Sustainability reporting has eventually become a cornerstone of corporate accountability and transparency in the UK. With growing societal expectations and the increasing urgency of addressing climate change and social inequalities, sustainability reporting and regulations can further accelerate change by holding businesses accountable for their actions on people and the planet.
The UK's regulatory framework for sustainability reporting is robust, reflecting its commitment to achieving net-zero emissions by 2050 and broader ESG objectives.
Introduced in 2019 and effective as of 2022, the SECR policy requires listed companies, and certain large companies and limited liability partnerships to annually disclose their energy use, carbon footprint, and greenhouse gas (GHG) emissions. However, if companies consume less than 40,000 kWh, they are labelled as a low-energy user and are not required to include these data in their annual financial report.
2022 also marked a milestone in sustainability reporting in the UK. The UK Financial Conduct Authority (FCA) made reporting using the Task Force on Climate-related Financial Disclosures (TCFD) mandatory for large listed companies and financial institutions. This made the UK one of the first first G20 countries to mandate TCFD-aligned disclosures for large companies, allowing businesses to report their governance, strategy, risk management, and metrics on climate-related risks and opportunities.
With these two mandatory reporting requirements, in addition to the newly established UK Sustainability Reporting Standards, organizations, especially large listed companies and financial institutions, will be able to generate comprehensive and detailed reports on their progress towards building more sustainable businesses.
In recent years, the UK has made significant strides in aligning corporate practices with sustainability goals, underpinned by specific reporting requirements and the development of the UK Sustainability Reporting Standards (UK SRS). The UK SRS were developed in alignment with the International Sustainability Standards Board (ISSB), making the reporting transition for companies smoother, while centralizing reporting under one common standard.
Finalization and implementation of the UK SRS is set to happen this 2025. While there have been no reports on mandatory reporting for certain companies in the UK, with the mandatory SECR and TCFD reporting for large companies, businesses may start considering reporting under the UK SRS or ISSB to prepare for new changes.
The UK SRS aims to standardize sustainability disclosures. Since the UK SRS plans to be aligned with the ISSB Standards, reporting requirements would likely reflect the IFRS S1 and S2. Companies that are also mandated by the SECR and the TCFD would have additional reporting requirements.
The IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information covers the reporting entity’s sustainability-related risks and opportunities relevant to the primary users of their general purpose financial reports. This aims to aid stakeholders in making sound financial decisions while considering the sustainability performance of a business.
Similar to the TCFD the IFRS S1 requires businesses to report four key pillars of sustainability information. First, they must disclose the governance processes, controls and procedures the entity uses to monitor and manage sustainability-related risks and opportunities. Companies also need to disclose the strategies used to manage sustainability-related risks and opportunities. Risk management is also included in the report; businesses would have to disclose the processes used to identify, assess, prioritise and monitor sustainability-related risks and opportunities. Lastly, under the IFRS S1, reporting companies need to provide their metrics, targets, performance, and progress in addressing these risks and opportunities.
The IFRS S2 Climate-related Disclosures provides the reporting framework for disclosing climate-related risks and opportunities. For this, reporting entities would also detail governance, strategies, risk management, and metrics and targets disclosures in relation to climate-related risks and opportunities. When discussing risk, entities must consider both climate-related physical and transition risks.
The UK SRS also may likely include reporting Scope 1, 2, and 3 emissions and details on a transition plan towards net-zero emissions, aligning their standard with other reporting standards set by other countries and governing bodies.
The development of the UK SRS marks a significant step toward fostering a more sustainable and transparent business environment. As these standards evolve, they will not only help businesses align with national and global sustainability goals but also equip stakeholders with the information needed to make informed decisions. For companies operating in the UK, adapting to these requirements is not merely a compliance exercise but a strategic opportunity to lead in the transition to a sustainable future.
At Keslio, we are deeply passionate about sustainability reporting, having the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios.
To learn more about how Keslio can assist your organization in its sustainability journey, reach out to us here or through hello@keslio.com
