Deloitte comment letter on the UK Sustainability Disclosure Technical Advisory Committee’s call for evidence on the UK endorsement of IFRS S1 and IFRS S2

Published on: 20 Oct, 2023

We have published our response to the UK Sustainability Disclosure Technical Advisory Committee’s (UK SDTAC’s) call for evidence on the UK endorsement of IFRS S1 and IFRS S2 (“the call for evidence”). 

We welcome the International Sustainability Standards Board’s (ISSB) first sustainability standards—International Financial Reporting Standards (IFRS) S1 and S2—as an important milestone in achieving a global baseline of consistent, high-quality, and comparable sustainability information addressing the needs of capital markets.  Adoption of the standards worldwide is needed to help achieve true harmonisation and avoid the risk of a fragmented approach to regulation. The UK capital markets are amongst the largest and most influential globally, and adopting the ISSB standards in the UK would demonstrate clear leadership and support the establishment of a consistent and comparable global baseline for the reporting of decision-useful sustainability information which will improve transparency and encourage better informed pricing and capital allocation. This in turn should drive investment in more sustainable projects and activities and help the UK to transition successfully, building a more resilient economy in view of the wide-ranging sustainability-related risks companies face today. Accordingly, we believe the appropriate approach to providing comparable and decision-useful information and to helping drive integrated thinking and sustainable decision-making is to:

  1. make the ISSB standards available for use in the UK in full;
  2. integrate those standards into the existing UK legal and regulatory framework and determine mandatory scope and application; and
  3. consider whether any additional disclosure requirements are necessary to meet the UK’s objectives around sustainability and climate.

The UK has historically demonstrated leadership in narrative and non-financial reporting, with a corporate reporting regime that is mature and well-established and captures many of the requirements that are set out in IFRS S1 and S2 via the strategic report, the UK Corporate Governance Code and existing climate-related reporting requirements. We therefore believe the ISSB standards will operate effectively within the existing UK reporting framework. In our view, it is essential that the ISSB standards are implemented in the UK without modification, to the fullest extent possible. We observe that the ISSB standards have been through a thorough due process, which elicited substantial feedback from, and engagement with, UK stakeholders, and comprehensive re-deliberations based on that feedback to finalise and approve the final standards.

We are aware that entities will face some implementation challenges. However, we do not believe these should be a barrier to UK endorsement of the full standards. For challenges and concerns that are not UK specific the UK government, regulators and other stakeholders should engage with the ISSB to help shape the ISSB’s own programme of developing educational and interpretative guidance – an initiative that the ISSB is already progressing as a priority area for its agenda and activities.  Concerns about the readiness of UK companies to report in line with IFRS S1 and S2 should be addressed through phasing the timing of when these standards are mandated for differing types of UK companies. This should take into consideration a company’s existing disclosure requirements, similar to the phased introduction of TCFD in the UK. Other UK specific initiatives to support readiness could include education events and stakeholder outreach at UK level to help entities understand and prepare to apply the standards. 

We also observe that the standards as issued already provide transitional reliefs and proportionate requirements, including allowing an entity to disclose information on only climate-related risks and opportunities (in accordance with IFRS S2) in its first annual report and consequently more time for preparers to get ready for reporting in accordance with IFRS S1; not requiring an entity to disclose its Scope 3 greenhouse gas emissions in its first annual reporting period and introducing ‘proportionality’ mechanisms such as the explicit recognition that qualitative information may be provided for certain disclosures where quantitative data is not available or is of insufficient quality and maturity.

Accordingly, we consider that the costs of implementation will not outweigh the significant benefits of having a single cohesive reporting framework providing primary users with comparable, decision-useful information, with a globally recognised set of standards forming the bedrock of UK sustainability reporting. A swift endorsement decision prior to mandatory application will also give companies the opportunity to become familiar with the standards and for the UK government and the FRC to conduct outreach and engagement regarding implementation and consider the timing of mandatory application for different UK businesses. We therefore believe it is firmly in the public interest for the UK government to endorse the ISSB standards for use by UK companies in full as quickly as possible and that the bar for not doing so should be set very high, i.e. that endorsement of the ISSB standards would be ‘detrimental to the UK public good’.

We believe that the ISSB standards should be brought into the UK legal framework in a way that recognises both the need for the global standards to be implemented without modification to maintain the global baseline and the anticipated rapid evolution of sustainability standards. The ISSB has stated its intention to add further guidance, topical standards and requirements that will mean frequent updates to the UK framework will be needed in response. The UK government should seek to avoid the use of a mechanism that results in requirements that cannot be easily or swiftly changed and legislation becoming dated. In this regard, we believe that writing the standards directly into legislation should be avoided and we strongly encourage the UK government to consider whether there is a feasible alternative approach within the confines of the UK legal system and reporting framework.

Our full comment letter is available below.


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