FCA comments on ISSB’s two-year plan and suggests priority areas

What's new?

On 7 September 2023, the FCA published its response to the Request for Information "Consultation on Agenda Priorities" published in May 2023 by the International Sustainability Standards Board (ISSB).

The FCA's response welcomes the publication of the first two Sustainability Disclosure Standards - IFRS S1 and IFRS S2 - on which we reported here - and encourages the ISSB to consider a comprehensive work plan that progressively:

• embeds IFRS S1 and IFRS S2 through capacity building, implementation monitoring and further elaboration of the conceptual underpinnings and architecture of the standards

• advances work to develop a nature thematic standard in the short term and a human capital/human rights thematic standard in the medium term

• prepares for the steady consolidation of the existing Sustainability Accounting Standards Board (SASB) standards and

• pursues targeted enhancements to the standards, with initial emphasis on developing guidance for transition plan disclosures.

Background

On 4 May 2023, the ISSB published a consultation, seeking feedback on its priorities for its next two-year work plan. The UK Government had asked the FCA to respond to the ISSB's consultation from a regulatory perspective, taking into account the FCA's regulatory objectives and ESG strategy.

On 26 June 2023, the ISSB published IFRS S1 and IFRS S2 standards.

On 2 August 2023, the UK Government confirmed its plans to implement both standards in the UK by July 2024.

Finally, on 10 August, the FCA announced plans to consult in H1 of 2024 with a view to implementing IFRS-referencing rules for UK listed companies on or after 1 January 2025.

Summary of FCA's views

Strategic direction and balance of ISSB's activities:

• The FCA welcomes the ISSB's commitment to support the effective implementation of IFRS S1 and IFRS S2 through the establishment of a Transition Implementation Group and extensive capacity building programmes. The FCA also supports the ISSB's intention to elaborate adoption guidance to set parameters for "jurisdictional scaling and phasing in" of the standards

• The FCA encourages the ISSB to outline its intended architecture of the future standards and consider the interaction and interdependencies between thematic standards and industry-based disclosures

• The FCA strongly supports the ISSB's inclusion of industry-based disclosure requirements and welcomes the ISSB's decision to include the SASB Standards as Accompanying Guidance in IFRS S2. The FCA further highlights that if the SASB Standards were to be made an integral part of the ISSB standards, a rigorous due process would be required, including a stakeholder consultation on the SASB Standards

• The FCA also supports the ISSB decision to implement targeted enhancements to the standards by developing education materials. In particular, the FCA comments that over time, the ISSB may need to further elaborate disclosure expectations in areas such as climate transition planning. The FCA suggests that such clarification could be based on the Transition Plan Taskforce's (TPT) disclosure recommendations which set out best practice in climate transition plans and support existing requirements in IFRS S2

New research and standard-setting projects

• The FCA encourages the ISSB to start working on a nature thematic standard in the short term. The FCA emphasises that the ISSB should draw upon the Taskforce for Nature-related Disclosures (TNFD) framework. However, the ISSB should also consider how TNFD's disclosure recommendations can be applied effectively alongside the ISSB's focus on investor materiality

• The FCA encourages the ISSB to advance its work on developing social thematic standards which will cover both human rights and human capital. The FCA suggests that the ISSB could capitalise on its existing intellectual property to accelerate the development and implementation of the standards

• Finally, the FCA reminds the ISSB about the need for interoperability of three thematic standards. Developing a coherent framework would bring clarity to investors and assist the ISSB with its investor materiality goals

Next Steps

The consultation period for the IFRS Request for Information ended on 1 September 2023.

The ISSB will consider feedback received in order to balance advancing new projects (such as research on nature and social thematic standards) in a timely manner with ensuring the comprehensive and effective implementation of IFRS S1 and IFRS S2.

In the meantime, the UK Government has confirmed it will implement IFRS S1 and IFRS S2 standards, and the FCA will consult in the first half of 2024 with a view to proposing IFRS-referencing rules for UK listed companies on or after 1 January 2025.