The UK government is plotting a series of initiatives to enable the domestic endorsement and adoption of new international sustainability standards, according to Debbie Crawshawe, accounting expert at the Department for Business, Energy and Industrial Strategy (BEIS).
Speaking during a Financial Reporting Council (FRC) webinar on Wednesday, Crawshawe said that the government intends to create a “mechanism to endorse and adopt” international standards for use in the UK, and that crucially, this will entail distilling the “complex” standards into something more compatible with domestic legislation.
“The endorsement process will need to take account of the complexity of existing UK legislation and existing UK regulatory frameworks relating to environmental matters and sustainability matters more generally,” she told attendees.
“This existing complexity, and the need for disclosure requirements to support and be consistent with government policy may well result in adaptations of the international standards to ensure suitability for UK use.”
In March, the newly-established International Sustainability Standards Board (ISSB) published its first set of global guidelines for public consultation. The guidelines are divided into two exposure drafts, with the first setting out general sustainability-related disclosure requirements, and the second detailing specific climate-related disclosure requirements.
The ISSB’s guidelines are said to be building upon recommendations set out by the Taskforce on Climate-Related Financial Disclosures (TCFD). In April, the UK became the world’s first jurisdiction to mandate TCFD-aligned disclosures for its largest businesses.
According to Crawshawe, the government will look to introduce a similar mandate on the use of UK-adopted international sustainability standards by “certain economically significant entities”.
A public consultation to determine the scope of such legislation is expected shortly, she added.
“We expect that the consultation will cover matters such as the scope of entities required to report, and in considering scope, we will take into account any new [public interest entity] definition which may come out of the government’s audit and corporate governance reform work.”
In addition, Crawshawe outlined that the consultation will cover the manner in which an entity is required to report on sustainability, where in the report this should be included, when this reporting should commence, and options for the assurance of this information.
“We appreciate that there will be a number of related consultations taking up your valuable time over the next year, but we encourage you to respond to the government’s consultation when published in order to help us shape this important new area of legislation.”
The comparability and adoption of standards
Crawshaw’s comments on the importance of domestic adoption were echoed by Sarah-Jane Dominic, head of policy, programmes and strategy at the FRC, who argued that the ISSB’s recent work provides “a great opportunity to streamline requirements”.
“What we don’t want to end up with is a situation where companies are subject to two or more sets of similar but slightly conflicting requirements,” she said.
“We will look to provide exemptions from existing disclosure obligations where international standards are complied with.”
The panel also weighed in on the issue of global fragmentation, with Sue Lloyd, the ISSB’s vice chair, outlining ongoing efforts to encourage adoption in different jurisdictions.
The ISSB has established a “jurisdictional steering group”, she explained, which will bring together representatives from China, Japan and the UK in an attempt to bring US and European standards closer to that of the ISSB.
“It’s literally getting in a room and finding similarities and differences. We need to be open to moving in their direction, and we’re hoping they’ll be open to moving in ours.
“We really want to bring ourselves closer together so we don’t have so many tensions and conflicting requirements.”
Crawshawe argued that the ease of adoption will depend on “the journey that the country has taken so far” in terms of the maturity of its sustainability disclosures.
“The UK is generally seen as a leader in respect of sustainability disclosures, and so I think it is likely to be one of the first jurisdictions to go down a mandatory route,” she said.
“We would hope that would encourage other jurisdictions to follow, but we are definitely mindful that in jurisdictions where the maturity is not as great, the voluntary approach may well be taken.”
The UK has said that it expects to use the ISSB standards when they become available, while the US Securities and Exchange Commission has indicated that its own disclosure rules are expected to be finalised later this year.
Another noteworthy contender to the ISSB’s proposals has been the EU’s Corporate Sustainability Reporting Directive (CSRD), which comes into force in January 2023.
As part of the CSDR requirements, companies are expected to report on “double materiality” – both financial and non-financial – going beyond the current proposals outlined by the ISSB.
Writes Sam Alberti in Accountancy Age(Edited)