In its final meeting before offering its recommendations to the UK government on ISSB adoption, held yesterday (5 December), the UK Sustainability Disclosure Technical Advisory Committee (TAC) rejected a proposal to include an additional disclosure requirement on financed emissions.
After a series of deliberations over the past eight months, TAC members recommended that the government maintain the ISSB’s disclosure requirements in the UK Sustainability Reporting Standards (UK SRS), with only one minor change to IFRS S2.
This amendment, described by a UK-based stakeholder as “mostly cosmetic”, is to allow companies in the finance sector to use an internationally recognised industry classification system other than the Global Industry Classification Standard to disaggregate information on their financed emissions.
Financed emissions
IFRS S2 requires entities involved in asset management, commercial banking and insurance to disclose information on the emissions associated with their investment and financial services activities, in accordance with the guidance of the GHG Protocol.
A more significant amendment to the financed emissions requirements was put forward by the TAC at its meeting last month. The advisory group proposed an addition to S2 which would require companies to disclose the reporting year they used to calculate their financed emissions, when it is impracticable to use the data for the current reporting period.
This proposal was put forward based on industry concerns that the commonly used practice of using information from previous reporting periods to calculate financed emissions would be incompatible with the requirement in IFRS S1 for sustainability disclosures to cover the same reporting period as the related financial statements.
However, following informal technical discussion with ISSB members earlier this week, the TAC decided to overturn this proposed addition to the UK SRS.
Corporate Disclosures understand that the ISSB acknowledges the need for estimations in financed emissions disclosures, meaning that in practice, companies will estimate those emissions using some data from previous years. This is also expected to become less of an issue in time as the timelines and quality of climate data improves.
The UK TAC has recommended that the ISSB provide an explicit acknowledgement that the practice of using previous years’ data for calculating emission - if reliable and the current year’s data is not available - is not in conflict with the aforementioned requirement in S1.
Beyond the disclosure requirements, TAC has recommended that the UK SRS remove the transition relief in paragraph E4 of S1 which permits companies to disclose their sustainability-related information after they have published their financial statements in the first year of reporting.
It concluded that allowing disclosures later would compromise the principle of connectivity and reduce the comparability with the financial statements. Moreover, TAC members argued that UK companies should be familiar with climate reporting as part of their annual disclosures, due to the TCFD requirements that have been in place since 2022.
In addition, under the TAC’s advice, in-scope UK companies would be permitted to only disclose their climate-related risks and opportunities for the first two years of reporting, before being required to disclose all of their sustainability-related risks and opportunities in the third year of reporting. This marks a one-year extension to the transitional relief included in S1.
This decision was made on the basis that disclosures of sustainability-related risks and opportunities remains nascent, and the fact that the ISSB is yet to issue a topic-specific standard beyond climate.
The UK TAC has also issued a series of additional recommendations for the UK government and the UK Sustainability Disclosure Policy and Implementation Committee (PIC) on the implementation of the requirements and further guidance that may be required.
For example, it has recommended that PIC consider how the UK SRS can be applied in conjunction with current UK sustainability reporting requirements, and how existing rules on the location of sustainability-related disclosures can be simplified and streamlined.
Given the UK close geographical proximity, and historical link, to the EU, British companies are particularly concerned over the efficiency of the interoperability between ISSB standards and the ESRS. As such the TAC recommended that as an implementation issue, the UK government engages specifically with the ISSB and EFRAG on interoperability challenges and the potential for equivalence.
Furthermore, while advising that the UK should maintain the value chain disclosure requirements in the S1 and S2, TAC has suggested that PIC look into the establishment of safe harbour protections for value chain reporting in the initial reporting periods.
Following yesterday’s final decisions, the TAC’s technical assessment and endorsement recommendations will be submitted to the Department for Business and Trade (DBT).
Amongst other policy considerations, PIC is tasked with providing a recommendation for the effective date of the UK SRS. The Committee confirmed – in the summary notes of its most recent behind closed doors meeting – that it aims to conclude its work on endorsement at its next meeting, ahead of a consultation on the draft UK SRS.
Corporate Disclosures understands that the DBT will consider endorsing the draft UK SRS in the first quarter of 2025, before considering the implementation of the standards for non-listed UK companies, which will involve a public consultation.
In parallel, the Financial Conduct Authority (FCA) will consult on the incorporation of the standards into its reporting requirements for listed companies.
Depending on the outcomes of these processes, the UK SRS could be effective for accounting periods beginning on or after 1 January 2026.