UK embraces ISSB standards to enhance transparency in climate disclosures

The UK's business ministry announced on August 2nd that it will adopt internationally-approved standards for company disclosures on climate change to bolster London's appeal as a global financial centre.

The move comes after global securities regulators formally backed the International Sustainability Standards Board (ISSB) standards, which the UK will now follow. As one of the first major economies to mandate climate disclosures for listed companies, the UK had previously used standards from the Task Force on Climate-related Financial Disclosures (TCFD), which served as the basis for the ISSB norms.

According to the business ministry, the UK-endorsed standards will diverge from the global baseline only if necessary for UK-specific matters. The aim is to have the UK's version of the global standards ready for use by July 2024. The adoption of ISSB norms will make UK company disclosures comparable for investors globally, enabling better decision-making and efficient allocation of capital in the UK's capital markets.

The move to use ISSB standards aligned with global efforts to crack down on greenwashing, where companies exaggerate their climate-friendly credentials. The European Union and the United States are also developing their own rules in this regard.

ISSB norms to bring transparency in climate disclosures

The implementation of ISSB norms in the UK seeks to replace a patchwork of voluntary, private-sector practices that were previously used for climate disclosures, providing a more standardised and transparent framework for investors.

While the adoption of these standards is a positive step towards ensuring consistent and reliable climate disclosures, critics argue that it may still take time for investors to easily compare international companies' exposures to climate change, even with the new rules from regulators.

It's important to note that any decision to make ISSB-based disclosures mandatory for companies will be made separately by the UK government and the Financial Conduct Authority (FCA), adding further regulatory scrutiny to ensure companies comply with the climate-related disclosure requirements.

By adopting internationally-approved standards and moving towards a more standardised approach to climate disclosures, the UK aims to enhance its attractiveness as a global financial centre and build investor confidence in the country's capital markets. 

Investors can expect increased transparency and comparability of climate-related information, enabling them to make more informed decisions and allocate capital efficiently in support of sustainable and climate-resilient businesses. However, the effective implementation and enforcement of these standards will be crucial in ensuring the credibility and impact of climate disclosures in the UK's financial landscape.

(With Reuters inputs)