On 26 June 2023, in order to promote the development of international corporate reporting standards on sustainability, the International Sustainability Standards Board (ISSB) published its first two IFRS sustainability disclosure standards (ISSB Standards).
The first two ISSB Standards are:
- IFRS S1 — requiring the disclosure of sustainability-related risks and opportunities that could reasonably be expected to affect an entity's prospects
- IFRS S2 — requiring the disclosure of climate-related risks and opportunities that could reasonably be expected to affect an entity's prospects.
The FCA has now published PMB 45, in which it provides an update on the national implementation of the ISSB Standards. In PMB 45 the FCA reaffirms its expectation that the ISSB Standards will form a core component of the Sustainability Disclosure Requirements framework, and be the backbone of its corporate reporting element.
The FCA will consult on updating its Task Force on Climate-Related Disclosures (TCFD)-aligned disclosure rules for listed companies to refer to the UK-endorsed ISSB Standards, building on the requirements of Listing Rules 9.8.6R (8) and 14.3.27R. The current regime requires listed entities (other than closed-ended investment entities) to report against the TCFD framework on a 'comply or explain' basis, whereas the new regime would involve mandatory disclosures.
The FCA expects to consult in the first half of 2024 and for the new requirements to be in force for accounting periods beginning on or after 1 January 2025. As part of this consultation, the FCA will consider the interaction of any rule updates with its broader listing regime reforms, which we have previously summarised here.
It is proposed that the new ISSB mandatory disclosures would have to be included in a 'Non-Financial and Sustainability Information Statement' within the strategic report of companies that:
- employ more than 500 employees
- are publicly traded on the main market of the London Stock Exchange or on AIM
- are banking companies (as defined in the Companies Act 2006)
- are authorised insurance companies (as defined in the Companies Act 2006)
- have an annual turnover of £500 million or more.
The FCA has strongly encouraged listed companies to start considering the new ISSB Standards and how to build them into their future reporting plans. To this end, the FCA is encouraging listed companies to:
- continue to improve annual reporting standards in line with the current TCFD framework, focusing on identifying applicable risks of climate change to their businesses and disclosing any material climate related matters in their financial statements
- voluntarily engage with the ISSB Standards ahead of any endorsement decision in order to identify opportunities to improve their processes and prepare for the introduction of the new framework
- engage fully with the UK Sustainability Disclosure Technical Advisory Committee's call for evidence (with responses due by 11 October 2023) and provide input into the new framework.
The FCA and FRC will continue to supervise the TCFD-aligned disclosures made by all listed companies that are subject to the FCA's existing TCFD-aligned disclosure rules. The FCA has also noted that it will update its supervisory approach as the implementation of the ISSB Standards nears.
