UK Government seeks views on future Sustainability Reporting

The UK Sustainability Reporting Standard (SRS)

The new publications include drafts of “UK SRS S1” and “UK SRS S2,” which correspond to the IFRS S1 (General Requirements for Sustainability Disclosure) and IFRS S2 (Climate Related Disclosures).

Reporting under UK SRS is expected to become mandatory for UK-listed companies through rules set by the Financial Conduct Authority (FCA) once the standard is adopted as UK law or regulations. We assume this will be phased to other non-listed organisations in line with other reporting requirements such as TCFD (Task Force on Climate-related Financial Disclosures).

In summary, organisations must:

• Disclose sustainability-related risks and opportunities they face.
• Report on climate-related data including greenhouse gas emissions and transition plans.
• Provide governance information related to sustainability oversight.
• Include sustainability information in their annual reports and accounts in line with the UK SRS guidance.

Foundations of compliant disclosure:

• Materiality Assessment (i.e. financial materiality focus, and requirement for materiality assessment)
• As part of wider comparability measures between financial and non-financial reporting, sustainability disclosures must be published at the same time as financial disclosures, in the same document, and covering the same reporting period.
• Focus on verifiable, comparable, timely and understandable information (fair presentation of data). This means robust methodology behind what issues have been considered to be material will be needed.
• Year-on-year data comparison
• A company can only state compliance when all elements of the UK SRS are met.

Companies will need to disclose against the following categories which are aligned with existing reporting requirements such as TCFD:

1. Governance
2. Strategy
3. Risk Management
4. Metrics and Targets
5. Climate-related Disclosures
6. Sustainability Reporting Process
7. Connectivity and Consistency

Timelines:

• No regulatory implementation timeline, but final versions are intended to be released in Autumn 2025 for disclosure on a voluntary basis. Then if/when into UK law or regulation (subject to later consultations) this will become mandatory.
• It should be noted that the Financial Conduct Authority (FCA) is consulting on sustainability disclosure requirements for listed companies.
• Preparatory consultations on the standards are ongoing, with implementation phased in starting 2026.
• Scope 1, 2 and 3 reporting, but 1 year delay in scope 3 reporting is permitted.
• The disclosure requirements will expand over time, with initial focus on climate disclosures and broader ESG factors to follow.

Assurance of sustainability reporting

The UK government consultation on assurance of sustainability reporting focuses on establishing a regulatory framework for third-party assurance providers who verify sustainability-related financial disclosures. Key points include:

• Proposal for greater regulatory oversight of third-party assurance services to enhance the credibility and reliability of sustainability disclosures.
• Consideration of giving the Audit, Reporting and Governance Authority (ARGA) responsibility for creating and overseeing a voluntary registration regime for assurance providers.
• The aim is to improve trust and confidence in sustainability reporting by ensuring assurance providers meet consistent standards.
• This initiative is part of a broader effort to modernize the UK’s sustainability reporting and assurance framework, supporting the government’s ambition for the UK to be a global leader in sustainable finance.
• The consultation seeks views on how best to regulate and oversee assurance services to ensure decision-useful and credible sustainability information for financial markets.

In summary, companies and assurance providers would be subject to a more structured and regulated assurance process for sustainability disclosures, underpinned by oversight from a new or existing regulatory authority.

Our key ESG reporting takeaways

Whilst compliance requirements may be voluntary at first and phased mandatory requirements thereafter, the wider strategic benefits to sustainability reporting are well documented, such as improved risk management, operational efficiencies, public, customer and investor image, and access to sustainability-linked finance. Sustainability management and reporting should therefore remain a priority for companies. Our key recommendations are below.

• Understand the requirements and assess current reporting: Review the standards and evaluate existing sustainability and financial reporting processes to identify gaps against the UK SRS requirements.
• Enhance data collection systems: Enhance data collection systems to capture accurate and comprehensive sustainability-related information aligned with UK SRS metrics.
• Develop or update policies and controls: Implement or refine internal policies, controls, and governance frameworks to ensure reliable sustainability data and compliance with reporting standards.
• Prepare for assurance: Begin preparing for third-party assurance of sustainability disclosures by assessing readiness and engaging with assurance providers as the regulatory framework develops.
• Engage stakeholders: Communicate with investors, regulators, and other stakeholders about the company’s approach to sustainability reporting and transition plans in alignment with UK SRS.
• Training and capacity building: Invest in training staff responsible for sustainability reporting to ensure understanding of UK SRS standards and reporting expectations.
• Monitor regulatory developments: Keep abreast of ongoing changes in the UK regulatory environment, including consultations on assurance and transition plan requirements, to ensure ongoing compliance.