability disclosure 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, building on the requirements in IFRS S1.
See also: – To ISSB or not to be
“We strongly encourage Britain to adopt the IFRS Disclosure Standards given their greater granularity and inclusion of sustainability information beyond climate,” said Carine Smith Ihenacho, chief governance and compliance officer, and Elisa Cencig, senior ESG policy advisor at Norges Bank Investment Management. said in the company’s consultation response, a sentiment echoed by Legal & General Group.
The Principles for Responsible Investment added that Britain should endorse the standards and “translate them into UK legal requirements as quickly as practicable”.
While groups published consultations on the Financial Reporting Board website unanimously supported the approval, some differed on the timing of the enforcement.
“The UK should seriously consider recent calls from a number of organizations to implement the standards across the economy by 2025,” James Alexander, chief executive of the UK Sustainable Investment and Finance Association, said in the group’s response.
He added: “More specifically for issuers, convergence to ISSB disclosure standards could help UK issuers attract investment from abroad.”
The convergence of 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 coordination of requirements between other regulations to which UK entities are subject .
Both groups also requested advice from ISSB on the definition of materiality.
“Our interpretation of the ISSB definition is that it should include ‘inside-out’ effects to the extent that they influence investors’ decisions, but this needs to be clarified to ensure consistency in practice,” M&G said.
“Furthermore, disclosing information that is not useful for an investor decision will lead to longer reports that are more difficult to digest. The guidelines should explicitly encourage entities not to report on areas that are not material to the business.”
Finally, T. Rowe Price, who already recommends that investee companies adopt the ISSB disclosure, suggested that listed companies should report scope 1 and 2 at the same time as their financial results and that regulators should consider providing guidance to listed companies on the use of estimation methods for scope 3 greenhouse gas emissions.