Carolina Macedo

9 January 2024

Sustainability Reporting: UK Companies to Follow ISSB Framework

As a step towards standardising sustainability disclosure requirements, the UK government declares the UK Sustainability Disclosure Standards will be based on the International Sustainability Standards Board (ISSB) standards. This is expected to significantly boost sustainable investments in the country. In this piece, our sustainable finance expert, Carolina Macedo, gives you the context and comparisons to stay in the know.

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In August 2023, the UK’s business ministry announced that Britain’s upcoming corporate disclosure schemes, the Sustainability Disclosure Standards (SDS), will use the ISSB framework as a baseline. The plan for the SDS is to be rolled out by July 2024 so it is well worth taking stock off already.
In this article, I share some take-aways and explain how ISSB is different to other disclosure requirements. My own disclosure at this point; the article contains many abbreviations – I hope you can cope. First, let’s begin with the main facts.
Here are the key take-aways:
  • In June 2023, the ISSB released sustainability and climate-related disclosure standards (IFRS S1 and S2 respectively, referred to collectively as ‘the standards’). Their aim is to (1) help meet investor demand for sustainability information, (2) improve comparability in sustainability reporting across jurisdictions and (3) serve as a global baseline of sustainability disclosure standards to facilitate cross-border investment and trade.
  • Companies should seek to understand the requirements posed by the ISSB standards and prepare early, as reporting in accordance with ISSB will be both complex and extensive - and preparing for its implementation will require significant time and resources.
  • The ISSB standards have been designed to be interoperable with other existing sustainability reporting frameworks, such as the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-Related Financial Disclosures (TCFD), the Corporate Sustainability Reporting Directive (CSRD), the Carbon Disclosure Project (CDP), and the Global Reporting Initiative (GRI). This interoperability means that companies that are already reporting against these other frameworks will not need to start from scratch.
  • The adoption of the ISSB framework will make UK company disclosures comparable for investors globally, enabling better decision-making and efficient allocation of capital in the UK's capital markets.
  • The UK government's clear messaging on the ISSB standards is a signal to businesses that they need to take sustainability seriously. Businesses that are early adopters of the ISSB standards will be well-positioned to succeed in the future.
Why should you care?
The ISSB standards mark a huge step in standardising sustainability disclosure requirements. Its impact on the broader sustainable finance landscape is vast and multiple.
For investors and lenders, an internationally aligned approach will allow them to gain access to consistent Environment Social Governance (ESG) information. In addition, the standards enable comparability between markets, which in turn could improve investor’s confidence in entering new markets.
The standards will prompt companies and asset managers to develop clear ESG governance policies and procedures, improve their ability to manage ESG risks and opportunities and effectively reduce unexpected future costs through strategic planning. The disclosure of good risk management capabilities may also lead to greater asset valuations and access to capital and funding.

The ISSB standards mark a huge step in standardising sustainability disclosure requirements. Its impact on the broader sustainable finance landscape is vast and multiple.

Carolina Macedo
Senior Economist, Ramboll Management Consulting
Standards overview
The ISSB , a standard-setting body that forms part of International Financial Reporting Standards (IFRS), issued its Global Sustainability Disclosure Standards in June 2023. In an era where jurisdictions are taking unique pathways and are at different stages on their sustainability reporting journeys, ISSB’s newly issued standards aim to provide consistency in the way companies report globally on sustainability and climate-related matters.
IFRS S1 sets general requirements for disclosure of sustainability-related financial information and presents an approach for identifying material sustainability-related risks and opportunities — those that could be expected to affect a company’s cash flows, its access to finance or cost of capital in the short, medium, or long term. IFRS S1, also encourages companies to keep using SABS Standards1 to guide the selection of metrics and technical protocols for the effective disclosure and management of sustainability-related risks and opportunities.
IFRS S2 sets out specific climate-related disclosures and is designed to be used in conjunction with IFRS S1. The Standards fully incorporate the recommendations of the TCFD, and follow the same four pillars: Governance, Strategy, Risk Management, and Metrics and Targets.
Therefore, the IFRS standards build on but go beyond TCFD, and (through the reference to SABS) require the assessment and disclosure of industry and sector-specific information, to allow for information to be more relevant and enable benchmarking.
The standards are voluntary and so it is up to the governments of jurisdictions across the globe to decide whether they want to mandate them.
However, the uptake of the new ISSB standards is expected to be high, given that the standards form part of IFRS, which are already used by companies in over 140 countries around the world. Several jurisdictions have already signalled their support for incorporating the standards into regulatory regimes. This includes Canada, Australia, New Zealand, China, Hong Kong, Singapore, Malaysia, Nigeria, and Japan2.
The standards are intended for use by companies for annual reporting periods beginning on or after 1 January 2024, meaning that the earliest they could be disclosed is in companies’ 2025 annual reports. The disclosures should be reported at the same time as a company’s related financial statements and should cover the same reporting period as the financial statements.
What is happening in the UK?
The Department for Business and Trade announced that the UK SDS, where possible, will be based on ISSB standards3. The UK government has established committees to assess and endorse the use of the IFRS S1 and IFRS S2, and create the first two UK Sustainability Disclosure Standards (SDS ).
The SDS will set out corporate disclosures on the sustainability-related risks and opportunities that companies face. According to the Department for Business and trade, the SDS will “form the basis of any future requirements in UK legislation or regulation for companies to report on risks and opportunities relating to sustainability matters, including risks and opportunities arising from climate change.”
The plan is for the UK SDS to be created by July 2024. The SDS is expected to further efforts on the delivery of the UK’s mobilising green investment: 2023 green finance strategy4.

While the UK SDS are being developed, companies should seek to understand the requirements posed by the ISSB standards and prepare early, as this may involve developing new data collection systems or modifying existing ones.

Carolina Macedo
Senior Economist, Ramboll Management Consulting
How is it different to other sustainability disclosure requirements?
TCFD: In efforts to unify sustainability reporting, the ISSB issued a comparison of the IFRS S2 with the TCFD recommendations, concluding that both frameworks were generally aligned (which is to be expected since IFRS 2 builds on the TCFD recommendations) and differences were limited to; terminology, and the incorporation of some additional specific disclosures (such as scope 3 emissions and target validations). In few instances, the IFRS 2 also requires additional and more granular information5.
To further converge the implementation and oversight of climate-related disclosures, the Financial Stability Board has passed on the responsibility of monitoring the progress on companies’ climate-related disclosures from the TCFD to the ISSB6.
Transition Plans Taskforce (TPT): The TPT was launched by HM Treasury to define a gold standard for developing transition plans. A transition plan is an entity’s strategy for how it will contribute to and prepare for a global transition towards a low GHG-emissions economy. Entities will also have to incorporate their interdependencies with other sustainability-related issues, such as natural environment, workforce, supply-chains, communities or customers, into its transition plan, where they are likely to be material.
The TPT’s recommendations directly build on TCFD and the ISSB’s disclosure framework, both of which include recommendations to disclose information about an entity’s transition plan7. The TPT Disclosure Framework and Implementation Guidance state that the TPT disclosures should be considered “as a building block to provide an additional layer of specificity for transition plan disclosures” and not be seen “as separable from or parallel to TCFD or ISSB disclosures”8.
Read more: How to get ready with your own Transition Plan.
EU Corporate Sustainability Reporting Directive (CSRD):
The EU CSRD and the ISSB standards both aim to redirect financial flows towards sustainable activities. However, they differ in two main aspects:
  • The ISSB is only concerned with the disclosure of financial-related risks and opportunities, whereas the CSRD requires companies to disclose information about their sustainability performance from a double materiality perspective. This involves the disclosure of the impacts of a company’s activities on the environment and society. In addition, the CSRD requires that companies engage with stakeholders in order to identify and understand the sustainability topics that are most material to their business and to society. This is to prevent that certain risks and opportunities to the company are ignored or underestimated.
  • Currently the CSRD, through its 12 ESRS provides greater guidance and disclosure requirements across different sustainability topics.
  • Based on research into the information needs of investors, ISSB had identified three sustainability-related research projects; 1) biodiversity, ecosystems and ecosystem services; 2) human capital; 3) human rights9. Through public consultation, the ISSB sought feedback on their priorities for its next two-year work plan. In specific they asked stakeholders to provide feedback on the scope and structure of potential new research and standard-setting projects. The ISSB is currently analysing the feedback received10.
While the UK SDS are being developed, companies should seek to understand the requirements posed by the ISSB standards and prepare early, as this may involve developing new data collection systems or modifying existing ones.
It will be interesting to see if the new standards will ultimately help advance sustainability actions, and in doing so restore the UK’s competitive position as an international financial hub.
Sources:
1 https://www.sasb.org/
2 https://www.kirkland.com/publications/kirkland-alert/2023/06/issb-releases-final-global-sustainability-disclosure-standards#fn2
3 https://www.gov.uk/guidance/uk-sustainability-disclosure-standards
4 https://www.gov.uk/government/publications/green-finance-strategy
5 https://www.ifrs.org/content/dam/ifrs/project/climate-related-disclosures/comparison-draft-ifrs-s2-climate-related-disclosures-with-the-tcfd-recommendations.pdf
6https://www.ifrs.org/news-and-events/news/2023/07/foundation-welcomes-tcfd-responsibilities-from-2024/
7 https://transitiontaskforce.net/wp-content/uploads/2022/11/TPT-Implementation-Guidance-Technical-Annex.pdf
8 The TPT Technical Guidance has mapped the TPT recommendations to the TCFD Guidance and draft ISSB’s Standards
9https://www.ifrs.org/news-and-events/news/2023/05/issb-seeks-feedback-on-its-priorities-for-the-next-two-years/
10https://www.ifrs.org/projects/work-plan/issb-consultation-on-agenda-priorities/

Want to know more?

  • Carolina Macedo

    Senior Economist, Ramboll Management Consulting

    Carolina Macedo

  • Lara Alvarez

    Lead Consultant

    +44 20 7808 1484

    Lara Alvarez