UK: FCA to consult on reporting for listed companies in line with ISSB standards in first half of 2024

On 10 August 2023, the UK’s Financial Conduct Authority (FCA) published its Primary Market Bulletin 45, in which it confirmed (among other things) that:

ISSB 

• The FCA plans to consult in the first half of 2024 on proposals for listed companies in the UK to report in line with ISSB’s global sustainability disclosure standards. 
• It is aiming is to finalise its policy position by the end of 2024, with a view to bring new requirements into force for accounting periods beginning on or after 1 January 2025 so that the first reporting would begin from 2026. 
• The FCA expects to move from the current 'comply or explain' climate disclosure requirements to mandatory disclosures for listed issuers. 
• The ISSB published the first two global sustainability disclosure standards - IFRS S1 on general requirements for sustainability disclosures and IFRS S2 on climate disclosures - in June this year (see our previous blog post).  The UK government is currently consulting on how to implement the ISSB’s standards into national law and recently confirmed that the forthcoming UK Sustainability Disclosure Standards (UK SDS) will be based on the ISSB's standards and will only depart from those global standards "if absolutely necessary for UK specific matters" (see our previous blog post). 
• The government recently confirmed that the Department for Business and Trade will consult separately on reporting in line with the ISSB standards for UK registered companies and LLPs and that it intends to create the UK SDS by July 2024.

Transition plans 

• The FCA plans to consult at the same time (i.e. first half of 2024) on guidance setting out the FCA’s expectations for listed companies on transition plan disclosures.
• The UK Transition Plan Taskforce (TPT) was set up by the government to develop best practice recommendations for the private sector on credible and robust climate transition plans. The TPT published for consultation a draft of its sector-neutral recommendations in November 2022 (see our previous blog post) and is expected to publish the final version of those recommendations in October 2023. 
• The FCA has confirmed that its guidance on transition plans for listed companies will reference the TPT’s final recommendations. 
• The ISSB’s IFRS S2 includes a requirement to make disclosures that relate to transition planning – the TPT sector-neutral framework will provide the detail of what makes for a good transition plan. The TPT recommendations are being designed to interoperate with IFRS S2.  

Supervisory approach 

• Primary Market Bulletin 45 reminds readers of the FCA’s and FRC’s existing supervisory approach to the current climate-related disclosure rules as set out in Primary Market Bulletin 42 (see our previous blog post) and in their thematic reviews of climate disclosures (see our previous briefing) – all of which are focused on improving the quality of climate disclosures by companies in the UK. 
• The FCA indicates that it plans to continue in 2023/24 with thematic reviews of climate disclosures made by in-scope listed companies and that it will provide more information on its future supervisory approach as part of the ISSB/transition plan consultation next year.
  

What companies can do now to prepare 

• Although the ISSB standards and transition plan guidance will not replace the current UK TCFD-aligned disclosure regime immediately, the FCA is strongly encouraging listed companies to start considering this now and to build this into their plans for future reporting.
• In particular, the FCA recommends that listed companies do the following now:

• continue to improve their climate reporting in line with the TCFD recommendations and accompanying guidance and consider the areas identified for improvement in the FCA’s PMB 42, including showing a clear connectivity between climate-related disclosures and financial statements (see our previous blog post);
• engage early with the ISSB’s IFRS S1 and S2 and the final UK TPT guidance on transition plans (once published) and consider reporting in line with these standards and guidance on a voluntary basis ahead of future requirements; and
• engage with the UK endorsement and implementation process for the ISSB standards (see our previous blog post).

The FCA’s existing climate disclosure rules are based on the TCFD recommendations, as is the ISSB’s IFRS S2. The FCA and FRC have been working closely with the ISSB to ensure the rules are consistent, comparable and useful so that investors are able to make better informed decisions on risk and capital allocation.

However, it is worth bearing in mind that the ISSB will be developing additional sustainability disclosure standards – IFRS S1 and S2 are just the start of that process. The ISSB is currently consulting on its next priorities and has identified four potential projects: biodiversity, ecosystems and ecosystem services; human capital; human rights; and researching integration in reporting (see our previous blog post). Once those additional global sustainability disclosure standards have been finalised, the expectation is that the UK government would consider implementing those standards into national law as part of the UK SDS.

Please note that this blog post does not deal with the other (non-climate related) aspects of the FCA’s Primary Market Bulletin 45.