Preparing for New Sustainability Reporting Standards: ISSB, UK Government, and FCA Proposals
On 26th June 2023, the International Sustainability Standards Board (“ISSB”) issued the International Financial Reporting Standards (“IFRS”) S1 General Requirements for Disclosure of Sustainability-related Financial Information, which will come into effect on 1st January 2024. These standards will be applicable to any reporting entity. IFRS S1 (and IFRS S2) builds on and consolidates the TCFD recommendations, SASB Standards, CDSB Framework, Integrated Reporting Framework and World Economic Forum metrics to maintain consistency with existing frameworks.
The UK Government has announced that it will be releasing UK Sustainability Disclosure Standards (UK SDS), which will closely align to those produced by the ISSB, and will only deviate if ‘absolutely necessary for UK-specific matters’. The UK Department for Business and Trade (DBT) will consider the IFRS S1 and S2 and create UK SDS by July 2024.
SDS – Who will it Apply to?
The UK SDS will apply to UK-listed companies, large UK-registered private companies and large limited liability partnerships and will be managed by the FCA and the UK Government. The Taskforce on Nature-related Financial Disclosures (“TNFD”) provides disclosure recommendations and guidance aligning with the TCFD, including their LEAP (Locate, Evaluate, Assess, Prepare) material, which is useful for firms to begin preparing. Alongside the UK SDS will be the FCA’s long-anticipated Sustainability Disclosure Requirements and Investment Labels (“SDR”) Policy Statement, which is due to be issued in Q4 2023.
The General Anti-Greenwashing Rule
The FCA’s SDR will contain a general ‘anti-greenwashing’ rule, applying to all FCA-regulated firms. It will also cover the following categories:
- Sustainable investment labels;
- Naming and marketing restrictions; and
- Consumer-facing disclosures.
The above are relevant to asset managers, FCA-regulated asset owners and their investment products. These will also be relevant to firms that manage or distribute investment products, UCITS management companies, ICVC that are UCITS schemes with no separate management firm, full scope AIFMs, and small authorised UK AIFMs. However, the FCA has stated that it will expand the scope to all FCA-regulated firms in the future.
What does this Mean for Your Firm?
The new regulations provide firms with a unique opportunity to provide clients with clear disclosures that can differentiate themselves from their competitors. By having clear detailed disclosures for consumers, new business can be generated that consumers can trust and compare across the sector.
Investment labels also allow firms to make conscious and environmentally responsible decisions that can be shown to the market to demonstrate commitment to sustainability and ethical instruments. This will allow consumers to compare similar firms, funds and securities, whilst making decisions.
Firms should be ready to apply the disclosure standards and new SDR when they come into force, expected in 2024, with a specific date expected to be announced in the upcoming Policy Statement. Firms should be conscious of how the new framework, including sustainability labels, marketing restrictions and consumers facing disclosures, will change their internal procedures, processes and obligations.
Firms should look to analyse the information that is already available through previous publications by the FCA, such as CP22/20 and keep an eye out for the upcoming Policy Statement where more detail will be given regarding implementation. If firms are prepared to meet the obligations now, they may generate a competitive advantage when the implementation of the new standards comes into force.
How Complyport Can Help
Having to navigate the ever-evolving SDR landscape within the financial services sector can be time-consuming. At Complyport, our team anticipates and closely follows the FCA’s new proposals. When the Policy Statement is released in Q4, the team at Complyport will be ready to offer your firm a tailored and flexible approach to fit your firm’s needs and support our clients with any questions they may have regarding this or any new regulatory updates moving forward, specifically within the sustainability sector. Our team can offer:
- SDR/ESG Readiness Assessments
- SDR/ESG Review against categories
- Policy and procedure updates
- Ongoing support for any questions regarding the new regulations
- SDR/ESG Training
Please contact Thomas Salmon for any questions and assistance regarding the updated regulatory standards to Sustainability Disclosure Reporting via email at email@example.com to book in a free consultation.
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Contact Thomas Salmon in our Regulatory Solutions team via email at: firstname.lastname@example.org to book a free consultation.