The UK standards will aim to increase the comparability and value of reported information for investors.
By Paul A. Davies, Michael D. Green, and James Bee
The UK government announced on 2 August 2023 that it will develop standards for company sustainability disclosures in the UK by July 2024, leveraging the work of the internationally recognised International Sustainability Standards Board (ISSB). The UK Sustainability Disclosure Standards (SDS) will set out disclosure requirements for companies in the UK in relation to their sustainability-related risks and opportunities, including those risks and opportunities arising from climate change.
Movement From TCFD to IFRS-based Standards
The standards will be based on the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, following the release of inaugural sustainability reporting standards IFRS S1 and IFRS S2 on 26 June 2023.
The UK is among several countries, including Canada, Singapore, South Africa, and Japan, to consider endorsing the global standards according to the ISSB. However, the government’s announcement indicates that certain changes may be made from the IFRS Standards if necessary for UK-specific matters.[1] The UK was one of the first major economies to make climate disclosures mandatory for listed companies, using standards from the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD recommendations form the basis for the climate-related aspects of the ISSB standards (as well as their general structure). The ISSB has since announced that the IFRS Foundation will take over monitoring activities from the TCFD. For more information see this Latham blog post.
Details of the Standards
The government has said that by using the IFRS Standards as a baseline, the aim is for information disclosed under the UK SDS to be globally comparable to ensure effective decision-making across international markets.[2] The SDS implementation will look to replace a number of voluntary frameworks and private-sector practices used for climate disclosures in the UK, providing a more transparent and comparable framework for investors and other stakeholders.
The Financial Conduct Authority (FCA), the UK’s financial regulator, will oversee disclosures from UK-listed companies, whilst the government will oversee disclosures for UK-registered companies and limited liability partnerships.
UK SDS Implementation
The UK government has established two committees to assist with implementing the UK SDS:
- UK Sustainability Disclosure Technical Advisory Committee (TAC) — TAC will assess the standards and provide recommendations on endorsement. TAC will be supported by the Financial Reporting Council (FRC).
- UK Sustainability Disclosure Policy and Implementation Committee (PIC) —The Department of Business and Trade will manage and oversee PIC, which will advise the Business and Trade Secretary. This advice will include analysis on the interactions between the IFRS standards and existing UK legislation and regulation.
Next Steps
The UK government, with the help of PIC and TAC, will now consider endorsing the IFRS Standards, aiming to finalise the SDS by July 2024. Further detail should follow including who will be obliged to disclose to the standards.
Latham & Watkins will continue to monitor developments relating to the UK SDS.
Endnotes
[1] https://www.ifrs.org/groups/international-sustainability-standards-board/issb-frequently-asked-questions/
[2] https://www.gov.uk/guidance/uk-sustainability-disclosure-standards