The UK National Standard Setter for IFRS, the UK Endorsement Board (UKEB), is to respond to the IFRS Foundation consultation on its sustainability standards calling for the standards to be "a minimum global baseline that is built on by local regulators and jurisdictions", according to a draft response seen by Corporate Disclosures.
As such, UKEB's response to the invitation to comment will aim to ensure "the IFRS sustainability standards, when published, are capable of being adopted at local jurisdiction level from the outset".
At the moment, there is no legislative framework for the adoption of the ISSB standards in the UK but the Department for Business, Energy and Industrial Strategy has tasked UKEB to consider the overlap between IASB and ISSB issued standards.
UKEB is conducting a stakeholder consultation to inform its response to the IFRS Foundation invitation for comment, the outcome of which will help to finalise the draft response seen by Corporate Disclosures.
In the draft, UKEB is supportive of IFRS S1, arguing it "will improve connectivity within the financial reports and help stakeholders to better understand the information presented".
For improvement, UKEB recommended tightening some of the definitions, like 'sustainability-related financial information', which it said was unclear due to the lack of definition of 'sustainability' in the standards.
"In the absence of this definition, the requirement becomes, potentially, very broad – to provide insight on 'risks and opportunities that affect enterprise value', which could incorporate a wide range of factors far beyond what would be traditionally regarded as 'sustainability'," the draft response reads. "To ensure consistency and comparability, a shared understanding of the boundaries of 'sustainability' is important."
This impacts the scope of the standards as UKEB argued that "the current drafting of the scope of the proposed standard [was] unclear, and potentially too broad. Defining the term 'sustainability' and further clarifying other definitions would help in this regard. We also are confused by the use of both 'material' and significant,' on the face of it, often interchangeably."
UKEB also noted some "inconsistencies between these proposals and the requirements of IFRS Accounting Standards" and added that "further alignment, or signposting to assist understandability, may be useful".
For IFRS S2, UKEB's draft response again called for a greater clarity on scope.
"While we appreciate the challenge with defining 'climate related risks and opportunities', we consider that the proposed approach of relying on TFCD and SASB standards may be too broad and result in challenges with application for stakeholders who may not be familiar with those standards," the draft read. "We suggest using or adapting an existing definition and field testing this with stakeholders to validate."
Field testing is recommended throughout the draft response, as it will allow the IFRS Foundation to "develop the draft standards' effective dates and consider potential sequencing of those dates".
The IFRS Foundation's sustainability standards exposure drafts are open for comment until 29 July.