The government has officially confirmed that the UK Sustainability Disclosure Standards (UK SDS) will follow guidelines set by the International Financial Reporting Standards’ (IFRS) Foundation and International Sustainability Standards Board (ISSB) starting from 2024. This shift in standards management will impact how businesses report, as well as how they communicate with stakeholders. We’ve highlighted everything you need to know about the latest change.
Who is the ISSB?
Formed by the IFRS at COP26 in Glasgow, the International Sustainability Standards Board aims to create sustainability-related financial reporting standards that address investor demands of reporting frameworks.
Now, ISSB will take over the responsibility of the Task Force on Climate-related Financial Disclosures (TCFD) as early as July 2024. This responsibility was previously held by the Financial Stability Board (FSB).
What is the Task Force on Climate-related Financial Disclosures?
The FSB created the TCFD in 2015 to enhance reporting of climate-related financial information, and it gained support from over 3,800 organisations globally. These climate-focused standards aim to increase trust in sustainability disclosures and provide a common language for climate impact reporting. TCFD reporting is mandatory for large businesses in the UK.
Read our in-depth guide on Task Force on climate-Related Financial Discloses for a detailed look at TCFD.
What are the new standards?
In June 2023, the ISSB issued its inaugural standards— IFRS S1 and IFRS S2 —ushering in a new era of sustainability-related disclosures in capital markets worldwide. For the first time, they also create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects. The Standards will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions.
- IFRS S1 serves as the fundamental pillar of sustainability Standards, encompassing a comprehensive set of disclosure requirements applicable to large businesses. Its primary objective is to facilitate communication between investors and companies, addressing sustainability-related risks and opportunities over the short, medium, and long terms.
- IFRS S2 provides more detailed disclosures to be used in conjunction with IFRS S1. This standard specifically focuses on climate mitigation and climate adaption, aiming to augment existing frameworks, particularly those established by the TCFD.
Does this impact other European businesses?
A similar set of standards has been released by the European Commission as of 31 July, unveiling its revised European Sustainability Reporting Standards. This means that more than 50,000 businesses will be subject to the EU’s Corporate Sustainability Reporting Directive.
ISSB Chair Emmanuel Faber said: “The TCFD has been a trailblazer in raising the practice and quality of climate-related disclosures, providing much-needed information to investors about climate-related risks and opportunities.
“The ISSB has built from and consolidated the market-leading investor-focused sustainability-reporting initiatives to deliver the ISSB Standards, with the TCFD recommendations at the heart of this. As such, the ISSB welcomes the FSB’s request to transfer the TCFD’s monitoring responsibilities to the ISSB from 2024 and the opportunity to build on TCFD’s legacy.”