The UK government's flurry of announcements yesterday (30 March), at what some dubbed 'green day', certainly put on a show, but now that the sparkle has turned into smoke and the sky has cleared, unanswered questions remain.
Although the government set out a 12-month assessment process to examine, and potentially endorse, the ISSB standards starting in the summer, when the first two standards are expected to be available, the million-dollar question is: what form will that assessment take?
"This assessment will aim to ensure that the standards endorsed by the Government for use in the UK are appropriate for UK companies," the government said, without specifying what criteria the standards are going to be assessed against and what would make the standards 'appropriate' for UK companies.
The government and financial regulators have until the end of June, when the ISSB standards will become available, to come up with an answer.
Meanwhile the updated green finance strategy, released yesterday, left uncertainties around some aspects of the UK's proposed sustainability disclosures requirements (SDRs) regime.
What about sustainability assurance?
The document made no mention of sustainability assurance, except for a brief note on 'recent activity and future work' stating that the government "influences the development of global standards for sustainability reporting, assurance and the ethical and independence standards".
J Bruce Cartwright, chief executive of ICAS , said: "Sustainability reporting will also be strengthened where external assurance is secured from an independent professional who is subject to robust performance, quality management and ethical and independent standards."
"Establishing a level playing field in the assurance space, where all actors play by the same rules, will help to prevent 'greenwashing'," he continued. "We need government action to make it happen."
Who will have to report?
Cartwright also noted that the strategy doesn't clarify whether companies will have to use the ISSB standards, once endorsed, in their reporting, or whether the standards will simply be made available.
Although the scope will be determined during the endorsement process of ISSB standards, of which the mechanism has not been finalised despite being announced yesterday, the updated strategy provides partial answers.
Indeed the UK government's document states that the ISSB standards will provide the basis for future obligations within company law and FCA requirements for listed companies. The FCA has already stated its intention to consult on amending their TCFD-aligned disclosure rules to reference the ISSB standards once endorsed for use in the UK.
The UK's updated strategy reiterated that the implementation of FCA requirements for listed companies will be taken forward independently once the standards are endorsed for use in the UK, but added that the adoption of the ISSB standards in the Companies Act will be determined at a later stage, "alongside future reforms to the UK's non-financial reporting framework".
ICAS's Cartwright said the ISSB standards shouldn't be there on a "nice to know about basis but should be upheld, adopted and seen as part and parcel of how we account for business impact".
Furthermore, the updated strategy announced a "review of the UK's non-financial reporting framework, which will take a fresh look at the wider legal landscape in which sustainability disclosures and other planned reforms will be situated".
But in the section on transition plan disclosures – one of the four components of the SDRs regime - it says that "the UK's non-financial reporting review [...] will consider the thresholds used to determine which companies must comply with reporting obligations under the Companies Act 2006. As a result, any future obligations will only apply to the UK's most economically significant entities – the vast majority of companies will not have additional burdens placed on them by these proposals".
A4S also called for greater clarity on which parts of the economy will be covered by the SDRs.
"Information on roll out will be essential so that each sector can be prepared," it said. "This includes public sector reporting, as well as different financial actors such as pension funds. It is only through a whole economy decarbonization that any individual organization will be able to reach net-zero without reliance on offsetting."
In the initial Sustainable Reporting Requirements (SDR) announcement in October 2021, the UK Government underlined their intention to ensure reporting for customers as well as investors and signalled an intent to include reporting on impact.
However that language seems to have disappeared in the document published yesterday.
An omission that A4S lamented, arguing that "it is critical that reporting on impact is part of the planned reporting review referenced in the GFS".
"An organization's impact on the world can quickly 'bite back' to hit financial performance, so this needs to be addressed in an organization's reports to provide important information to investors, customers, consumers, stakeholders and the public at large," it said.
ICAS had already called for multi-stakeholder focused sustainability reporting in the UK, and Cartwright labelled the updated strategy's investor-only focus as "too narrow".
"We are confident that collaboration between the ISSB and GRI can deliver a set of international standards that will satisfy both investor needs and the growing public demand for action in this area," he said. "We urge the UK Government to adopt a reporting approach which better aligns the ISSB and GRI standards, as their multi-stakeholder focus would make reporting more comprehensive and holistic."
How to deliver?
Whether one thinks the UK's updated strategy is not bold enough or incomplete, or whether one agrees with it, what has been set out on paper yesterday will now need to be implemented, and that brings its own set of unanswered questions.
In its 2022 Finance Leaders' Sustainability Barometer, A4S found that less than half of the CFOs it surveyed believed their finance team had the skills and competencies for supporting the achievement of their corporate sustainability objectives. And, as reported by Corporate Disclosures, recruitment in that field comes with a number of challenges.
Responding to the updated strategy, A4S highlighted the need to upskill professionals to deliver a sustainable economy.