FCA response: ISSB request for information. Consultation on agenda priorities [pdf]

The FCA has responded to the ISSB’s consultation on its Agenda Priorities. Overall, FCA welcomes the ISSB’s approach to continuously work towards a sustainable finance, including a strong emphasis on disclosure requirements and reporting.
Summary of FCA’s views
Instead of answering each question individually, FCA has decided to submit an overall response. It encourages ISSB focus on embedding IFRS S1 and IFRS S2 in the next 2 years, to start with nature in the short run and move onto social issues in the medium run. The respondent strongly believes that focusing on new standards beyond climate change, preparation for a consolidated requirements for sustainability accounting and providing guidelines for the transition plan are the key factors to be considered.
Strategic direction and balance of the ISSB’s activities
The FCA agrees with the proposed strategic direction for the next 2 years, which include:
„(i) beginning new research and standard-setting projects
(ii) supporting the implementation of ISSB Standards IFRS S1 and IFRS S2
(iii) researching targeted enhancements to the ISSB Standards
(iv) enhancing the Sustainability Accounting Standards Board (SASB) Standards“
The respondent underlines that these four activities are interrelated and thus should be addressed simultaneously. It is also stressed out that ISSB should continue working closely with the IASB in order to deliver a measurable and effective financial reporting standard and financial statements standard.
The FCA recommends the following:
– Effective implementation of IFRS S1 and IFRS S2
– Development of reporting standards beyond climate (nature in the short term and social aspects in the medium term)
– Clarification of the architecture of the standards (explaining to stakeholders whether the standards to be introduced in the future will be of a similar structure to IFRS S1 and IFRS S1)
– Consolidation of industry-based information in the SASB standards (SASB should be included in IFRS S2, and industry-based disclosure standards should be implemented)
– Targeted enhancements to the ISSB Standards (provision of effective educational material for nature and social aspects of „climate-related risks and opportunities“, and provision of disclosure expectations guidance)
– Integration in financial reporting
New research and standard-setting projects
The introduced new research and standard-setting projects aim to provide market participants with sufficient information on risks and opportunities. This should be considered with regards to climate, nature and society simultaneously.
Climate and nature are correlated and it has been agreed globally that these topics need urgent attention. Businesses need to include sustainable approaches and nature-related financial risks must be taken into consideration, including disclosure of its risks, dependencies and impact on biodiversity.
In the medium run, the social aspects should be considered. These include human capital (employee health, safety, intellectual property, diversity, inclusion) and human rights.
Although most parts on sustainability within human capital are difficult to measure, some companies are already disclosing information like percentage of women in the board of directors or ethnic minority proportion within the firm.
Additionally, it is crucial to focus on developing a plan for human rights disclosure, e.g. adopting policies that discourage investing in firms that violate the broadly accepted aspects on human rights.