UK Firms’ Urgent Roadmap For The Forthcoming Sustainability Disclosure Standards

UK Firms’ Urgent Roadmap For The Forthcoming Sustainability Disclosure Standards

This month, the UK government announced that its forthcoming corporate disclosure framework – called the Sustainability Disclosure Standards (SDS) – will be anchored in the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB). The bad news: it is expected that the standards will be issued by July 2024 – giving firms less than a year to prepare.

This news comes just weeks after the IFRS released its first two standards, which aim to harmonize and streamline international ESG and sustainability reporting and create a global baseline similar to that already in place for financial reporting – starting first with climate-related disclosures. The ISSB gained further momentum when its standards were officially endorsed by the International Organization of Securities Commissions (IOSCO) – widely recognized as the global standard setter for the securities sector.

The good news for UK-based firms currently subject to TCFD-aligned disclosures is that the ISSB is broadly aligned with TCFD recommendations. As the ISSB is taking over responsibility for the TCFD in 2024, alignment between the two standards is a priority. With that in mind, how should Chief Sustainability Officers (CSOs) tasked with filing ISSB-aligned disclosures plan the next year?  

First, firms should conduct a materiality analysis based on sector-specific standards. The ISSB has adopted the same definition of “material” that is used in IFRS Accounting Standards, meaning that information is material if omitting, obscuring or misstating it could reasonably be expected to influence investor decisions. It is important that the board takes responsibility for the scope of materiality assessments, as these analyses inform the disclosure data requirements.

Second, organizations should operationalize sustainability disclosures by assembling an internal project team comprising representatives from across the business, including operations, finance, legal, risk, HR and EHS. This cross-functional working team will be responsible for collecting the required data and feeding that data through to the core sustainability team.

Finally, firms should digitize ESG workflows and build an ESG information architecture to consistently meet data requirements. With regulatory drivers in play, digital information systems are no longer a luxury, but a business imperative. Organizations need to create a centralized repository of sustainability data to build workflows to improve the traceability and transparency of data – and to facilitate the assurance process. Data from the upcoming Verdantix Global Corporate Survey 2023 found that 42% of firms use commercial software from one or multiple vendors for their ESG reporting and data management. There is no one-size-fits-all approach: to gain a better understanding of the software options available, CSOs should read the recently published Verdantix Green Quadrant: ESG Reporting And Data Management Software, which assesses the functionality of the 20 most prominent vendors in the market.