On 16 May 2024, the UK Government published an update on the status of its UK Sustainability Reporting Standards (UK SRS). This news was long-awaited and signifies a step forward towards mandatory sustainability-related disclosures. The evidence is clear—sustainability risk is a business risk. These standards will help enhance the incorporation of sustainability factors into financial reporting, thereby aiding the shift towards a more sustainable global economy. They will support businesses in better understanding where their sustainability-related impacts, risks and opportunities lie, enabling strategic decision-making for the betterment of both businesses and the planet.

International sustainability standards board

The UK Government had previously committed to implementing standards aligned with the International Sustainability Standards Board (ISSB)’s IFRS S1 and S2 standards. The ISSB was established in 2021 to develop a global baseline for sustainability reporting and deliver consistent, comparable, decision-useful sustainability information for investors. The IFRS standards are a step towards consolidated, investor-focused sustainability reporting requirements. These standards consist of:

• IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2: Climate-related Disclosures.
• IFRS S1 provides a framework for companies to disclose material sustainability-related information that could affect their financial performance and position, including environmental, social and governance (ESG) factors. IFRS S2 focuses on climate-related financial information, considering the financial implications of climate change and the transition to a lower-carbon economy.

UK Sustainability reporting standards update

The UK’s Sustainability Disclosure Technical Advisory Committee is currently reviewing the IFRS S1 and S2 standards in order to make an endorsement decision. Below are key details shared to date (May 2024).

What: The UK-endorsed ISSB standards will be called the UK Sustainability Reporting Standards.

When: Subject to a positive endorsement, the Government has committed to releasing its ISSB-aligned standards available in Q1 2025, and decisions relating to reporting requirements will be made in Q2 2025.

For companies in scope, reporting requirements will apply to accounting periods beginning on or after 1 January 2026.

Who: The Financial Conduct Authority (FCA) will be able to use the UK SDS as sustainability reporting requirements for UK-listed companies.

Decisions on the disclosure requirements for non-listed companies remain less certain and are being evaluated.

Transition plan disclosures update

In 2022, the Government launched the Transition Plan Taskforce (TPT) to create a transparent framework for businesses to communicate their plans to achieve net zero to stakeholders. This framework aligns with The IFRS S2 standard, which requires companies to disclose details of their transition plan. As a result, due to the IFRS S2 and TPT overlaying frameworks, the UK Government and FCA plan in 2024 to consult on strengthening transition plan disclosure requirements for businesses.

With enhanced requirements for sustainability- and climate-related disclosures on the horizon for many businesses, it’s time to get ready. Businesses must understand their material impacts, risks and opportunities and collect data to demonstrate their performance. Through their disclosures, businesses can demonstrate a strong approach to risk management and strategic resilience. This can bring long-term value, maintain compliance through an evolving regulatory landscape, and help exceed the growing stakeholder expectations for ESG.

Author: Andrea Gamble, Senior Consultant, Simply Sustainable