Navigating the UK Sustainability Disclosure Standards

What UK listed issuers can expect throughout 2023 and 2024

In a time marked by heightened awareness of environmental, social and governance (ESG) considerations, corporate transparency is rapidly evolving. The UK is positioning itself to adopt international standards to ensure globally interoperable IFRS sustainability reporting by July 2024 through the UK Sustainability Disclosure Standards (UK SDS). Looking through the latest guidance, we have considered the potential implications of reporting with the proposed regulations and can now provide you with guidance on how UK listed issuers can best prepare to implement these standards based on guidance from the Department for Business and Trade (DBT).

The UK SDS will represent a monumental shift towards global standardised sustainability reporting. These standards will serve as the foundation for corporate disclosures on sustainability-related risks and opportunities faced by companies. Specifically, the UK SDS will encompass aspects related to climate change risks and opportunities, forming the bedrock for future UK legislative or regulatory requirements.

It is hoped that the UK SDS will essentially be the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB). The ISSB, established from COP26, is a crucial player in setting global sustainability reporting standards. Its initial standards, IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2: Climate-related Disclosures, are designed to enhance the transparency and comparability of sustainability information across organisations. Given that the IFRS Financial Standards are currently used in 87% of the world’s countries – this is significant. You can read more about this in our recent article. 

The UK Government’s commitment to the ISSB’s mission is evident in its 2023 Green Finance Strategy. The strategy outlines the plans to evaluate the suitability of IFRS S1 & S2 for endorsement within the UK. Furthermore, the UK Government has taken a proactive stance by forming two critical committees to facilitate the assessment and implementation of these standards.

Composed of experts from diverse professional backgrounds, the TAC plays a pivotal role in assessing IFRS Sustainability Disclosure Standards. Its recommendations to the Business and Trade Secretary are instrumental in the endorsement process. To ensure well-informed decisions, the TAC collaborates closely with the Financial Reporting Council (FRC) and considers contextual information provided by the Department for Business and Trade.

Under the management of the DBT, the PIC takes a broader perspective by analysing the interactions between IFRS Sustainability Disclosure Standards and existing UK legislation and regulation. If endorsed, the PIC will oversee the implementation of UK SDS in tandem with the UK Government and the Financial Conduct Authority (FCA). PIC’s membership consists of UK Government departments and regulators, including:

• Bank of England
• Department for Energy Security and Net Zero (DESNZ)
• Department for Environment, Food and Rural Affairs (Defra)
• Department for Work and Pensions (DWP)
• Financial Conduct Authority (FCA)
• Financial Reporting Council (FRC)
• HM Treasury
• The Foreign, Commonwealth & Development Office (FCDO)
• UK Endorsement Board (UKEB)

From our research and discussions here at Jones and Palmer, we have collated our initial recommendations to effectively start your discussions and planning for the implementation of the UK SDS:

Keep up to date with the latest developments and updates related to the UK SDS. Regularly monitor official channels – such as the DBT and FRC websites – for information on committee activities, calls for evidence and implementation timelines. 

The standards are predicted to enact the existing ISSB IFRSs, which mirrors many standards from the existing TCFD (Task Force for Climate-related Financial Disclosures) reporting requirements. Adopting, or preparing to adopt, these early is advisable.

Understand how the UK SDS will align with your organisation’s operations, risks and opportunities. Conduct a comprehensive review to identify areas where sustainability disclosures may have a significant impact.

Leverage the expertise of the TAC and PIC by actively participating in their processes. Respond to calls for evidence, provide insights and collaborate with committee members to contribute to well-informed decisions.

Establish cross-functional teams that involve the finance, sustainability, legal and compliance departments. This collaborative approach ensures a holistic understanding of the reporting requirements and streamlines the implementation process.

Strengthen data collection mechanisms to capture relevant sustainability information. Ensure the accuracy and reliability of data through robust validation processes.

Integrate sustainability disclosures seamlessly into your existing reporting frameworks. Identify opportunities to align with other established reporting standards, such as the TCFD recommendations.

Prioritise disclosures that are material to your organisation’s financial performance, risk profile and stakeholder interests. A well-defined materiality assessment enhances the credibility and relevance of your disclosures. It’s worth keeping in mind that the materiality assessments’ frequencies varies between companies. For most companies, key issues remain stable, though some might change slightly. Industries with faster-changing issues should align assessment frequency accordingly. A streamlined interim update may suffice to capture new or evolving topics. Continual assessment, incorporating emerging risks, opportunities and stakeholder input outweighs detailed regular reassessments. Integrating the materiality process with business strategy, as well as engaging colleagues from strategy and risk management, prevents oversight of emerging factors.

Leverage technological solutions to streamline data gathering, processing and reporting. Sustainability reporting software can enhance efficiency and accuracy in meeting UK SDS requirements.

Embrace scenario analysis to assess the potential impacts of various sustainability factors on your organisation’s financial outlook. This forward-looking approach adds depth to your disclosures and assists with strategic decision making.

Treat sustainability reporting as an iterative process. Gather feedback, review disclosures and identify areas for improvement to enhance the quality and relevance of your reports over time.

The introduction of the UK Sustainability Disclosure Standards marks a significant milestone in the realm of sustainability reporting. For those responsible for the preparation, issuing and production of corporate reports, embracing these standards will ensure compliance, as well as underscoring your commitment to transparency, accountability and sustainable business practices. By aligning with the UK SDS, companies can contribute to global comparability, facilitate informed investment decisions and play an integral role in shaping the future of corporate reporting. 

So, for now, stay informed, engaged and collaborate with relevant committees. We hope you found our initial guidance in this article useful for your continued navigation towards a more sustainable future.