Three pivotal consultations on the future of UK sustainability reporting and assurance published by the UK government at the start of the summer signal a major step forward in the government’s ambition for the UK to be a world leader in sustainable finance.

The UK SRS consultation

The UK Sustainability Reporting Standards (UK SRS) consultation published by the Department for Business and Trade (DBT) seeks views on the draft UK SRS S1 General requirements for disclosure of sustainability-related financial information and UK SRS S2 Climate-related disclosures.

These standards are based on the International Sustainability Standards Board’s (ISSB) IFRS Sustainability Disclosure Standards and aim to establish a globally aligned baseline for sustainability reporting in the UK. The consultation includes six proposed amendments to improve operability and proportionality for UK preparers.

Transition planning requirements consultation

A consultation on climate-related transition planning requirements, issued by the Department for Energy Security and Net Zero (DESNZ), considers how entities should develop and disclose credible climate transition plans. It considers whether transition plans should be mandated, how they should be scoped and what frameworks and disclosure mechanisms should be used.

This follows the UK government’s manifesto commitment to mandate UK-regulated financial institutions and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement.

The assurance regime consultation

Finally, a consultation on the development of an oversight regime for assurance of sustainability-related financial disclosures, also led by DBT, proposes the creation of a new category of ‘sustainability assurance provider’ qualified to provide third-party assurance over an entity’s sustainability-related financial disclosures.

It considers introducing a voluntary registration framework for sustainability assurance providers, aiming to improve transparency and quality in the UK’s sustainability assurance market, with a view to supporting future mandatory assurance requirements and enabling UK firms to compete internationally.

ICAEW’s initial high-level views

Working groups made up of members across business and practice have been convened to develop aligned responses to all three consultations, with draft positions outlined below.

On UK SRS, we strongly support endorsement of UK SRS S1 and UK SRS S2 as a vital step in restoring the UK’s leadership in corporate reporting. The standards are critical for aligning with the global baseline in sustainability reporting and supporting investor confidence.

However, we have called for clarity on scope and timing to help entities plan effectively, particularly as UK implementation already lags behind other jurisdictions. We broadly support the amendments proposed by the government, although we feel that some points of clarification are needed. We also express the importance of a proportionate approach to implementation for the success of the standards, beginning with the largest businesses. For further detail, please see the draft consultation response.

On transition planning, the real challenge lies in developing credible plans rather than disclosing them. We support a phased introduction of transition plan requirements, beginning with a “comply or explain” model. The Transition Plan Taskforce (TPT) framework provides a strong foundation for standalone plans, while UK SRS S2 offers an appropriate baseline for disclosing progress.

We do not support using the FTSE 100 as a scoping threshold and instead recommend alignment with UK SRS thresholds. We also favour market mechanisms, including consumers and stakeholder pressure, as the best levers to drive implementation of transition plans, rather than mandating it.

On assurance, we support the introduction of a voluntary registration regime for UK sustainability assurance provider, with a clear pathway to mandatory registration in the future. We recognise the vital role that a robust UK sustainability assurance regime will play in building trust in sustainability reporting and view it as essential for long-term economic growth.

Similar to statutory audit, we believe both individuals and firms should be eligible for registration. We recommend starting with voluntary, limited assurance of UK SRS disclosures before progressing ultimately – and following adequate consultation – to mandatory, reasonable assurance. We also urge a proportionate enforcement approach, particularly in the early years of implementation.

What’s next?

Following the submission deadline for the consultations on 17 September, the final versions of UK SRS S1 and S2 are expected to be published for voluntary use. Further consultations by the government and the Financial Conduct Authority (FCA) are expected to follow on scope and timing.

The FCA is also expected to consult on strengthening transition plan expectations for listed companies. For the assurance regime consultation, the government will consider whether further measures should be pursued. Some elements may be explored further as part of expected consultations on UK SRS. Any proposals will require changes to legislation and therefore will be subject to Parliamentary approvals and passage.

ICAEW will continue to engage with DBT and DESNZ across all consultation areas.

Prepare for change

While the UK SRS are yet to be finalised, members can – and are encouraged to – prepare. Steps can include building internal understanding of the requirements, reviewing systems and processes and engaging with auditors.

Our webinar series Introducing the first IFRS Sustainability Disclosure Standards: IFRS S1 and Introducing the first IFRS Sustainability Disclosure Standards: IFRS S2 outlines the requirements of IFRS S1 and IFRS S2 on which UK SRS are based. While our Climate-related financial disclosure regulations factsheet focuses on the UK’s climate-related financial disclosure regulations rather than UK SRS, it contains helpful pointers for entities at the start of their climate reporting journey to consider.

ICAEW’s Corporate Reporting Faculty will publish further guidance specifically on UK SRS in due course.

ICAEW’s Sustainability Accelerator Programme, available free to all ICAEW members and students, provides up to 50 hours of flexible, e-learning modules to help accountants and finance professionals get to grips with sustainability, including building the business case, reporting and assurance.

The IFRS Foundation has also set up a knowledge hub with educational material on the IFRS Sustainability Disclosure Standards.