Consultation on IFRS Sustainability Disclosure Taxonomy and developments in the UK on the adoption of ISSB standards on sustainability reporting
September 14, 2023
On 27 July 2023, the International Sustainability Standards Board (ISSB) published the IFRS Sustainability Disclosure Taxonomy for public comment. This consultation follows the publication of the first two sustainability disclosure standards (ISSB Standards) in June 2023, namely, IFRS S1 and IFRS S2.
The IFRS Sustainability Disclosure Taxonomy document proposes a common digital taxonomy for making disclosures under the ISSB Standards. Its purpose is to facilitate structured digital reporting of sustainability-related financial information and improve the global accessibility and comparability of sustainability information for investors. Further details can be found here.
The consultation closes on 26 September 2023.
IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information – The objective of IFRS S1 is to require an entity to disclose information about its sustainability-related risks and opportunities which would be useful to users in making decisions relating to providing resources to the entity. It prescribes how an entity prepares and reports its sustainability-related financial disclosures. In particular, an entity is required to provide disclosures about its sustainability-related risks and opportunities in relation to (a) its governance processes, controls and procedures for monitoring, managing and overseeing them; (b) its strategy for managing such risks and opportunities; (c) the processes for identifying, assessing, prioritising and monitoring them; and (d) its performance, progress and targets in this area.
IFRS S2 Climate-related Disclosures – The objective of IFRS S2 is to require an entity to disclose information about its climate-related risks and opportunities which would be useful to users in making decisions relating to providing resources to the entity. IFRS S2 applies to climate-related physical and transition risks and climate-related opportunities available to the entity. It sets out requirements for disclosing information about an entity’s climate risks and opportunities. The scope of an entity’s required climate-related disclosures is as described above in relation to IFRS S1.
Developments in the UK
In October 2021, the UK Government announced that UK adopted ISSB standards would form the basis of the UK’s sustainability disclosure requirements. Guidance has been published by the Department for Business and Trade (DBT) which sets out the framework for the UK adoption of the ISSB Standards, which can be found here.
The guidance, published on 2 August 2023, states that the DBT will consider the endorsement of the ISSB Standards with the aim of creating the UK’s sustainability disclosure standards by July 2024. In this regard, the Government has created two committees:
- the UK Sustainability Disclosure Technical Advisory Committee (TAC) – TAC, supported by the Financial Reporting Council, will assess the technical aspects of the process and provide recommendations to the DBT; and
- the UK Sustainability Disclosure Policy and Implementation Committee (PIC) – PIC, which will provide advice on an endorsement decision to DBT. PIC’s membership consists of various UK Government departments and regulators.
In this regard, on 10th August 2023, the FCA has published Primary Market Bulletin 45 (PMB 45). PMB 45 sets out key features of the FCA’s process for implementing the ISSB Standards, explains how the FCA will continue to supervise existing disclosures under the Task Force on Climate-related Financial Disclosures and advise issuers on what they can do now to prepare for any future obligations relating to reporting on the ISSB Standards.