The last couple of years have been marked by a clear trend in sustainability disclosure—away from voluntary standards towards mandatory standards and frameworks. These frameworks aim to create uniformity across jurisdictions and make decision-useful information available to an investor and wider audience.
However, with the EU’s flagship regulation Corporate Sustainability Reporting Directive (CSRD) now under revision and the International Sustainability Standards Board (ISSB) recently announcing amendments, are we seeing a changing of the tide on sustainability disclosure?
Growing Momentum for Disclosure Regulation Rollback
We’ve seen several new developments recently. Most notably, the ISSB published an Exposure Draft proposing targeted amendments to IFRS S2 to ease reporting for companies. The purpose of the amendments is to provide relief for companies in disclosing greenhouse gas (GHG) emissions. Key amendments include relief from measuring and disclosing emissions associated with some scope 3 emissions (derivatives and some financial activities) and relief from using Global Industry Classification Standard in certain circumstances for disaggregated financed emissions information.
The EU’s CSRD is also under revision through the first sustainability omnibus, part of the European Commission’s competitiveness agenda.
In other news, the Securities and Exchange Board of India (SEBI) announced it is reviewing regulatory initiatives on environmental, social and governance (ESG) corporate disclosures, and the Canadian Securities Administrators (CSA) announced that its “pausing” its work on new rules to mandate climate disclosures and expand diversity-related disclosures. The U.S. Securities and Exchange Commission is also unsurprisingly stepping back from defending its climate disclosure rules in ongoing litigation against the rules.
Increasing Awareness of Transparency’s Role in Growth and Competitiveness
However, despite these examples, attitudes from investors and regulators are not so clear. There is still significant pushback from investors to maintain the current levels of ESRS-mandated disclosure in the EU under CSRD, despite the adoption of the omnibus, with investors citing further complications for compliance and investment decisions. Major companies are similarly pushing back against so-called “simplification,” citing the need for clear guidance and a stable regulatory environment in an uncertain operating environment.
Furthermore, regulators in over 38 jurisdictions are now mandating ISSB. The IFRS Foundation and the Inter-American Development Bank recently partnered to accelerate the adoption of ISSB standards across Latin America and the Caribbean, aiming to enhance market transparency and investor confidence. Similarly, Japan has issued its own sustainability disclosure standards which are set to be well-aligned with ISSB.
Is There Decision Paralysis in the UK?
On the one hand, the rollback of mandatory sustainability disclosure in Canada and India may reflect a wider sentiment towards sustainability disclosures. Some investors—and increasingly, regulators—view sustainability disclosure as a burden rather than an opportunity for investment-enhancing transparency. On the other, we are still seeing appetite across the globe, especially for ISSB.
Amongst all this, we are waiting to see the decision on ISSB adoption in the UK; this was set to be announced in Q1 2025. Can we assume that the bifurcation of attitudes towards sustainability disclosure detailed above may be part of the reason? Or perhaps it is simply a delay for other reasons, be they bureaucratic or geopolitical.
Looking Ahead
Overall, it seems as though disclosure regulation and expectation from companies is likely to follow the pragmatic corporate approach to sustainability emerging out of the polarization. As we have seen with sustainable investing, there is currently a recalibration around both the most material issues and the most fundamental values for companies.
Companies would do well not to dismiss the likelihood of ISSB adoption in the UK. However, it is also relatively safe to say that the UK will not add any additional requirements to ISSB during its consultations.
During such uncertainty, we are continuing to track the latest updates in our weekly ESG Monitor. If you have any questions on the UK consultation to adopt ISSB sustainability disclosure standards, get in touch at esgcouncil@apcoworldwide.com.
