We have published our comment letter on the Department for Business and Trade’s (DBT’s) call for evidence on the UK’s non-financial reporting framework (“the call for evidence”).

Non-financial information is essential information for investors and other stakeholders in understanding the drivers of risk, value creation and long-term prospects and how a company manages those matters through governance, strategy, risk management, and metrics and targets. The UK has demonstrated great leadership in narrative and non-financial reporting with the development of the strategic report which, in our view, is well-established and designed to provide useful information to investors and facilitate good practice in corporate reporting. However, recent years have seen numerous additions to the UK legal and regulatory framework which have not always been well integrated with existing requirements. We encourage the government to take this opportunity to make one clear, coherent set of changes to streamline the scoping thresholds and requirements that currently exist, with the goal of creating a more cohesive, focused, decision-useful system which continues to achieve policy aims while reducing complexity and confusion, supporting the introduction of the International Sustainability Standards Board (ISSB) standards, and reasserting the UK’s global leadership in corporate reporting.

We strongly support the ISSB’s international standards for sustainability reporting and in our view, it is essential that the ISSB standards are implemented in full in the UK without modification to help establish that global baseline. Following this, we recommend that the Financial Conduct Authority (FCA) and the Department for Business and Trade (DBT) should seek via consultation to establish whether the ISSB standards should be mandated for use by companies within their respective remits and, if so, the appropriate scope and whether any additional UK-specific requirements are necessary.

As a minimum, we believe that the ISSB standards should be mandatory for companies within the proposed definition of a “public interest entity” (PIE) as set out in the outcome of the government consultation Restoring trust in audit and corporate governance. However, we recognise that many companies that would not fall into the proposed PIE definition have already taken steps to be able to report in line with the streamlined energy and carbon reporting (SECR) regulations and the climate-related financial disclosure (CFD) regulations. Accordingly, we suggest that the government may wish to consider whether it would be beneficial to develop – or support the development of – a simplified standard that better reflects the needs of the users of such entities’ reports, in place of the SECR and CFD regulations. Such a standard could either be developed at UK level by the UK standard setter, or the government could encourage its development by influencing ISSB developments internationally.

We also strongly encourage the UK government to work towards seeking appropriate sustainability reporting equivalence decisions from other jurisdictions while ensuring that the needs of the UK capital markets are fully addressed and the global baseline of ISSB standards is preserved. This will increase interoperability and help facilitate growth by reducing unnecessary regulatory burdens on businesses operating across jurisdictions and maximising efficient flow of capital.

Finally, we encourage the government to move forward with plans to establish the Audit, Reporting and Governance Authority (ARGA) and set out clearly the terms and boundaries of its work. In our view, if ARGA is established with the appropriate internal structure and robust due process to facilitate appropriate levels of engagement with stakeholders and provide transparency around its activities, it should be granted standard-setting powers for corporate reporting, including non-financial reporting aspects such as the strategic report, directors’ report (if retained) and sustainability reporting for companies not reporting in line with ISSB standards as endorsed for use in the UK. The government would then assume the role of setting policy objectives at a higher level, resulting in a more agile reporting system where issues can be more swiftly identified and addressed, and reducing the risk that the current complex and confusing set of requirements will be repeated in future.

The full comment letter is available below.

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