Could ISSB reporting mandates arrive sooner than first thought?

As the global push for sustainable finance intensifies, UK businesses may need to prepare for mandatory International Sustainability Standards Board (ISSB) reporting sooner than initially anticipated.

Recent developments in the UK’s sustainability disclosure landscape, coupled with international pressure and expert recommendations, suggest that the timeline for implementing these standards could be accelerated.

The UK government recently released an updated implementation timeline for its Sustainability Disclosure Requirements (SDR), which aims to align with the ISSB framework. According to this timeline, consultations on draft standards are set to begin in the first quarter of 2025, with implementation expected no earlier than January 2026.

The process involves the UK Sustainability Disclosure Technical Advisory Committee (TAC) assessing the IFRS Sustainability Standards and making recommendations to the Secretary of State for the Department for Business and Trade. Once adopted, the Financial Conduct Authority will regulate the application of UK Sustainability Reporting Standards (SRS) to UK-listed companies.

However, this timeline has faced criticism for its delay compared to other jurisdictions. The European Union, Japan, Hong Kong, and Singapore are set to have their rules in place by 2025, potentially putting the UK at a competitive disadvantage in the green finance arena.

Pressure for Accelerated Adoption

Several factors are contributing to the pressure for faster adoption of ISSB standards in the UK:

International Competition

The UK is at risk of losing its position as a green finance pioneer. Mark Carney, former Bank of England governor, has warned that British markets may suffer if the country doesn’t swiftly adopt ISSB standards.

Expert Recommendations

A recent paper by Mark Manning, an independent adviser to organizations like the IFRS Foundation and World Bank, urges the UK government to mandate corporate reporting in accordance with ISSB Standards immediately. Manning criticizes the previous administration’s decision to delay adoption and argues that reversing this delay would bring forward benefits for UK markets and enhance UK leadership internationally.

Climate Urgency

 An open letter from over 400 climate experts has called on politicians to adopt an ambitious climate programme, which includes robust sustainability reporting.

Economic Implications

 As low-carbon progress becomes a fundamental driver of financial competitiveness, delayed adoption of comprehensive sustainability reporting standards could impact the UK’s economic standing.

Preparing for Potential Earlier Adoption

As UK businesses prepare for the potential earlier adoption of ISSB standards, they must embark on a comprehensive journey of understanding and implementation. This process begins with a deep dive into the IFRS S1 and S2 standards, which form the backbone of the ISSB framework. IFRS S1 provides the overarching guidelines for sustainability-related financial disclosures, while IFRS S2 focuses specifically on climate-related disclosures. Both standards emphasize four key areas: governance, strategy, risk management, and metrics and targets. Companies will need to thoroughly examine how sustainability and climate considerations are integrated into their decision-making processes, long-term strategies, risk assessment procedures, and performance measurements.

A critical component of this preparation is developing robust capabilities for Greenhouse Gas (GHG) emissions reporting. This involves not only measuring and reporting Scope 1 emissions (direct emissions from owned or controlled sources) and Scope 2 emissions (indirect emissions from purchased electricity, steam, heating, and cooling), but also tackling the more complex Scope 3 emissions. Scope 3 encompasses 15 categories of indirect emissions occurring in a company’s value chain, from purchased goods and services to the use of sold products. Many businesses find Scope 3 reporting particularly challenging due to its breadth and the need for data from external sources. Companies may need to engage with suppliers, customers, and other partners to gather this information accurately.

As businesses delve deeper into these standards, they may find it necessary to reassess and potentially restructure their governance frameworks. This could involve creating new roles or committees focused on sustainability, integrating sustainability metrics into executive compensation, or enhancing board oversight of climate-related risks and opportunities. Strategic planning processes may need to be overhauled to incorporate long-term sustainability considerations, including scenario analysis to assess the resilience of business strategies under different climate-related scenarios.

The increased reporting requirements will likely necessitate significant improvements in data collection and management systems. Companies may need to invest in new technologies or software platforms capable of capturing, storing, and analysing vast amounts of sustainability-related data. This might include implementing IoT devices for real-time energy monitoring, developing more sophisticated supply chain tracking systems, or adopting advanced analytics tools for processing complex datasets.

Stakeholder engagement becomes increasingly crucial in this context. Investors, in particular, are showing growing interest in companies’ sustainability performance and disclosures. Businesses should proactively engage with their shareholders, as well as customers, employees, and local communities, to understand their expectations regarding sustainability reporting. This engagement can help companies prioritize their disclosure efforts and align their sustainability strategies with stakeholder concerns.

Finally, companies should consider developing comprehensive transition plans that outline their path towards a low-carbon future. These plans should detail how the business intends to adapt its operations, products, and services to thrive in a sustainable economy. This might include setting science-based emissions reduction targets, planning for the phase-out of carbon-intensive assets, investing in clean technologies, or developing new, sustainable product lines.

By taking these steps, UK businesses can not only prepare for potential earlier ISSB reporting mandates but also position themselves as leaders in the transition to a more sustainable economy. This proactive approach can yield benefits in terms of improved risk management, enhanced stakeholder trust, and increased competitiveness in an increasingly sustainability-focused global market.

Potential Challenges and Opportunities

While earlier adoption of ISSB standards may present challenges, it also offers opportunities:

Challenges:

• Short timeline for implementation if adoption is accelerated
• Potential resource constraints, especially for smaller businesses
• Complexity of data collection, particularly for Scope 3 emissions
• Ensuring consistency and comparability of disclosures

Opportunities:

• Enhanced competitiveness in global markets
• Improved risk management and strategic planning
• Increased investor confidence and access to sustainable finance
• Contribution to the UK’s climate goals and international leadership in sustainable finance

While the official timeline for ISSB adoption in the UK extends to 2026, mounting pressure from various quarters suggests that this could be brought forward. UK businesses would be wise to start preparing now for this potential shift.

By focusing on understanding the standards, improving data collection and reporting capabilities, and integrating sustainability considerations into governance and strategy, companies can position themselves advantageously, regardless of when the mandate comes into effect. Proactive preparation not only ensures compliance but also unlocks potential competitive advantages in an increasingly sustainability-focused global economy.

This article first appeared in Accountancy Age’s sister publication, The CFO.io.