Is ESG a dirty word? Not for tech! But we do need to get the rules right...

techUK has responded to the government as it looks to introduce new ESG disclosure rules in Britain

'ESG' is clearly not as sexy as it was in the giddy heights of COP 26 in Glasgow where the world slapped itself on the back with various versions of that tedious (and American imported) 'you got this' phrase.

However while the public mood music may appear to have changed (though polling contradicts this..), and some companies have started to speak about it differently in this political era you will still find it is full steam ahead for many, and this is certainly true in our favourite world of rules and regs. . . .

Back in June the British government published some (very!) long awaited consultations that had their origins in the Boris era. It took the new Labour gov a while to get them out there, but they finally published three massive documents.; one to endorse a set of Sustainability Reporting Standards, one to mandate Transition Plans and one to regulate the plethora of firms offering sustainability assurance.

So in this rules and regs bonanza what does the tech sector actually think? Members can request our full consultation response by emailing me or Lucas, but the vibes are set out below.

Mandating Transition Plans

techUK supports firms setting out transition plans.
Any mandating needs to make sure rules and the TPs are interoperable with EU and other global jurisdictions.
Allow parent/group level TPs. Tech firms to doing slightly different versions of the same things in different countries is always hard and could be potentially misleading. For example if a global manufacturer's UK entity had to disclose a UK transition plan, it would actually miss all the emissions happening in the carbon intensive bits of the supply chain.
A phased approach. Basically do it once, do it well! We've learned from our European friends the perils of rushing firms who still don't really know what to do. Rushing it results in crazy costs and low quality reporting!
Clear scope. The government asks about making TPs mandatory for 'economically signficant' companies, a vague definition that literally doesn't exist anywhere else. As with any reporting rules there needs to be clear thresholds so it is super obvious to firms if they have to report ot not.
Clear guidance on templates and contents needs to published well ahead of time too.

Endorsing UK Sustainability Standards

techUK is cool with the government endorsing a new set of reporting standards based very heaviliy on the global ISSB S1 and S2 standards, and we're pleased the UK has aligned with global standards. Harmomisation and international interoperability are king and queen here, and deviation doesn't work at all.
Voluntary should be done way before mandatory to give everyone space to innovate, tool up, hire in resource and spread the massive costs of reporting across multiple years. The lesson from CSRD in Europe is that you need to phae rules in otherwise it becomes a feeding frenzy among consultants.
Be super clear who is and isn't in scope. As above other reporting rules have clear ££ and personnel thresholds, and so should this! Any future rules should also need to be mindful of SME impacts.
CSRD compliant reports should be accepted as compliant for the UK.
Overlapping and obsolete rules like SECR, ESOS and TFCD should be scrapped. Like Sauron we must forge one overarching rule to bind them!

Sustainability assurance

This market has gone craxy in recent years due to the CSRD gold rush and the lesson here is that providers need to be regulated.
Tech firms need a good choice of qualified, accredited and affordable assurance providers, and regulation can build trust in this new(ish) sector.
Assurance providers should face the same liabilities as financial audits, particularly if the rules mean disclosures need to be assured.
Limited assurance is the name of the game for something as inter-dependant and shifting as corporate sustainability, where forecasts and future looking data can be wrong.

The next steps are for government to look at the responses and come back within 12 weeks (the famous civil service 'Autumn'!). We're 99% certain SRS' will become mandatory for large firms (a la TCFD) along with TP rules, and the FCA and DESNZ.DBT will consult on how exactly voluntary endorsement of the SRS' willl become mandatory.

Any members interested in this can get in touch below to join our Responsiblwe Business Conduct group that looks at this stuff.

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