The UK government updates on timings for Sustainability Disclosure Requirements components

On 16 May, the UK government provided an implementation update, primarily on timings, for each of the core elements of the UK’s Sustainability Disclosure Requirements (“UK SDR”). UK SDR is a central part of the UK government’s Green Finance Strategy. These updates are set out below. 

1. UK Sustainability Reporting Standards (“UK SRS”)

Also on 16 May, the Department for Business & Trade released a policy paper on the framework and terms of reference for the UK SRS. (Note that the UK government previously referred to these as “UK Sustainability Disclosure Standards”, but they will now be known as “UK Sustainability Reporting Standards”.) As we previously wrote about, UK SRS are based on the disclosure standards of the International Sustainability Standards Board (the “ISSB Standards”), comprised of IFRS S1 (General Requirements) and IFRS S2 (Climate-related Disclosures), which are intended to be a global benchmark to facilitate reporting of consistent and comparable sustainability-related financial information. 

The UK government now announces that it aims to make the ISSB Standards available in Q1 2025, subject to a positive endorsement decision. Following this:

• the Financial Conduct Authority (“FCA”) can use the UK SRS to introduce requirements for UK-listed companies to report sustainability-related information, and
• the government can use the UK SRS to introduce requirements for UK companies outside the FCA’s remit. 

Decisions regarding such further requirements are expected to be taken in Q2 2025; however, any changes that may be introduced would be effective no earlier than accounting periods beginning on or after 1 January 2026. The government will also consider whether any exemptions will be available in light of pre-existing requirements in the Companies Act 2006. 

A key point to highlight is how this means that the UK government is following the ISSB benchmark for sustainability disclosure standards rather than the EU’s sustainability reporting standards (“ESRS”). One key difference between them is the approach to materiality: whereas the ISSB Standards employ a “single” or “financial” materiality standard (i.e., disclosure of material information about the sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects), ESRS employs a “double” materiality standard which consists of both financial materiality and “impact” materiality (i.e., when it pertains to an entity’s material impacts on people or the environment).

2. Transition plan disclosures

Previously, the UK government launched a Transition Plan Taskforce which published a voluntary disclosure framework intended to be a gold standard for private sector climate transition plans (“TPT Framework”), designed to build from the approach to transition plans found in, among others, IFRS S2 (Climate-related Disclosures) of the ISSB Standards. IFRS S2 requires companies to disclose details of their transition plan, if they have one, and contains other disclosure requirements relevant to transition planning; the TPT Framework provides more detail on how to disclose effectively in line with those requirements. 

The UK government now announces that:

• the FCA, whose rules already require certain climate-related reporting, will consult on strengthening its expectations for transition plan disclosures with reference to the TPT Framework in conjunction with its consultation on implementing the ISSB Standards; and
• the government will consult “shortly” on how the UK’s largest companies can most effectively disclose their transition plans.

3. FCA’s Sustainability Disclosure Requirements (“FCA SDR”)

The FCA previously released its final rules and guidance for FCA SDR, including in respect of anti-greenwashing (with the new rule coming into effect on 31 May, following additional FCA guidance) and use of specific investment labels and certain sustainability-related terms (to be phased in starting from 31 July). 

The UK government now:

• reiterates that the FCA is currently consulting on extending FCA SDR to portfolio managers based in the UK; and
• announces that it intends to issue its consultation on whether to broaden the scope of FCA SDR to include funds under the Overseas Funds Regime in Q3 2024.

4. UK Green Taxonomy

The UK government previously said it intends to release a green taxonomy as a tool to provide investors with definitions of which economic activities should be labelled as green (“UK Green Taxonomy”). The UK government now announces it continues to work at pace and expects to consult in due course on the proposed UK Green Taxonomy. The government then plans to introduce a testing period for at least two reporting years before considering whether or not to mandate disclosures against the UK Green Taxonomy. 

5. Nature-related disclosures

Though not previously considered a core part of UK SDR, the UK government took the opportunity to announce that it welcomes initiatives such as the recommendations of the Task Force for Nature-related Financial Disclosures (“TNFD Recommendations”) which, similar to the recommendations of the Task Force for Climate-related Financial Disclosures, includes a set of general requirements for nature-related disclosures and a set of recommended disclosures structured around four pillars of governance, strategy, risk and impact management, and metrics and targets. 

The UK government also announces that it welcomes the ongoing commitment of the ISSB to research and develop future additional standards, which could include reporting on nature-related risks and opportunities, in line with the ISSB’s recent update that it will begin research projects into risks and opportunities associated with biodiversity, ecosystems and ecosystem services and with human capital. The UK government encourages the ISSB to take the TNFD Recommendations into account at the appropriate time.