UK Government consults on new sustainability reporting standards, transition planning, and sustainability assurance

IFRS S1 includes a transition relief that allows reporting entities to publish sustainability-related disclosures later than their financial statements in the first year of applying ISSB standards, to provide more preparation time. 

This relief has been removed from UK SRS S1 on the grounds that it would undermine the principle of connectivity between financial and sustainability reporting. Additionally, it's considered that UK entities should be well placed to report simultaneously, given that existing UK rules have required large and listed companies or groups to make TCFD-aligned disclosures since 2022. 

IFRS S1 includes a transition relief that permits entities to report on climate-related matters only in their first year of applying ISSB standards. Disclosure of sustainability-related risks and opportunities beyond those associated with climate change may be deferred by a year. 

In the proposed UK SRS, this relief has been extended to two years. Alongside the one-year relief on disclosing Scope 3 greenhouse gas emissions (maintained from IFRS S2), this means that reporting entities have the option to phase in implementation, with minimum disclosure requirements as follows: 

• Year one: climate-related risks and opportunities, excluding Scope 3 emissions 
• Year two: climate-related risks and opportunities, including Scope 3 emissions 
• Year three: climate-related risks and opportunities, including Scope 3 emissions, plus wider sustainability-related risks and opportunities. 

IFRS S2 includes requirements on financed emissions, i.e. greenhouse gas emissions associated with financial institutions' lending and investment activities. One of these is the use of the Global Industry Classification Standard (GICS) six-digit industry code. In the draft UK SRS S2, this requirement is removed, providing companies with the flexibility to use GICS or an appropriate alternative classification standard.  

Both ISSB standards currently include a statement on their effective date: "An entity shall apply this Standard for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted." 

These clauses are removed from the draft UK SRS, on the basis that the standards will be freely available for any entity to use on a voluntary basis at a time of their choosing. As for entities that may be required to use UK SRS, a clarifying sentence is added to explain that the timetable for applying the standards is dependent on relevant legislation or regulation put in place by the Government or the Financial Conduct Authority (FCA). 

IFRS S1 and IFRS S2 include requirements that state that entities "shall refer to and consider the applicability of" the standards published by the Sustainability Accounting Standards Board (SASB) and the "Industry-based Guidance on Implementing IFRS S2" (which is based on the SASB Standards). 

In the draft UK SRS, it is proposed to amend "shall refer to and consider" to "may refer to and consider", making it clear that, while entities can refer to SASB materials if they wish, they are not required to do so. 

Both IFRS S1 and IFRS S2 include transition reliefs (e.g. see Amendment 2 above), which organisations are permitted to use from the first annual reporting period in which they apply the standards. 

For voluntary users of UK SRS, the Government believes it's a business choice to report against some or all of the standards, and that it would be inappropriate to define how and when certain requirements within the standards apply. 

Accordingly, it proposes to amend ISSB wording such that transition reliefs are explicitly linked to the introduction of any mandatory reporting requirements. As a result, entities that do not fall within the scope of any future reporting obligations, would not be bound by any restriction on applying transition reliefs. 

Under this option, the Government would not require companies to produce distinct transition plans, separate from annual reporting, but entities would be free to do so on a voluntary basis. Those that haven't published a plan, or that haven't disclosed transition plan-related information in accordance with UK SRS S2, would be compelled to explain why that is the case. 

Under this option, the Government would require entities to develop a transition plan and disclose transition plan-related information as part of its annual reporting. It could also require entities to publish a separate transition plan document, in line with Transition Plan Taskforce (TPT) recommendations that entities should publish a standalone transition plan document at least every three years. Such an approach would enable companies to provide greater detail versus what might be possible within annual reporting.  

Recognising the broad range of skills needed to provide effective assurance of sustainability-related financial disclosures, the Government would create a new category of provider. Being profession-agnostic, this new category would allow both audit and non-audit professionals to register as sustainability assurance providers. 

Sustainability assurance providers would be overseen by the Audit, Reporting and Governance Authority (ARGA). ARGA would be responsible for registering providers, setting the eligibility criteria for registration, monitoring their performance, and where necessary, taking proportionate enforcement action when they perform poorly. 

The Government anticipates the proposed registration regime operating on a voluntary basis in the first instance. This is on the assumption that reporting entities are more likely to seek the services of registered providers than unregistered ones, and that it is therefore in providers' self-interest to opt in to the regime. 

However, the Government will also consider the need to mandate the assurance of company disclosures against UK SRS, in which case, registration with ARGA could become a precondition to providing sustainability assurance services.