Is the UK at Odds with International Reporting Standards?
There's a piece of conventional wisdom repeated time and again from data analysts in the field of sustainability.
Why? Because sustainability reporting can be a vastly complicated endeavour, especially when the regulations are unclear.
Now, things might be about to change once again in the UK, as regulations from the International Sustainability Standards Board (ISSB) are ironed out.
The UK Sustainability Disclosure Technical Advisory Committee (TAC) has finalised its recommendations to the UK government on the adoption of the ISSB's framework.
The recommendation? To reject the ISSB's controversial proposal on financed emissions.
The decision, made during a meeting on 5 December 2024, centred on a debated amendment that would have required companies to disclose the reporting year they used to calculate their financed emissions in cases where current data was unavailable.
The proposed amendment from the ISSB aimed to address concerns about the incompatibility of using data from previous reporting periods.
However, following informal discussions with ISSB members, the TAC has decided to overturn this proposal citing the ISSB’s acknowledgment of the necessity for estimations when data for the current year is unavailable.
The TAC suggests that the entire process of sustainability reporting, including the non-ideal use of estimates, is likely to change for the better once data improves in the coming years.
To address any lingering concerns, the TAC has recommended that the ISSB explicitly clarify that using previous years’ data for emissions calculations — if deemed reliable — does not breach IFRS S1's principles.
Transition periods and reporting clarity
So, what does the UK's TAC want to happen?
The TAC has endorsed the largely unmodified adoption of the ISSB standards into the UK Sustainability Reporting Standards (UK SRS), including its requirements for climate-related risks and opportunities.
However, it recommended the removal of a transition relief that would have allowed companies to publish sustainability-related disclosures after financial statements in the first year.
TAC members argued that this staggered approach undermines connectivity between financial and sustainability data and reduces comparability.
The committee also advised extending a transitional relief period, granting UK companies two years to disclose only climate-related risks and opportunities before expanding to broader sustainability issues.
This extension reflects the nascent nature of sustainability-related risk disclosures and the ISSB’s focus on climate standards, with further topic-specific standards yet to be issued.
Thanks to the Task Force on Climate-related Financial Disclosures (TCFD), which introduced some stringent reporting requirements in 2022, UK companies are already pretty experienced when it comes to climate reporting.
However, industry-wide regulations are easier for some organisations to deal with than others. The TAC believes that a phased implementation of new regulations could help in this regard, offering some leeway whilst companies navigate this learning curve.
Finding harmony between UK and EU standards
The TAC has also recommended prioritising interoperability between ISSB standards and the European Sustainability Reporting Standards (ESRS), which is a critical concern for UK businesses with close trade and regulatory ties to the EU.
The committee has urged the UK government to engage with the ISSB and the European Financial Reporting Advisory Group (EFRAG) to address potential equivalence issues, particularly given the overlap in value chain reporting requirements.
Interoperability is crucial for British companies operating across borders and blocs. Without alignment, businesses could face a great deal of unnecessary complexity, which threatens the usefulness of sustainability reporting altogether.
To ease concerns surrounding early implementation challenges, the TAC has also proposed exploring safe harbour protections for companies’ value chain reporting during any initial reporting periods.
Such measures would aim to mitigate potential liability risks while encouraging transparency.
Next steps and government action
So, where do we go from here?
The TAC's recommendations have been submitted to the Department for Business and Trade (DBT), which is expected to endorse the draft UK SRS in the first quarter of 2025.
This process will be followed by series of consultations on how exactly to apply these standards to non-listed companies.
Simultaneously, the Financial Conduct Authority (FCA) plans to consult on incorporating the UK SRS into reporting requirements for listed firms.
Should these consultations proceed as anticipated, the UK SRS could take effect for accounting periods beginning on or after 1 January 2026.
However, the TAC has advised the UK government to consider additional guidance on applying the UK SRS alongside existing reporting frameworks, as well as simplifying the location of sustainability disclosures.
For the UK to remain a leader in sustainability reporting, the framework must not only meet high international standards, but also work seamlessly with those of its trading partners in the EU and beyond.
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