Sustainability reporting

Background

Company boards, executives, and management are investing more and more time and resources on issues of sustainability - such as carbon (greenhouse gas emissions), energy efficient technology, water use, employee matters and diversity, to name just a few. An important part of the global push towards sustainability practices involves a need to account for, and report on, sustainability - sometimes referred to as environmental, social, and governance (ESG) or corporate responsibility (CR) reporting.

On this page, we provide an overview of developments in sustainability reporting requirements and practices, tracking its gradual adoption on both a voluntary and mandatory basis.  

IFRS Foundation Trustees' sustainability reporting initiative and the International Sustainability Standards Board (ISSB) 

In the context of their peri­odic strategy review, the IFRS Found­a­tion Trust­ees pub­lished a con­sulta­tion paper in Septem­ber 2020 to de­term­ine:

  • whether there is a need for global sus­tain­ab­il­ity stand­ards;
  • whether the IFRS Found­a­tion should play a role in de­vel­op­ing such stand­ards; and
  • what the scope of that role could be.

Feed­back to the con­sulta­tion con­firmed an urgent need for global sus­tain­ab­il­ity re­port­ing stand­ards and support for the Found­a­tion to play a role in their de­vel­op­ment.

On 3 November 2021, the IFRS Foundation ("the Foundation") announced the creation of the International Sustainability Standards Board (ISSB), recognising the urgent need for global sus­tain­ab­il­ity re­port­ing stand­ards and the widespread support for the Found­a­tion to play a role in their de­vel­op­ment.

In 2022, the following organisations were consolidated into the IFRS Found­a­tion to support the work of the ISSB:

In June 2023, the ISSB published its first two IFRS Sustainability Disclosure Standards:

Each jurisdiction will need to decide whether, when and how to make the IFRS Sustainability Disclosure Standards mandatory.

The UK government is committed to adopting the first two standards, and the expectation is that the Secretary of State for Business and Trade, will decide on endorsement of the IFRS Sustainability Disclosure Standards to create - UK Sustainability Disclosure Standards (or UK SDS) - in 2024. In the first half of 2024, the Financial Conduct Authority (FCA) is also expected to consult on its policy approach to the ISSB standards.

Please see our resource page for the International Sustainability Standards Board (ISSB) and our Need to Know publication for further information.  We also have a dedicated page for the Trustees' initiative.

Task Force on Cli­mate-Re­lated Fin­an­cial Dis­clos­ures (TCFD)

The purpose of the Fin­an­cial Sta­bil­ity Board’s (FSB's) TCFD was to develop re­com­mend­a­tions for vol­un­tary cli­mate-re­lated fin­an­cial dis­clos­ures that are con­sist­ent, com­par­able, re­li­able, clear, and ef­fi­cient, and provide de­cision-use­ful in­form­a­tion to lenders, in­surers, and in­vestors. The work and re­com­mend­a­tions of the Task Force helps com­pan­ies un­der­stand what fin­an­cial markets want from dis­clos­ure in order to measure and respond to climate change risks, and en­cour­age firms to align their dis­clos­ures with in­vestors’ needs.

Following the publication of the ISSB’s first two IFRS Sustainability Reporting Standards, the FSB has stated that the ISSB Standards should serve as a global framework for sustainability disclosures. With the International Sustainability Standards Board’s (ISSB) inaugural standards having been released (IFRS S1 General Requirements for Disclosure of Sustainability-Related Financial Information and IFRS S2 Climate-related Disclosures), the TCFD’s work is now complete.  The Financial Stability Board (FSB) has therefore requested that the ISSB assume responsibility for monitoring progress on the state of climate-related financial disclosures by companies as of 2024.

This announcement does not change mandatory requirements in respect of TCFD disclosures. The Financial Conduct Authority (FCA) listing rule requiring listed companies to make disclosures that are consistent with the TCFD recommendations continues in force until and if the FCA changes the rule. The FCA has stated its intention to update its climate-related disclosure rules to reference the ISSB standards once they are available for use in the UK.

Further in­form­a­tion on the TCFD is avail­able on the TCFD website here.

EU Cor­por­ate Sus­tain­ab­il­ity re­port­ing Dir­ect­ive (CSRD) and EU Taxonomy Regulation

The Corporate Sustainability Reporting Directive (CSRD) was published in the Official Journal of the European Union (EU Official Journal) in December 2022.

The CSRD amends the EU Accounting Directive to require companies to provide information necessary to understand both the company’s impacts on sustainability matters and also how sustainability matters affect the company’s prospects, performance and position. The ob­ject­ive of the CSRD is to improve sus­tain­ab­il­ity re­port­ing to better exploit the po­ten­tial of the European single market and to con­trib­ute to the trans­ition to a fully sus­tain­able and in­clus­ive eco­nomic and fin­an­cial system in line with the European Green Deal and the UN Sus­tain­able De­vel­op­ment Goals. 

The CSRD brings in more ex­tens­ive man­dat­ory sus­tain­ab­il­ity re­port­ing for a wide range of com­pan­ies and re­quires as­sur­ance on this in­form­a­tion. Entities in scope are required to disclose sustainability information in a dedicated section within the management report and to prepare this information in line with European Sustainability Reporting Standards (or ESRS).

CSRD brings entities into scope of the reporting requirements over different years. As the CSRD has extraterritorial reach, it will impact certain UK entities from 2024 onwards.

For more information on the CSRD and ESRSs, read our CSRD and ESRS Need to Know publications.  

Entities in scope of CSRD will also come into scope of the EU Taxonomy Regulation. The EU Taxonomy sets out a system for classifying economic activities contributing to the EU’s environmental objectives and requires an entity in scope to include information in its non-financial statement (referred to as 'sustainability reporting' in the CSRD) on how and to what extent the undertaking’s activities are associated with environmentally sustainable economic activities.

For more information on the EU Taxonomy regulation, read our iGAAP in Focus publication.

California Climate Legislation

In October 2023, the state of California signed into law two state senate bills and one assembly bill that together require certain public and private US entities that perform certain business activities in California to provide disclosures about their greenhouse gas (GHG) emissions, climate-related financial risks, voluntary carbon offsets (VCOs) and certain climate-related emission claims.

There is no specific exception for groups with a non-US parent, and therefore foreign entities with US-based subsidiaries that perform certain business activities in California would fall within the scope of the requirements.  

For more information on the California Bills, read our Need to know publication.

US SEC Climate-related disclosure rule

On 6th March 2024, the US Securities and Exchange Commission (SEC) voted to adopt a rule that requires SEC registrants to provide climate-related disclosures.  The new rule requires disclosure of:

  • material climate-related risks;
  • activities to mitigate or adapt to such risks;
  • information about the registrant's board of directors' oversight of climate-related risks and management’s role in managing material climate-related risks; and
  • information on any climate-related targets or goals that are material to the registrant's business, results of operations, or financial condition.

Large, accelerated filers (LAR) and accelerated filers (AR) are also required to disclose material Scope 1 and 2 greenhouse gas (GHG) emissions. Assurance requirements related to these disclosures will also be phased in.  The final rule will become effective 60 days after publication in the Federal Register, and compliance will be phased in from 2025 to 2033.  For more information, please see our Need to know publication.

Other organisations involved in sustainability reporting

Global Reporting Initiative (GRI)

The Global Reporting Initiative (GRI) promotes the use of sustainability reporting as a way for organisations to become more sustainable and contribute to a sustainable global economy. It is an international not-for-profit organisation, with a network-based structure.

GRI’s mission is to make sustainability reporting standard practice. To enable all companies and organizations to report their economic, environmental, social and governance performance, GRI produces free Sustainability Reporting Guidelines.

We have a dedicated page for the GRI.

Transition Plan Taskforce (TPT)

The TPT was launched by the UK Government in 2022 with a two-year mandate, to develop, a ‘gold standard’ for private sector climate transition plans, applicable to the UK but globally transferrable. ​The TPT’s final disclosure framework was published in October 2023 and is designed to complement, and build on, IFRS S2 Climate-related Disclosures.

The UK government has stated that it will consult on introducing climate transition plan requirements for the UKs most economically significant companies. The government will draw on the work of the TPT in doing so. In addition to the government consultation, the FCA also plans to consult on introducing guidance aligned with the TPT Framework, at the same time as consulting on its policy approach to the ISSB standards.

Further information can be found on the TPT website and in our Need to Know publication.

Taskforce on nature-related Financial Disclosures (TNFD)

The TNFD is a global, market-led, science-based and government supported initiative to help respond to the imperative, to factor nature into financial and business decisions.

The final TNFD framework was published in September 2023. Its recommended disclosures are closely aligned to the disclosure framework developed by the TCFD.

The TNFD is a voluntary framework. However, the UK government has stated its intention to consider how to incorporate TNFD into UK policy and legislation.

The ISSB also intends to use the outputs from the TNFD to inform its future standard setting.

Further information can be found on the TNFD website and in our Need to Know publication.

The United Nations Sustainable Development Goals

The Sustainable Development Goals (SDGs) are a collection of 17 goals set out by the United Nations within the 2030 Agenda for Sustainable Development; they call for urgent collective action towards global challenges, such as hunger, unemployment and climate change. The Governments of the 191 UN Member States have committed to achieving the SDGs and businesses can help bridge the gap towards achieving the SDGs by enshrining sustainable development in their purpose and core activities. Businesses are increasingly finding that there is an inextricable link between a commitment to sustainable development and enduring commercial success.

To find out more information, visit the Sustainable Development Goals website.

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