From red to green? UK Labour Government finally consults on sustainability reporting and transition planning

The IFRS Foundation established the International Sustainability Standards Board ("ISSB") in November 2021, and ISSB published its first two standards in June 2023, on general sustainability disclosures (S1) and on climate-related disclosures (S2). The standards aimed to establish a global baseline for sustainability disclosures, providing individual countries with the building blocks of their own suitably tailored disclosure regime whilst providing a high degree of harmonisation – comparability for users and reduced burden for preparers. At the time of writing, ISSB indicates that 33 jurisdictions have adopted or plan to adopt or use ISSB standards in some form. 

The UK consultation comes at a time when the EU is about to to roll back its highly ambitious Corporate Sustainability Reporting Directive ("CSRD") and associated reporting standards ("ESRS"), as well as a world-first horizontal measure requiring the adoption and implementation of a net zero transition plan under the Corporate Sustainability Due Diligence Directive ("CS3D"). The Government is mindful of the recent shift in emphasis towards competitiveness (and, arguably, deregulation), and is clearly seeking to avoid overly burdensome new reporting requirements. It notes that it will consider the impact of any proposals for mandatory reporting on the competitiveness of the UK's capital markets and alignment with international trends. 

The Government describes the consultations launched on 25 June 2025 as the first phase in modernising the UK's framework for corporate reporting related to sustainability information. The next phases will involve concrete proposals on sustainability reporting and assurance, and streamlining non-financial reporting, including updating the structure of the annual report. Together, this package of reform is intended to help the Government deliver its commitment to reduce the costs of regulation for business by 25%.

The Government does not commit to a timeline for the introduction of new requirements in the current documents, but intends to publish a roadmap in future consultations. It is clear that adoption of the UK SRS standards will initially be for voluntary adoption by businesses, but that mandatory requirements may follow.

However, the Government notes that the FCA may introduce mandatory reporting requirements more quickly, given that it does not need to wait for primary legislation. The FCA is expected to evolve requirements for climate reporting under TCFD to the UK version of S2, and strengthen expectations for transition plan disclosures, for (some or all) listed companies. Similarly, reporting requirements for asset managers under the Sustainability Disclosure Requirements ("SDR") may be aligned with the UK SRS and Transition Plan Taskforce ("TPT") Disclosure Framework. However, a mandate to put in place a transition plan – rather than simply disclose one where it exists – appears to be outside the FCA's competence, according to the narrative in the consultation document.  

The Government has been a vocal supporter of the ISSB's work and it has long been expected that any future sustainability reporting requirements would be closely based on the ISSB standards. The UK Government's Technical Advisory Committee ("TAC") recommended four changes to the ISSB standards, which have all been incorporated into the current exposure drafts. The UK Sustainability Disclosure Policy and Implementation Committee ("PIC") recommended a further two amendments.

The consultation document also notes that the ISSB's recommendations on disclosure of Scope 3 Category 15 financed emissions are problematic, and looks to the ISSB to provide support in two respects:

• Timing: The sustainability report is required to cover the same period as the financial report. The Government notes that the time between finalisation of the balance sheet and publication of the annual report may be as short as six weeks; on account of this, calculation of financed emissions for loans and investments is often carried out based on the previous period's data.
• Revision of estimated data: S1 requires entities to revise comparative amounts due to changes in estimates, which is particularly relevant to financed emissions disclosures (asset managers with credit strategies, for example, may be highly reliant on estimates and proxies). In subsequent years, actual data may be available which would always necessitate revision of the estimated data with more current data, but would also reduce the value of comparative data given the different calculation bases.

The Government also seeks views on whether the disclosures around carbon credits should be strengthened. S2 requires the disclosure of the entity's planned use of carbon credits to assist in achieving any greenhouse gas emissions target, although (conceivably) an entity may use carbon credits but claim that they are not used to achieve the entity's emissions reduction target. As the Government is also consulting on raising the integrity of voluntary carbon and nature markets, it particularly invites views on the usefulness and feasibility of more detailed disclosures on this topic. 

Deviations from ISSB standards

Based on the TAC and PIC recommendations, the Government has proposed very few changes to underlying ISSB standards in the UK SRS exposure drafts. This is deliberate, in order not to undermine the global nature of the ISSB standards.

• S1 General sustainability disclosures
  
  
• • Rather than providing that entities "shall" refer to disclosure topics and metrics in the SASB standards (as the ISSB standard requires), the UK SRS would provide that entities "may" make such reference. In practice, this is unlikely to be consequential, because S1 already provides that entities may conclude that the topics and metrics in SASB standards are not applicable to their individual circumstances.
    
    
  • The key change is to the provision on initial application and transition:

• • • Various changes are made to reflect the fact that the standard will be made mandatory via legislation or regulation, and that any effective date will be specified therein. The same wording features in S2.
    • For the first two reporting periods, entities may choose to disclose under only S2 and not S1 – "climate first" – an approach taken by several jurisdictions. Comparative information will not be required for the first reporting period under either standard, whether or not the entity chooses to report under only S2 initially.
      
      
• S2 Climate related disclosures
  
  
• • Similarly to the change made to S1, in identifying relevant climate-related risks and opportunities, the entity "may" – rather than "shall" – refer to and consider the disclosure topics and metrics defined in the Industry-based Guidance on Implementing IFRS S2. This extensive guidance contains specific disclosure topics and metrics for 68 individual sectors, based on the SASB standards. For example, the asset management sector may disclose on the incorporation of ESG factors in investment management and advisory; this would involve disclosing metrics relating to assets under management with specific sustainability characteristics, and narrative around the entity's approach to incorporating ESG factors, and its proxy voting and investee engagement policies and procedures.
    
    
  • Rather than specifying that commercial banking and insurance entities must use the Global Industry Classification Standards ("GICS") when reporting gross financed emissions disaggregated by industry, entities may use any internationally recognised industry classification system. This change reflects flexibility that the ISSB intends to adopt in its proposed amendments to IFRS S2, announced in April.
    
    
  • For the first reporting period, the entity may elect to use two emissions reporting reliefs. First and most critically, Scope 3 emissions data is optional in year 1.  Secondly, if in the year preceding the first disclosure the entity used an emissions calculation methodology other than the Greenhouse Gas Protocol ("GHG Protocol"), the entity may include that emissions data in the report notwithstanding that S2 requires the use of the GHG Protocol.

The Government is also consulting on developing an oversight regime for the assurance of sustainability-related financial disclosures.

A large part of the consultation is focused on the registration of assurance service providers, who the Government envisages may be able to provide limited assurance for the purposes of multiple sustainability reporting regimes, including not only UK SRS but also ESRS and other international IFRS-based reporting regimes.

The Financial Reporting Council ("FRC") is consulting on a draft UK version of the International Auditing and Assurance Standards Board's ISSA 5000 standard on general requirements for sustainability assurance engagements (comments can be provided until 31 July 2025). This recently published standard provides a more specific framework for assurance of sustainability information, compared with the generic standard used for non-financial information engagements. ISSA 5000 is also expected to form the basis of a CSRD/ESRS limited assurance standard.

The Government has not yet decided whether mandatory reporting under UK SRS would be subject to assurance, highlighting on the one hand the increased confidence that this may provide for investors, and on the other hand the significant costs associated with obtaining assurance.

A separate consultation provides a number of options for the potential introduction and design of transition plan-related requirements. The consultation document re-affirms the Government's manifesto commitment to mandate UK-regulated financial institutions and FTSE 100 companies to develop and implement credible transition plans that align with 1.5°C – although the first of the options put forward ("comply or explain") would not actually fulfil that commitment.

• Comply or explain: One option, familiar to listed companies in particular, would be for the Government to require entities to either disclose a transition plan or transition-plan related information, or to explain why no such disclosure has been made. However, the Government notes that this may result in inconsistent levels of disclosure and, as noted above, this would not seem to meet the commitment made in the Government's election manifesto.
  
  
• Develop and disclose: A more stringent option would be for the Government to mandate the development of a transition plan, and the disclosure of  it as a separate document and/or as part of an annual reporting disclosure.
  
  
• Implement: One controversial aspect of the EU's Omnibus package is the reframing of the transition planning obligation, from a two-limb obligation to (1) adopt and (2) implement a transition plan, to a single requirement to adopt a plan including implementing actions. The Government seeks views on whether there are currently sufficient drivers for the implementation of a mandatorily published plan (such as market forces or investor pressures), or whether it should explicitly require the implementation of it. Client Earth has, in the same week, published an opinion by Erskine Chambers in which it is stated that liability will not arise "simply from the fact that the steps identified in the [transition] plan are not in fact implemented", provided the board, in adopting a plan, acts honestly and adopts appropriate processes to formulate the plan. It can be inferred from the opinion that a company would have to be misrepresenting its intentions to implement the plan in order for liability to occur, but that this would be an "extreme scenario". The opinion appears to support the Government mandating the implementation of transition plans, if it wants them to be effective.  On the other hand, a requirement to implement would impose significant additional potential liability on companies, and is likely to be resisted by many businesses. The framing of any "best" or "reasonable" efforts clauses would be critical in making the proposals workable in practice.
  
  
• Net Zero: The Government invites views on the consequences of mandating transition plans to be aligned with net zero by 2050 (in line with the national target in the Climate Change Act 2008), with the potential for interim targets aligned with 1.5 C pathways. In particular, the Government seems sensitive to the implications of such a requirement for hard-to-abate sectors, and the methodological challenges for all entities in producing a credible net zero aligned transition plan. Although this section of the consultation document is somewhat ambiguous on whether a non-net-zero-aligned transition plan could be acceptable, it seems likely that businesses will need to aim for net zero alignment, though "comply or explain" may be an option.
  
  
• Adaptation and resilience:  Scenario analysis is familiar to many businesses in view of its integration into the TCFD framework and associated FCA disclosure rules, but at the same time many have found it to be one of the most challenging aspects to meet (as well as being expensive, thanks to its technical nature). The Government is considering whether mandatory consideration of 2°C and 4°C scenarios could be useful tools for identifying resilience and adaptation preparedness.
  
  
• Nature alignment: More generally, the Government invites views from industry on longer-term ways in which it may support business in taking a more integrated approach to climate and nature, and to bridge data gaps which may hinder a nature transition. 

The precise scope of any new reporting or transitional planning requirements remains open. While the Government committed in its manifesto to apply transition plan requirements to UK-registered financial institutions and FTSE100 companies, the consultation recognises that the scope of reporting under the UK SRS may be different. By contrast, mandatory UK SRS reporting is being considered for "economically significant companies", which could include, based on Companies Act requirements for climate-related financial disclosures, those with 500 or more employees and £500m of annual turnover, as well as pension funds. The FCA is widely expected to consult on introducing reporting by listed companies, and potentially shifting climate reporting by certain regulated entities away from TCFD towards (at least) the UK-adopted version of IFRS S2. SMEs are not envisaged to be brought into scope. 

The Government trails a number of next steps in the consultation documents. After the UK SRS consultation closes on 17 September, the Government is expected to publish the finalised versions of the standards "for voluntary use" in the Autumn. The Government will then consult on potential mandatory application measures, and the FCA is expected to do the same (though its own timetable indicates that it may do so sooner).

It is by no means certain, however, that mandatory reporting will be introduced, and the Government seeks evidence and views on the potential benefits of mandating reporting by private companies and LLPs, as well as their readiness to report on matters other than climate. It is to be welcomed that the Government appears to be taking a holistic approach to the new requirements, clearly foreseeing that certain existing reporting rules would become redundant with the introduction of broad sustainability reporting rules.