UK Sustainability Reporting Likely to Align Materially with International Standards Developed by the ISSB

Sustainability reporting in the UK, in the form of the UK Sustainability Reporting Standards (UK SRS), is still on track to align with the de facto global baseline reporting standards produced by the International Sustainability Standards Board (ISSB), but is likely to have a few non-material differences. 

On 18 December 2024, the UK Sustainability Disclosure Technical Advisory Committee (TAC) published its technical assessment and endorsement recommendations paper regarding UK endorsement of the ISSB’s sustainability disclosure standards, IFRS S1 and S2, to create the UK SRS. The TAC was set up by the UK Government in May 2024 to assess whether the endorsement of IFRS S1 and S2 would be “conducive to the long-term public good in the UK”. The TAC has concluded that it would be, although it has suggested some minor amendments to the standards. 

In the paper, the TAC also provides a number of additional recommendations and observations which are mostly addressed to its sister organisation, the UK Sustainability Disclosure Policy and Implementation Committee (PIC), that was set up at the same time as the TAC to help coordinate the implementation of the UK SRS. The additional recommendations include streamlining existing UK rules relating to the location of sustainability-related disclosures, and exemptions for certain subsidiaries where consolidated reporting has been prepared by a parent. Despite implementation being outside the TAC’s remit, these further thoughts offer an insight into the types of issues companies have likely been raising with the TAC during its review process.

The Government will now consider the TAC’s recommendations, and an endorsement decision is expected in Q1 2025, along with a consultation on exposure drafts of the UK SRS. Following endorsement and publication of the final UK SRS, the FCA can consult on reporting requirements for listed companies, and the Government is expected to consult on requirements for “economically significant” companies during 2025.  

Large and listed companies (i.e., those expected to be within the scope of the UK SRS) should continue to monitor closely the “endorsement and implementation” process for the UK SRS in 2025, to enable maximum preparation time for reporting. Those operating across multiple reporting regimes will need to ensure that systems being put in place to meet sustainability reporting requirements are adaptive enough to deal with the full range of reporting regimes, including those that are already in force, such as the EU’s Corporate Sustainability Reporting Directive (CSRD), as well as mandatory ISSB reporting requirements in other jurisdictions. 

The TAC’s recommendations for divergence on sustainability reporting

The exact wording of the proposals can be found in Appendix 5 of the TAC’s paper. The two key recommended areas of deviation relate to transition reliefs and provide that:

1. The ‘climate-first’ reporting relief should be extended to two years. The TAC recommends extending the grace period in the ISSB standards from one to two years. The grace period allows corporate reporting to focus just on climate-related disclosures. This would give companies more time to prepare properly, and see climate-related disclosures (including Scope 3 emissions) initially prioritised over non-climate sustainability-related reporting requirements. IFRS S1 also allows for companies to report their sustainability-related financial disclosures after they publish their related financial statements in the first year (IFRS S1 paragraph E4). The TAC recommends deleting this relief, so that it would all need to be done at the same time. 
2. Companies should not be able to use the transition reliefs in both the ISSB standards and UK SRS. The TAC emphasises that UK entities are not prohibited from starting to apply the ISSB standards early on a voluntary basis. But where a company has already made an unequivocal statement of compliance with the ISSB standards, it should not subsequently be allowed to take advantage of the proposed two-year grace period to be included within the UK SRS. The TAC will, however, defer to the PIC on this as a matter of implementation. 

Additional policy recommendations

On top of its recommended changes, the TAC offers additional recommendations and observations, mostly relating to implementation and addressed to the PIC, on almost all the areas it considered. The most noteworthy for companies are in respect of:

1. The location of reporting. The TAC recommends that the PIC considers how to simplify and streamline existing UK rules relating to the location of sustainability-related disclosures. This includes the requirements in the Companies Act 2006 and UK Listing Rules, and possible implications for future assurance requirements. As part of this streamlining process, the PIC should consider the availability of safe harbour provisions for information in the strategic report that are currently in the Companies Act 2006. 
2. Consolidated reporting and an exemption for subsidiaries. The TAC recommends that the PIC considers, as an implementation matter:
   1. the interaction between the scope of IFRS S1 for reporting entities and the current UK legal framework. The TAC notes that existing legislation is inconsistent and might require updating. For example, the exemptions in sections 400 and 401 of the Companies Act 2006, as well as those related to the strategic report, including the Non-Financial and Sustainability Information Statement, and to reporting requirements for subsidiaries.
   2. introducing an exemption for certain subsidiaries when the parent company is reporting on an equivalent basis for the consolidated group. This would be based on consideration of a number of factors, such as the impact on (a) international comparability, economic growth and international competitiveness; (b) the challenges and potential duplication of information when disaggregating disclosures at subsidiary level; and (c) the value of subsidiary-level information for users.
3. Emphasizing interoperability. The TAC recognises UK stakeholder concerns and the challenges identified relating to interoperability. They recommend, as an implementation issue, that the UK Government engages specifically with the ISSB and European Financial Reporting Advisory Group (which develops reporting standards under the CSRD) on interoperability challenges and note the potential for equivalence. The TAC also recommends that the PIC considers developing jurisdictional guidance on how IFRS S1 can be applied in conjunction with the sustainability-related information required by the current UK legal framework.
4. Materiality of climate disclosures. The Companies Act 2006 and UK Listing Rules require disclosures relating to climate-related governance and risk management processes regardless of an entity’s assessment of its climate-related risks and opportunities, but IFRS S1 does not. Adopting the IFRS S1 approach could in theory reduce the quality of corporate reporting in the UK. A general requirement for entities to disclose how they have determined which sustainability-related risks and opportunities are relevant could resolve this.
5. Value chain. The TAC recommends that the PIC considers appropriate support around value chain disclosures, including the establishment of safe harbour protections for value chain disclosures in initial reporting periods and allowing entities to update the value chain boundary as underlying analysis and reporting capabilities mature.

Next steps

As flagged above, look out for the FCA’s expected consultation on the form of the UK SRS for listed companies in the first half of 2025, along with the Government’s consultation on requirements for “economically significant” companies, expected later in 2025.[1]

[1] For the purposes of producing a Non-Financial and Sustainability Information Statement “economically significant” companies are entities with more than 500 employees that are: (i) traded, banking, insurance and AIM companies; (ii) private companies, and LLPs, with turnover of more than £500 million. See also UK Sustainability Reporting Standards - GOV.UK.