The UK should endorse the IFRS Sustainability Disclosure Standards to make them available for use, ICAEW has said. It believes that using the ISSB standards will provide a golden opportunity to streamline the existing, and sometimes confusing, sustainability-related requirements within the UK reporting framework.

However, as explained in its response to the Technical Advisory Committee (TAC) call for evidence, ICAEW experts have raised specific concerns to consider when hardwiring these standards into legislation.

The two standards being considered are IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. These are the first two IFRS Sustainability Disclosure Standards published by the ISSB in June 2023.

Supporting the call for evidence, ICAEW states: “An assessment of IFRS S1 and IFRS S2 for their suitability in a UK context is an important step, as the standards should not be brought into UK legislation without comprehensive consideration of the potential consequences of doing so.”

Concerns about the legislative mechanism

IFRS Accounting Standards are included in UK legislation by reference to the standards themselves. However, it is understood that this mechanism may not be replicated for the IFRS Sustainability Disclosure Standards – in part due to the lack of primary legislation. Instead, it is likely that the requirements of the ISSB standards (if endorsed) will be written directly into legislation.

Dr Nigel Sleigh-Johnson, Director of Audit and Corporate Governance at ICAEW, says: “It seems likely that there will be a need to convert the text of the standards into ‘legislative language’ when embedding it in UK law. This may mean that important text could be removed or changed. This could alter their intended meaning and ultimately might undermine all-important international consistency and comparability in sustainability reporting.”

Laura Woods, Technical Manager in ICAEW’s Corporate Reporting Faculty says: “We are excited at the prospect of UK endorsement of IFRS S1 and IFRS S2. We have long advocated the development of high-quality, global sustainability disclosure standards, and therefore hope that endorsement and adoption can now proceed smoothly.”

Endorsing as published

The UK government has stated that UK-endorsed standards will only diverge from the standards published by the ISSB if absolutely necessary to address UK specific matters.

While supporting a rigorous endorsement process, ICAEW is in favour of bringing the ISSB standards into the UK reporting framework without amendment. Amending or carving out parts of the standards risks divergence in international practice, which then has the potential to disrupt the ISSB’s ‘global baseline’ ambition.

ICAEW emphasises further benefits to endorsing the standards as published by the ISSB, such as supporting consistent and comparable reporting.

Woods explains: “Many international businesses, operating in multiple jurisdictions, are facing competing regulatory and reporting demands in this area. Endorsing the ISSB standards as they stand should enable boards to focus on action to tackle sustainability issues, rather than dealing with requirements that are broadly similar – but not identical – to ISSB Standards.”

While recognising that amendments may prove unavoidable in some instances, ICAEW suggests that there should be a high threshold set for deviating from the published standards and that specific criteria must be met before this course of action is considered.

ICAEW’s assessment of IFRS S1 and IFRS S2 did not identify any “fundamental barriers” to UK endorsement. However, areas were identified and explained in the response where ICAEW believes careful consideration is required. These areas include the requirements and references in the ISSB Standards to the Sustainability Accounting Standards Board (SASB) Standards and the Greenhouse Gas (GHG) Protocol.

Find out more about IFRS Sustainability Disclosure Standards at our non-financial reporting hub.