8 Items for Noting

Appendix A: Sustainability Update

ISSB meeting

July 2024 meeting – update

A1. The International Sustainability Standards Board (ISSB) met in Montreal, Canada on 24 – 25 July 2024 to discuss its work plan, the approach to maintaining the SASB Standards, and the summary of the Transition Implementation Group's (TIG) June meeting, in relation to the implementation of IFRS S1 and IFRS S2.

Work plan

A2. The ISSB discussed ways to make ISSB Standards interoperable¹ with European Sustainability Reporting Standards (ESRS) and GRI Standards. The ISSB also discussed its initial work on the research projects² regarding biodiversity, ecosystems and ecosystem services and human capital. The ISSB was not required to make any decisions.

SASB Standards

A3. The ISSB also considered the approach for enhancing³ the SASB standards and decided to start developing exposure drafts in relation to the Extractive & Mineral sector, Infrastructure sector and Food & Beverage sector standards. The ISSB will also consider enhancing the Sustainable Industry Classification System® (SICS) referenced in the SASB standards. The ISSB anticipates publishing exposure drafts in the first half of 2025.

Supporting the Implementation of IFRS S1 and IFRS S2

A4. The ISSB received an update from the June 2024 meeting of the Transition Implementation Group (TIG) on IFRS S1 and IFRS S2. The TIG discussed:

1. how a reporting entity should apply the requirement in paragraph B50 of IFRS S1 to revise preceding period estimated amounts when estimates of current period information are based on prior period information from an entity in its value chain; and
2. how the requirements of paragraph 70 of IFRS S1 on disclosing comparative information apply when there has been a change in the composition of the reporting entity, such as the acquisition or disposal of a subsidiary.

A5. The TIG was not required to make any decisions.

A6. The summary of the TIG meeting⁴ noted that a member raised the importance of connectivity and ensuring that the information provided, as part of the sustainability-related financial disclosures, is understandable and connected in the context of other information provided elsewhere in the entity's general purpose financial reports. Reference was made to the information disclosed as part of the financial statements (for example, information required by IFRS 3 Business Combinations) and explanations provided in other general purpose financial reports about strategic acquisitions or disposals.

IFRS Foundation updates

A7. The IFRS Foundation published⁵ a webcast that provides an overview of the ESRS-ISSB Standards Interoperability Guidance, released in May 2024. The aim of the webcast is to explain the interoperability between the ISSB Standards and ESRS, and to show how companies applying both sets of standards can use the guidance material to comply with both.

UK updates

A8. The UK Sustainability Disclosure Technical Advisory Committee (TAC) met on 3 September 2024. The agenda and papers were published on 27 August 2024⁶. Please refer to the TAC Update paper in the UKEB September 2024 public Board papers.

A9. HM Treasury (HMT) published⁷ updated guidance setting out the principles and standards underpinning sustainability reporting for use in central government. The guidance applies to reporting periods from 2024-25. HMT also published an exposure draft of phase 3 of its guidance on applying the Task Force on Climate-related Financial Disclosure (TCFD) recommendations in central government and the wider public sector.

A10. Deloitte published⁸ a survey of the first 50 annual reports issued by FTSE 100 reporters in 2024 which assessed their state of readiness for reporting of targets and transition plans under TCFD, ISSB and the Transition Plan Taskforce (TPT) disclosure frameworks. The survey highlighted that there is a room for improvement in transition plan disclosures.

Other international updates

A11. The European Financial Reporting Advisory Group (EFRAG) has published a study assessing the initial implementation of European Sustainability Reporting Standards (ESRS)⁹. The study provides an overview of emerging practices at the initial stage of implementation of the CSRD and ESRS with a view to highlighting challenges. EFRAG has also announced¹⁰ the release of 23 new non-authoritative technical explanations to its compilation of explanations that is intended to assist stakeholders in the implementation of ESRSs.

A12. The European Securities and Markets Authority (ESMA) published¹¹ a Final Report on the Guidelines on Enforcement of Sustainability Information (GLESI) and a Public Statement on the first application of the European Sustainability Reporting Standards (ESRS).

A13. The Federal Council of Switzerland published¹² a consultation that proposes changes to the non-financial reporting obligations for entities under the Swiss Code of Obligations (CO). The consultation period is open until 17 October 2024. Similar consultations¹³ are ongoing in South Korea and Chile, while Brazil, China and Japan have recently concluded their respective consultations.

A14. The International Organization for Standardization (ISO) has begun ¹⁴ developing an international standard for achieving net zero. The standard is intended to provide clarity and credibility to entities' net zero targets and strategies to prevent against greenwashing.

Appendix B: DRAFT Due Process Compliance Statement: Exposure Draft Business Combinations – Disclosures, Goodwill and Impairment – Proposed amendments to IFRS 3 and IAS 36

The International Accounting Standards Board (IASB) published the Exposure Draft (ED) Business Combinations – Disclosures, Goodwill and Impairment Proposed amendments to IFRS 3 and IAS 36 on 14 March 2024.

The IASB comment period ended on 15 July 2024.

Influencing process

Project preparation

Desk-based research

Outreach

Draft Comment Letter (DCL)

Project finalisation and project closure

Ongoing communications

Conclusion

This project complies with the applicable due process steps, as set out in the UKEB Due Process Handbook published December 2022 on the UKEB website.

Appendix C: DRAFT Due Process Compliance Statement: Contracts for Renewable Electricity–Proposed Amendments to IFRS 9 and IFRS 7

The International Accounting Standards Board (IASB) published IASB/ED/2024/3 Contracts for Renewable Electricity: Proposed Amendments to IFRS 9 and IFRS 7 (the Amendments) on 8 May 2024. The IASB comment period ends on 7 August 2024.

Influencing process

Project preparation

Desk-based research

Outreach

Draft Comment Letter (DCL)

Project finalisation and project closure

Ongoing communications

Conclusion

This project complies with the applicable due process steps, as set out in the December 2022 Handbook.

Appendix D: Advisory Groups Update

Executive Summary

Purpose of the paper

The purpose of this paper is to provide an update on meetings held by the following UKEB Advisory Groups and Working Groups, to accompany the verbal updates given by their Chairs:

• Academic Advisory Group (Chair: Michael Wells)
• Accounting Firms and Institutes Advisory Group (Chair: Tony Clifford)
• Investor Advisory Group (Chair: Paul Lee)
• Preparer Advisory Group (Chair: Giles Mullins)
• Rate-regulated Activities Technical Advisory Group (Chair: Phil Aspin)
• Financial Instruments Working Group (Chair: Peter Drummond)
• Sustainability Working Group (Chair: Seema Jamil-O'Neill)

Summary of the Issue

The Advisory Groups webpage of the UKEB website sets out the purpose of each group, a list of each group's members and their biographies, and a link to its Terms of Reference. In addition, minutes for each AG meeting are uploaded as they become available.

The table below also sets out the meetings held by these groups during the last 12 months and includes links to the meeting minutes, available at the time of writing.

Since the July 2024 Board meeting, none of the groups have met.

Decisions for the Board

No decisions required

Recommendation

The Board is recommended to review the summary minutes of the groups' meetings.

Appendix E: Technical Advisory Committee Update

Executive Summary

Purpose of the paper

This paper provides an update on the UK Sustainability Disclosure Technical Advisory Committee (TAC) September 2024 meeting.

The TAC consists of 15 members, including the Chair. The TAC has been tasked by the Department for Business and Trade¹⁶ (DBT) to assess the IFRS Sustainability Disclosure Standards from a technical perspective and provide advice to the Secretary of State on whether their endorsement would be conducive to the long-term public good in the UK¹⁷.

The UKEB is represented on the TAC by a Board Member, who is appointed as a full member of the TAC to reflect the need to maintain connectivity between UK adopted international accounting standards and UK Sustainability Reporting Standards.

Summary of the Issue

This paper includes a summary of the September 2024 TAC meeting papers and discussions for the Board's consideration.

Question for the Board

n/a

Recommendation

n/a

Appendices

Appendix A: UK Sustainability Disclosure TAC meeting schedule

A1. UK Sustainability Disclosure TAC meetings are scheduled for the following dates:

1. 31 May 2024 - meeting summary
2. 18 June 2024 - meeting summary
3. 15 July 2024 - meeting summary
4. 3 September 2024 -awaiting publication.
5. 8 October 2024
6. 5 November 2024
7. 28 November 2024
8. 5 December 2024

A2. The public meeting agenda, technical papers and summary minutes from the TAC meetings can be found on the UK Sustainability Disclosure Technical Advisory Committee website¹⁸.

TAC meeting – September 2024

1. This section sets out the main discussion points and tentative decisions, relevant to the UKEB remit of connectivity between the IASB Accounting Standards and the ISSB Sustainability Disclosure Standards, from the September 2024 TAC meeting¹⁹. The TAC Secretariat will publish an official record of the meeting, in due course.

GHG Protocol and measurement methods

2. The TAC considered the requirements in IFRS S2 relating to the measurement methods used, including the Greenhouse Gas Protocol (GHG Protocol) Corporate Accounting and Reporting Standard to calculate GHG emissions.

Reporting Boundary

3. The TAC noted that under the GHG Protocol an entity can choose to use either the equity or control approaches (including operational or financial) to consolidate its GHG emissions. It was noted that the TAC had discussed and agreed, in earlier meetings, that a financial control approach would be the preferred boundary, as this would enable connectivity with the financial statements.

4. The TAC Secretariat noted, from a review of FTSE 100 entities, that UK entities take different approaches, and as these approaches do not necessarily align with reporting in the financial statements, they can present a potential disconnect for users.

5. The TAC tentatively agreed to recommend maintaining flexibility in the reporting boundaries but to encourage entities to use a financial control approach. How to encourage entities to adopt, or move towards a financial control approach, was outside the TAC's remit and within the remit of the UK Sustainability Disclosure Policy and Implementation Committee (PIC).

Scope 3 GHG emissions

6. The TAC discussed the requirements, in IFRS S2, relating to the disclosure of Scope 3 emissions, categories, and support mechanisms. The TAC considered whether UK entities would be able to provide this level of disclosure and whether the support mechanisms were sufficient.

7. TAC Secretariat research of FTSE 100 companies found 89 entities disclosed their Scope 3 emissions. However, the quality of the disclosure varied significantly, especially in relation to the Scope 3 categories.

8. The TAC observed that there were differences in the treatment of leased assets under the GHG Protocol compared to IFRS 16 Leases and considered that this could lead to misalignment with the financial statements.

9. The TAC tentatively agreed to discuss encouraging the GHG Protocol and the ISSB to consider aligning the treatment with the financial accounting approach. It was also noted that further guidance may be required from the ISSB where an entity changed its reporting period and was unable to obtain emissions data from across its value chain.

Financed GHG emissions

10. The TAC considered an analysis of the financed emissions²⁰ provisions in IFRS S2 for asset managers, commercial banking, and insurance activities. IFRS S2 paragraph B61 requires the disclosure of an entity's gross financed emissions related to its 'asset management' activities but this term is not defined in the standard.

11. The TAC noted that further guidance may be required from the ISSB to determine whether assets, managed by an asset management entity but not consolidated due to the absence of control, should be considered part of the entity's value chain emissions.

12. The TAC tentatively agreed that it would consider the outcome of the next ISSB Transition Implementation Group discussion on this technical area. They also agreed that entities should disaggregate their assets under management financed emissions disclosures to clarify which disclosures relate to assets that are owned and controlled by the entity. They also considered that entities should also be encouraged to base disclosures on financial control to align with how they are reported in the financial statements.

Cross-industry metrics (excluding GHG)

13. The TAC considered whether the metric requirements of IFRS S1 and IFRS S2 were sufficiently clear. IFRS S1 contains general requirement metrics and IFRS S2 contains specific climate-related cross-industry disclosure metrics.

14. In relation to whether the terms ‘vulnerable', 'aligned with' and 'deployed' should be clarified by the ISSB, the TAC tentatively agreed to let practice evolve.

IFRS 2 cross-industry metrics categories paragraphs 29(b)-(e)21.

15. IFRS S2, paragraph B65(e), requires an entity to consider the connections between the cross-industry metric categories and the information disclosed in the related financial statements, which may also include consistency between the data and assumptions used.

16. The TAC considered the implications and rationale for IFRS S2 paragraph 30 permitting an entity to use all reasonable and supportable information that is available at the reporting date without undue cost or effort but only for the requirements in paragraph 29(b)−(d). That is, the relief did not extend to paragraph 29(e) in relation to the disclosure of the amount of capital expenditure, financing or investment deployed towards climate-related risks and opportunities.

17. Members discussed what may be intended by the term 'deployed' as it could be interpreted as 'incurred' or 'planned' capital expenditure, which may make it difficult to connect these disclosures to the financial statements.

18. The TAC tentatively agreed to request clarification from the ISSB as to why IFRS S2 paragraph 29(e) was not subject to the relief, and to what is intended by the term 'deployed'.

Appendix A: UK Sustainability Disclosure TAC meeting schedule

A1. UK Sustainability Disclosure TAC meetings are scheduled for the following dates:

1. 31 May 2024 - meeting summary
2. 18 June 2024 - meeting summary
3. 15 July 2024 - meeting summary
4. 3 September 2024 -awaiting publication.
5. 8 October 2024
6. 5 November 2024
7. 28 November 2024
8. 5 December 2024

A2. The public meeting agenda, technical papers and summary minutes from the TAC meetings can be found on the UK Sustainability Disclosure Technical Advisory Committee website¹⁸.