Britain’s financial regulator has dropped mandatory climate-reporting rules for listed companies, opting instead for a uniform comply or explain
approach aligned with international standards after businesses raised concerns over compliance costs and international competitiveness.
The Financial Conduct Authority released its finalized rules under Policy Statement 26/19, shifting away from an initial proposal that would have required mandatory climate reporting for UK-listed firms. Instead, the agency adopted a flexible framework allowing issuers to choose whether to adopt the standards or provide an explanation for non-compliance. Under the new policy, the framework incorporates standards based on the IFRS Foundation’s International Sustainability Standards Board’s sustainability (IFRS S1) and climate-related (IFRS S2) reporting standards.
Why the Regulator Changed Course on Mandatory Climate Rules
The decision follows feedback from corporate respondents who questioned whether mandating the UK Sustainability Reporting Standards S2 climate standard would be a proportionate step and whether it would protect the international competitiveness of companies operating in the country. Businesses argued that strict reporting obligations imposed unnecessary financial burdens. Prior to this, companies falling under the commercial companies listing category had an annual report obligation to provide disclosures referencing the Task Force on Climate-related Financial Disclosures following a comply-or-explain model.
Alicia Kedzierski, Head of Sustainable Finance and Defence, Security and Resilience at the FCA, noted that extensive market engagement shaped the outcome. Following extensive market engagement, including our consultation earlier this year, we have decided to apply the rules on a comply-or-explain basis across the full UK SRS,
she said in a post announcing the update cited by ESG Today. The regulator believes the model preserves flexibility for issuers at earlier stages of development while maintaining decision-useful transparency for investors.
Global Regulators Soften Sustainability Disclosure Requirements
The UK regulator’s retreat mirrors broader international trends. Policymakers across major economies have begun recalibrating sustainability disclosure requirements amid industry pressure. The European Union has softened elements of its own reporting framework, while the United States abandoned federal climate-reporting plans under the Trump administration.
Industry bodies offered mixed responses to the policy change.
Regulatory competitiveness arguments tend to gain traction when peer jurisdictions retreat first … particularly when jurisdictions compete for listing.
Carmen Nuzzo, executive director of the TPI Global Climate Transition Centre at the London School of Economics and Political Science
Sustainable investing advocates also voiced apprehension. Sustainable investing groups welcomed the move to IFRS reporting but expressed concern about the regulator’s shift away from mandatory climate disclosure, warning that complying with the framework on a voluntary basis risks leaving investors safeguarding more than £3trn of UK pension savings without complete, reliable, and comparable data if complacent boards choose not to comply.
Mandatory Adherence Begins for 2027 Accounting Cycles
Mandatory adherence to these updated directives is scheduled for accounting cycles commencing on and after January 1, 2027, with the preliminary disclosures slated for publication the following year in 2028.
Alongside the policy statement, the FCA published Primary Market Bulletin 66, which includes a draft Technical Note 803.1 to guide issuers on the expected level of detail required under the comply-or-explain framework via Business & Accountancy Daily. Feedback on the draft guidance remains open until October 28, 2026.