Changes in corporate sustainability reporting coming over the horizon

The UK’s journey towards a more comprehensive and standardised approach to sustainability reporting took a significant step forward when, on 18 December 2024, the UK Sustainability Disclosure Technical Advisory Committee (TAC) published its technical assessment and endorsement recommendations regarding Sustainability Disclosure Standards IFRS S1 and S2.

The new standards not only cover climate-related issues, consistent with existing TCFD disclosures, but will also covers a broad range of environmental, social and governance (or ESG) issues. 

In doing so, these changes mark a significant change in the UK’s approach to sustainability-related disclosures.

What are IFRS S1 and IFRS S2 and what do they cover?

Issued by the International Sustainability Standards Board (ISSB) the two standards are cover a wide range of issues:

IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information.

This sets out the general requirements of sustainability related financial disclosures and is designed to be applied in conjunction with IFRS S2.It requires disclosure of sustainability related information, risks and opportunities with financial statements, industry specific disclosure using SASB standards and disclosures that allow investors to understand the links between sustainability related financial information and its related risks and opportunities.

Helpfully, it refers to sources which can help companies identify information for everything not in the scope of IFRS S2.

IFRS S2 Climate-related Disclosure.

This topic-based standard specifies climate related disclosures including plans to respond to climate related risks and opportunities and climate related metrics and targets. It refers to strategy disclosures that distinguish physical and transitional risks and requires companies to perform scenario analysis to explain how climate related events can impact future business.

Importantly, those companies current reporting in line with the Taskforce on Climate-related Financial Disclosures (TCFD) guidance – either voluntarily or in line with mandatory requirements for large and listed companies/LLPS - will be well positioned to move to this new standard.

What happens now?

TAC's technical assessment has concluded that both IFRS S1 and IFRS S2 meet the endorsement criteria.

More than that however they conclude that they would be conducive to the long-term public good in the UK. This proposal supports the much wider sustainability agenda, with companies increasingly being required to engage with a much broader range of ESG topics beyond just climate-related issues.

The endorsement of IFRS Sustainability Disclosure Standards does not mean that companies will automatically be obliged to use IFRS S1 and S2. Moving forwards the government will decide on the requirements for disclosure for non-listed companies.

One option is that the government will apply the same approach to the new standards as to existing mandatory climate-related financial disclosures, applying to UK companies which are either listed on a UK-regulated market or are a private company with turnover of more than £500 million. Introduction on this scale would require significant changes in the existing approach to engagement with and reporting on wider ESG issues.

There is currently no updated timeline on when the requirements may be implemented however we will keep you updated in future briefings.

What should UK businesses be doing to prepare?

We always recommend that companies keep under review existing sustainability strategies so as to ensure that they keep pace with market/regulatory expectations and that governance structures are fit for purpose. The UK’s move towards IFRS S1 and S2 reporting standards is a key reason to do so. As with anything, early awareness and preparation makes for a more successful transition.

At this early stage we recommend:

1. Considering the likely scope of IFRS S1 and S2 to your organisation.
2. Undertaking an initial gap analysis to identify any areas which are likely to require introduction into or significant changes as part of your organisation’s existing sustainability activities.

Author

This insight was authored by Trainee solicitor, Imogen De Castro Gray and Principal Associate, Nick Barker on our Regulatory team.