UK Sustainability Reporting – Implementation Update

As we discussed in our previous blog A UK CSRD? Incoming UK Sustainability Disclosure Standards, the UK Government intends to create UK disclosure standards in order to facilitate eventual mandatory corporate reporting on sustainability related risks and opportunities.

These standards will form the basis of future UK legislative and regulatory requirements for the UK's independent post-Brexit corporate sustainability reporting regime.  As a reminder, the European Union's Corporate Sustainability Reporting Directive does not apply in the UK although it can, under certain circumstances, impact UK-incorporated companies. 

These new UK standards will be based on the IFRS Sustainability Disclosure Standards (issued by the International Sustainability Standards Board (ISSB).   As set out in the UK 2023 Green Finance Strategy, the UK is assessing the suitability of the two existing IFRS SDS – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures (IFRS S2) – for endorsement in the UK.  

UK Sustainability Reporting Standards

As set out in its May 2024 Sustainability Disclosure Requirements: Implementation Update 2024 (the 2024 Update), the UK Government now aims to make the UK-endorsed ISSB standards available in Q1 2025.  They will also be known, following a successful endorsement process, as the UK Sustainability Reporting Standards (UK SRS) rather than, as previously indicated, UK Sustainability Disclosure Standards. 

Following a consultation, the UK Financial Conduct Authority (FCA), a UK financial regulator, will use the UK SRS to introduce requirements for UK-listed companies to report sustainability-related information. 

The Government will also consider, again following a consultation, the establishment of a sustainability reporting regime for other UK companies that do not fall within the FCA’s jurisdiction.  This will take into account a number of factors including costs for in-scope companies and the potential benefits for investors. 

A decision on these latter requirements is anticipated in Q2 2025, when the Government will also consider whether to create exemptions from pre-existing requirements in the Companies Act 2006 for those companies that choose to use UK SRS on a voluntary basis.  The Government considers that any changes would be effective no earlier than accounting periods beginning on or after 1 January 2026. 

Transition Plan Disclosures

IFRS S2 includes a requirement for companies to disclose details about their transition plan – if they have one – and contains many disclosure requirements that are relevant to transition planning.  The UK's Transition Plan Taskforce's TPT Disclosure Framework – a set of 'good practice' recommendations to help companies make high quality, consistent and comparable transition plan disclosures – provides more detailed recommendations on how to disclose effectively in line with IFRS S2 requirements.    

Given this overlap, the FCA plans, through the consultation referred to above, to consult on strengthening its expectations for transition plan disclosures with reference to the TPT Disclosure Framework.

In the near future (there is, as yet, no precise timeframe), the Government also plans to consult on how the UK’s largest companies can disclose their transition plans in the most effective manner. 

Nature-related Disclosures

In the 2024 Update, the Government 'encourages' companies to engage in the Taskforce on Nature-related Financial Disclosures' (TFND) UK National Consultation Group (NCG) and to consider its recommendations.  The NCG acts to support UK companies and financial institutions in engaging with the TFND's recommendations.

The Government also states that it is 'following with interest' the ISSB's Consultation on Agenda Priorities (the ISSB's work plan) and 'welcomes' the ISSB's ongoing commitment to research and develop new future standards which could include reporting on nature-related risk and opportunities. 

The Government also encourages the ISSB to "take into account" the work and the holistic nature risk management approach of the TNFD. 

Existing UK Disclosure Obligations

Companies can be subject to existing environmental and climate-related disclosure requirements in the UK.  The UK Companies Act 2006 and related regulations, Listing Rules, Disclosure Guidance and Transparency Rules and Taskforce on Climate-related Financial Disclosure recommendations require certain companies to report annually on environmental matters and climate-related matters in their directors' reports, strategic reports and elsewhere in their annual reports. 

Similarly, limited liability partnerships’ annual reports should include disclosures on greenhouse gas emissions, intensity merit energy efficiency steps and total energy use.

Please contact Aonghus Heatley if you would like to discuss any of the issues covered in this blog.