We published an article on the International Sustainability Standards Board (ISSB) commenting on the publication of the exposure drafts of two International Financial Reporting Standards (the Standards). The UK Financial Conduct Authority (FCA) recently published its response welcoming the Standards.

Key points

The FCA stated that the Standards generally met its expectations as set out in its Strategy 2022 to 2025. The Standards are consistent with the FCA’s approach of transparency on enhancing climate and sustainability-related disclosures. The FCA also expressed the value of bringing sustainability-related and financial reporting standards under the same standard-setting body to investors.

The FCA also considered how the proposals could set a clear global baseline to investors and other capital markets participants. However the FCA also expressed concerns on widespread adoption of baseline standards internationally due to different sustainability reporting across corporates in different jurisdictions.

Given that the Standards would be very broad, the FCA recommended that implementation guidance accompany such Standards to support preparers’ readiness and to promote consistency. The FCA also highlighted that the Standards should look to provide clear definitions, such as “material”, “significant” and “materiality”.

The FCA made the point that the Standards would add specificity and granularity to the Task Force on Climate-Related Financial Disclosures recommendations in the UK.

The FCA explained its prior engagement with the ISSB’s work, and that it would be co-leading the International Organisation of Securities Commission’s work to assess future endorsement of the Standards’. Securities regulators could incorporate such Standards within their respective sustainability frameworks which could pave the way for global baseline reporting.

Next steps

The FCA remains committed to consulting on implementing the Standards in its rules. It will continue to engage closely with the ISSB on the Standards.