ICAEW SE Regulation on sustainability: practice questions with answers

Question 1

The sustainability manager of Ellison Marine lists four sources that shape how the company manages its environmental impact. Which of them is regulation, rather than policy or voluntary guidance?

1. A Environmental permitting rules that make it an offence to discharge polluting matter into a river without a permit
2. B The government's published net zero strategy, which sets out how it intends to cut the country's emissions by 2050
3. C A trade association's best-practice guide on how members should measure and reduce packaging waste
4. D Ellison's own board-approved environmental policy committing it to cut fuel use

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Answer: A. - Regulation: legally binding rules, with enforcement and sanctions (for example environmental permitting rules, or the Companies Act climate-related financial disclosure requirements).
- Policy: a government's statement of aims and intended measures (for example a net zero strategy). Policy often leads to regulation but is not itself binding on companies.
- Voluntary guidelines: frameworks and best-practice guidance that organisations may choose to follow (for example industry guides, or GRI).

Question 2

Ingrid Sefton, a trainee at Tremayne & Co, is preparing a briefing for a client on international bodies. Which statement about the International Sustainability Standards Board (ISSB) is correct?

1. A It is a United Nations agency that negotiates each country's emissions targets at the annual COP meeting
2. B It is part of the European Commission and issues the European Sustainability Reporting Standards
3. C It was set up by the IFRS Foundation and issues disclosure standards such as IFRS S1 and IFRS S2
4. D It is a UK regulator that enforces climate disclosure requirements for UK listed companies

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Answer: C. The International Sustainability Standards Board (ISSB) was announced by the IFRS Foundation at COP26 in 2021. It sets IFRS sustainability disclosure standards, starting with:
- IFRS S1, general requirements for sustainability-related financial information;
- IFRS S2, climate-related disclosures.

These focus on information useful to investors and are adopted by individual jurisdictions (the UK has based UK SRS on them). The ISSB does not negotiate national targets (that happens under the UNFCCC) or set EU standards.

Question 3

Which of the following correctly matches a UK body with its role in sustainability?

1. A Financial Conduct Authority (FCA): sets the UK's legally binding carbon budgets under the Climate Change Act 2008
2. B Financial Reporting Council (FRC): reviews the quality of annual reports, including their climate disclosures
3. C Climate Change Committee: approves the listing rules that apply to companies on the London Stock Exchange
4. D European Commission: sets the sustainability disclosure rules for companies listed in the UK

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Answer: B. Key UK bodies:
- Government and Parliament: pass legislation such as the Climate Change Act 2008 and set carbon budgets.
- Climate Change Committee: independent statutory adviser on targets and carbon budgets.
- FCA: sets listing rules, including climate disclosure requirements for listed companies, and regulates financial services firms.
- FRC: oversees corporate reporting and audit quality, including reviewing climate disclosures in annual reports.

The European Commission proposes EU legislation such as the CSRD and adopts detailed rules such as ESRS for the EU.

Question 4

Greenreach, a campaign group, publishes a league table ranking supermarkets on their use of single-use plastics and runs a public petition. Within a year, two low-ranked supermarkets announce reduction targets. Which statement best explains how groups such as Greenreach drive change?

1. A They can impose fines on companies that ignore their rankings, which forces the low-ranked supermarkets to respond
2. B They set the accounting standards that supermarkets must follow when reporting their use of plastics
3. C They create reputational pressure that can change company behaviour and shape policy, even without legal powers
4. D They have influence only where the law requires companies to respond formally to their requests

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Answer: C. NGOs and campaign groups drive sustainability change through:
- research, rankings and media campaigns that raise public awareness;
- reputational pressure on companies through customers, employees and investors;
- lobbying governments, which can lead to new policy and regulation;
- partnerships with companies on solutions.

They have no legal enforcement powers, but their impact can be significant, as in the scenario.

Question 5

Which of the following best illustrates the shift in the UK from voluntary sustainability guidance towards codified requirements?

1. A Climate reporting that began under the voluntary TCFD recommendations becoming a Companies Act duty for large companies
2. B A company choosing to publish a GRI-referenced sustainability report on its website for the first time this year
3. C A campaign group publishing an annual ranking of retailers based on their published sustainability reports
4. D A trade association issuing a voluntary code of practice on reporting packaging waste for its members to follow

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Answer: A. Codification means turning voluntary guidance into formal standards and, often, legal or regulatory requirements.

The TCFD recommendations (2017) were voluntary. The UK then built climate-related financial disclosures into law: large companies and LLPs must include them in their annual reports under the Companies Act (s414CA/CB) for periods from 6 April 2022. Other examples of the same shift are IFRS S1 and S2 (built on the TCFD structure), UK SRS, and the EU's CSRD with its mandatory ESRS.

Voluntary reports, rankings and industry codes can all drive better practice, but none of them is codification.

Question 6

The finance director of the EU subsidiary of Tannerley plc, a UK group, tells the UK board that the EU's Corporate Sustainability Reporting Directive (CSRD) 'codifies' sustainability reporting. Which statement best describes what she means?

1. A Companies in scope may report under any framework they choose, provided that a sustainability report of some kind is published
2. B Largely voluntary reporting becomes a legal duty, with set standards, double materiality and external assurance
3. C Sustainability information replaces the audited financial statements for companies within its scope
4. D Companies report only on climate matters that are financially material, and no assurance is needed

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Answer: B. The CSRD (Directive (EU) 2022/2464) is an example of sustainability goals being codified in law. Key features at headline level:
- reporting is mandatory for companies in scope (narrowed by the Omnibus I Directive in 2026);
- it uses the ESRS;
- it applies double materiality: the company's impacts on people and the environment, and sustainability matters that affect the company's financial position;
- information goes in the management report, with limited assurance and digital tagging.