London has adopted a new framework for corporate sustainability reporting, the UK Sustainability Reporting Standards (UK SRS), based on the International Sustainability Standards Board’s (ISSB) IFRS S1 and IFRS S2 standards. The move, announced this week, aims to standardize and enhance the transparency of environmental, social and governance (ESG) disclosures made by companies, aligning the United Kingdom with growing international efforts to address climate-related financial risks and broader sustainability concerns. This development in UK sustainability reporting is expected to influence how businesses operate and investors make decisions.
For now, the UK government has approved the standards for voluntary use, but has signaled openness to making them mandatory in the future. The Financial Conduct Authority (FCA), the UK’s financial regulator, has already launched a consultation on implementing requirements for listed companies to include disclosures based on the UK SRS, according to reports. The government will also consider extending the reporting requirements to private companies through a separate consultation process.
The Foundation of the New Standards
The UK SRS are built upon the work of the ISSB, which was established at the 2021 UN Climate Change Conference (COP26) in Glasgow to create a global baseline for sustainability reporting. The ISSB itself is a part of the IFRS Foundation, a non-profit organization responsible for setting international financial reporting standards through the International Accounting Standards Board (IASB). The overarching goal of the ISSB is to provide investors with comparable and decision-useful information, enabling them to allocate capital more efficiently and fostering the stability of capital markets. The first two standards released by the ISSB – IFRS S1, covering general sustainability-related financial disclosures, and IFRS S2, focusing specifically on climate-related disclosures – form the basis of the UK SRS.
Voluntary Adoption and Future Mandates
Currently, UK companies are not required to adopt the UK SRS, but the government encourages their voluntary implementation. This phased approach allows businesses time to prepare for the new reporting requirements and ensures a smooth transition. Though, the FCA’s consultation signals a strong possibility of mandatory reporting for publicly listed companies in the near future. The consultation seeks feedback on how best to integrate the UK SRS disclosures into existing listing rules. The government will also be evaluating whether to extend these requirements to private companies, recognizing the importance of comprehensive sustainability reporting across the entire UK economy.
What the Standards Entail
IFRS S1 establishes general requirements for disclosing sustainability-related financial information, requiring companies to identify and report on material sustainability risks and opportunities that could affect their financial performance. IFRS S2 builds on this foundation by focusing specifically on climate-related disclosures, including information on physical risks (such as extreme weather events) and transition risks (such as changes in policy or technology). Companies adopting the UK SRS will need to provide detailed information on their greenhouse gas emissions, climate-related targets, and the resilience of their business models to climate change.
Alignment with Global Efforts
The UK government has consistently voiced its support for the ISSB and views its work as aligned with its ambition to establish the UK as a global center for sustainable finance. The Chancellor’s Mansion House speech in November 2024 highlighted the government’s commitment to delivering a “world-leading sustainable finance framework,” with the UK SRS playing a key role. This commitment reflects a broader international trend towards greater transparency and accountability in sustainability reporting, driven by investor demand and growing concerns about the environmental and social impacts of business activities.
The Role of the TAC
The endorsement of IFRS S1 and IFRS S2 for use in the UK requires a formal process. The UK Government is assessing the suitability of the IFRS Sustainability Disclosure Standards for endorsement, aiming to make the UK-endorsed ISSB standards available as UK Sustainability Reporting Standards (UK SRS). This process is being informed by the UK Sustainability Disclosure Technical Advisory Committee (TAC), which is evaluating whether endorsing the standards would be in the long-term public good in the UK. The Secretary of State for Business and Trade is ultimately responsible for the endorsement decision. The UK SRS will be based on the IFRS Sustainability Disclosure Standards, diverging only when necessary to address UK-specific considerations.
The implementation of the UK SRS represents a significant step forward in the UK’s efforts to promote sustainable business practices and attract investment in green technologies. While the initial phase is voluntary, the potential for mandatory reporting underscores the government’s commitment to creating a more transparent and sustainable financial system. Companies are encouraged to start preparing for the new standards now to ensure they are well-positioned to meet future reporting requirements and capitalize on the opportunities presented by the transition to a low-carbon economy.
The next key milestone will be the outcome of the FCA’s consultation on mandatory reporting for listed companies, expected in the coming months. Further updates on the government’s plans for extending the requirements to private companies will also be closely watched by businesses and investors alike.
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