The International Sustainability Standards Board (ISSB) issued its first sustainability-related disclosure standards this year, to take effect from January 2024. We hear from Mark Babington, executive director of regulatory standards at the Financial Reporting Council (FRC) on how the UK’s independent regulator plans to incorporate the new climate metrics.
The global standards, IFRS S1 and IFRS S2, which build on the framework of TCFD, set general requirements for disclosure and climate-related disclosures for businesses.
While the UK already reports against TCFD framework, which will now be incorporated into ISSB, the country’s government must decide whether to adopt the new standards.
Babington explains how the FRC welcomes ISSB but ‘can’t just act on its own’ to use the standards, there is a process which needs to be followed. He says the council is creating a technical committee to assess the standards and will give advice to the Secretary of State who will decide on how the standards are adopted for use in the UK.
‘We're working with the government and other regulators to basically develop a mechanism to endorse the use of the ISSB in the UK,’ he says.
If adopted, the Financial Conduct Authority will have to decide whether it will consult about including ISSB reporting standards into the listing rules reform proposal, Babington explains. From there the government will need to consider which companies they want to report using the standards.
Babington recognizes ISSB is trying to achieve a global baseline for sustainability reporting. However, he notes that IFRS recognizes that it's a challenging baseline to implement. ‘You'll see in the standards, they've proposed some transitional reliefs and some measures, so they don’t all kick in at once,’ he says.
‘It’s a staggered start, this is to recognize the fact that companies may need some time, not only to develop the reporting tools, but also to ensure they have access to the information they need to support the reporting envisaged by the ISSB.’
Materiality should drive reporting
Considering why a company should adopt ISSB standards, Babington says it requires companies to gather accurate information that they might not have done previously.
‘A company needs to think quite carefully about what its issues are material to that company, because materiality should drive reporting,’ he remarks.
‘I think companies also need to think quite carefully about what they are looking to communicate to stakeholders and how they can do that in a decision-useful way.’