The UK will adopt the global sustainability standards proposed by the International Sustainability Standards Board (ISSB), a government representative has said.
The government intends to create a mechanism to endorse and adopt international standards for use in the UK, Debbie Crawshawe, accounting expert at the Department for Business, Energy and Industrial Strategy (BEIS) said at a Financial Reporting Council (FRC) webinar on Wednesday.
The shape and nature of the endorsement mechanism “has not yet been determined” and a consultation on the matter will be launched “later in the year”, said Crawshawe.
The endorsement process will take into account the complexity of existing UK regulatory frameworks relating to environmental and sustainability matters, she said.
“The existing complexity [of current frameworks], and the need for disclosure requirements to support and be consistent with government policy may well result in adaptations of the international standards to ensure suitability for UK use.”
Crawshawe told attendees that “the government will look to bring forward legislation to mandate the use of UK-adopted international sustainability standards by certain economically significant entities”.
The consultation for the upcoming legislation will cover the scope of entities required to report, taking account of the new public interest entity (PIE) definition in the government’s audit and corporate governance reform, as well as the manner in which an entity is required to report such as in annual or strategic reports, she added.
At present, the UK’s largest businesses are legally required to disclose climate-related financial information in line with the Taskforce on Climate-related Financial Disclosures (TCFD).
The ISSB’s proposed sustainability standards incorporate the TCFD reporting recommendations with industry-based disclosure requirements from the Sustainability Standards Board’s (SASB) standards.
Global adoption of sustainability disclosures
The adoption of the proposed global baseline for sustainability standards will come down to the maturity of the markets. Some critics have been sceptical that mature jurisdictions, which are advancing faster in their sustainability standards, could see the ISSB’s sustainability standards lag behind.
A noticeable comparison between the ISSB’s proposals has been the EU’s Corporate Sustainability Reporting Directive (CSRD) which comes into force in January 2023.
As part of the CSDR requirements, companies are expected to report on “double materiality” – the impact of a company on the environment, as well as the impact of climate change on a company – going beyond the current proposals outlined by the ISSB.
In April, the US Securities and Exchange Commission (SEC) proposed rules that would require public companies to disclose a range of climate-related risks including Scope 1, 2 and 3 emissions that are expected to be finalised later this year.
Sue Lloyd, vice-chair at the ISSB, told those attending the FRC webinar that the board had set up a jurisdictional steering group to bring together the SEC, European Commission’s European Financial Reporting Advisory Group (EFRAG), and representatives from the UK, China and Japan in an attempt to reduce the tension of “competing and conflicting requirements” of sustainability standards.