Update on UK Sustainability Reporting Standards

Why should I read this?

There have been two recent UK Government publications that provide further clarity on the UK’s path to adoption of UK Sustainability Reporting Standards (UK SRS) for UK companies and a general update on the Government’s wider programme of work to develop Sustainability Disclosure Requirements (SDR) in the UK, including the disclosure of transition plans and the development of a UK green taxonomy. 

The first two IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2) were issued by the International Sustainability Standards Board in June 2023 (ISSB Standards). The Government subsequently published guidance in August 2023 on the framework for endorsement of the ISSB Standards in the UK, following the plans set out in the Green Finance Strategy 2023.

The Department of Business and Trade (DBT) has now published:

- Policy Paper: Framework and terms of reference for the development of UK Sustainability Reporting Standards (Framework). The Framework explains how UK SRS will be developed and implemented in the UK.
- Sustainability Disclosure Requirements: Implementation Update 2024 (Implementation Update). This provides an update on the wider programme to develop the SDR regime in the UK. 

What does the Framework cover?

The Framework sets out in detail the process for the endorsement of the ISSB Standards in the UK to create UK SRS. Each Standard will be analysed and assessed to determine its appropriateness for use in a UK context prior to an endorsement decision being made. Endorsement does not mean that companies will be obliged to use the resulting UK SRS, but they may choose to do so voluntarily. There will be a subsequent implementation phase to determine matters such as the size and type of companies that might be required to report using UK SRS and the timetable for introducing future requirements and any exemptions. 

To assist with the endorsement process, the Government has established (i) an independent Technical Advisory Committee (TAC), to assess the ISSB Standards on a technical basis and provide independent recommendations on endorsement to the Secretary of State for Business and Trade; and (ii) a Policy and Implementation Committee (PIC), which is formed of UK Government and regulator representatives and whose main role is to coordinate the implementation of any resulting UK SRS. The Framework sets out the terms of reference for the TAC and PIC.

What are the timescales to implementation?

In the Implementation Update, the Government states its intention to make an endorsement decision on the first two UK SRS (based on IFRS S1 and IFRS S2) by Q1 2025.

Subject to endorsement and following consultation, the FCA will be able to introduce UK SRS reporting requirements for UK listed companies (to replace the current rules based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The Government will also decide on disclosure requirements for non-listed UK companies. The Government’s decision will take into account reporting costs for companies and the benefit to investors. The Government expects a decision regarding future requirements to be taken in Q2 2025. Reporting requirements would be effective no earlier than accounting periods  beginning on or after 1 January 2026.

The wider SDR regime

The Implementation Update also:

• Notes that the FCA plans to consult on strengthening expectations for transition plan (TP) disclosures by listed companies.
• States that the Government will consult “shortly” on how the UK’s largest companies can most effectively disclose their TPs.
• Provides an update on the SDR and investment labels.
• Notes that in relation to the UK green taxonomy “the government continues to work at pace & expects to consult in due course”. Once finalised, there will be a two year test period for voluntary disclosures against a UK green taxonomy. The Government has not yet made  a decision on whether disclosure will be mandatory. 
• Sets out at figure 1 a timeline for SDR implementation. 

The Government also notes the commitment by the ISSB to research and develop future additional standards, including nature-related risks, and encourages the ISSB to take into account the work of the Task Force on Nature-related Financial Disclosures (TNFD) at the appropriate time. So, there is no direct commitment to incorporate the TNFD framework directly into the UK regulatory framework at this time.

Further reading 

DBT Guidance: UK Sustainability Reporting Standards
Sustainability Disclosures: What’s next for UK listed companies?