Since the International Sustainability Standards Board (ISSB) launched its inaugural IFRS Sustainability Disclosure Standards in mid-2023, global implementation has been gathering pace with nearly 40 jurisdictions now adopting or otherwise using the ISSB Standards. The UK is one of those, with the government in the final stages of endorsing UK Sustainability Reporting Standards (UK SRS) by tailoring the ISSB Standards for use in the UK.

With the competitiveness of UK capital markets and international alignment in mind, the Financial Conduct Authority (FCA) needs to consider how the UK Listing Rules evolve. 

On 30 January, the financial markets regulator launched a consultation on replacing its current climate disclosure rules with requirements for in-scope companies to report against UK SRS. Keen to outline ‘a clear direction of travel’, the FCA’s proposals aim to strike a ‘pragmatic and proportionate’ balance in response to this: addressing investor requirements without overburdening listed companies. 

“Our proposals are designed to increase transparency, and boost the quantity, quality and comparability of financially material information,” the FCA says. 

The proposals, which would come into force from 1 January 2027, include:

• mandatory climate disclosures (except Scope 3);
• ‘comply or explain’ for Scope 3 emissions disclosures;
• ‘comply or explain’ for sustainability (non-climate) disclosures; 
• transparency around transition plans; and
• transparency around any assurance undertaken relating to UK SRS disclosures.

Kate Beeston, Technical Manager in ICAEW’s Corporate Reporting Faculty, said: “We very much welcome the FCA’s commitment to bring UK SRS within the UK regulatory framework. 

“ICAEW is a strong supporter of the ISSB’s global standards and see alignment with them as essential for improving consistency, comparability and market confidence. ICAEW will be analysing the proposals in detail and formulating its response over the coming weeks.”

Mandatory reporting of climate disclosures (UK SRS S2)

The UK Listing Rules already require disclosures aligned to the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Retaining the current scoping, the FCA proposes replacing TCFD reporting with mandatory reporting under UK SRS S2 Climate-related Disclosures – excluding Scope 3 emissions – for accounting periods beginning on or after 1 January 2027.

The FCA believes a mandatory requirement would be proportionate given climate reporting is already “high” across companies.

‘Comply and explain’ requirement for scope 3 (emissions)

Scope 3 emissions (indirect greenhouse gas emissions in the value chain of an entity) are one area where UK SRS S2 requires additional detail compared to the TCFD recommendations. In acknowledgement of the challenges companies face in collecting emissions data from third parties, it’s proposed that Scope 3 emissions reporting will be on a ‘comply or explain’ basis.

Companies choosing to explain why they have been unable to disclose emissions data will need to:

• identify the specific paragraphs of UK SRS S2 for which it has not included Scope 3 disclosures;
• explain the reasons for not making Scope 3 disclosures; and
• outline steps taken – or planned – to ensure disclosures are made in the future, including a realistic timeframe.

UK SRS S2 contains a one-year optional transitional relief for Scope 3 reporting which, under the proposals, companies can take advantage of. As a result, the Scope 3 ‘comply or explain’ requirement would not be effective until accounting periods beginning on or after 1 January 2028.

‘Comply and explain’ requirement for UK SRS S1

UK SRS S1 ‘General Requirements for Disclosure of Sustainability-related Financial Information’ contains key concepts that apply to all sustainability disclosures including climate. It also sets out disclosure requirements for sustainability-related risks and opportunities other than climate.

It is expected that for many companies, this wider scope will present challenges. Mindful of the readiness of listed companies, the FCA proposes that UK SRS S1 should only be implemented on a ‘comply or explain’ basis. Companies that are unable to comply would be expected to explain why they’ve been unable to disclose wider sustainability issues and how and when they expect to report on them.

With UK SRS S1 including a two-year deferral option as a transitional relief (ie a climate-first approach), complying with UK SRS S1 would not be required until accounting periods beginning on or after 1 January 2029.

Transparency around transition plans and assurance

While mandating companies to have a transition plan is a matter for government and not the FCA, the regulator acknowledges the usefulness to investors of information about transition plans.

It is therefore proposed that companies in scope will be expected to disclose if they have published a transition plan and where it can be located. Companies that have not published a transition plan will be required to explain why they haven’t and provide a reasonable timeline of when they expect to publish one.

Further promoting transparency, and to boost the quality of information provided, companies will be required to disclose if they have utilised third-party assurance for any sustainability disclosures, within the scope of UK SRS.

Primary listing outside of the UK

The proposals also affect overseas companies with secondary listings or depositary receipts in the UK. For these companies, the FCA proposes a flexible approach with no mandatory reporting under UK SRS. Instead, the proposals focus on disclosures explaining which climate or sustainability standards are followed in their primary listing location.

The FCA’s consultation closes on 20 March 2026.