Ready, set, report: the FCA fires the starting gun on UK sustainability reporting

As a reminder, the UK Government consulted in June 2025 on the adoption of the first UK SRS – a general sustainability reporting standard and a climate reporting standard based on the S1 and S2 standards respectively of the International Sustainability Standards Board ("ISSB"). These standards have gained significant momentum since their launch in June 2023. According to the ISSB, as of October 2025, the standards are applicable to approximately 60% of global GDP and a similar amount of global greenhouse gas emissions (though not all countries have mandatory application). To some degree, the ISSB is therefore fulfilling its stated aim of becoming a "global baseline" for sustainability reporting.

The UK has long supported the ISSB's work, though its process of adoption has been subject to delays. We are expecting the first UK SRS to be published in February 2026, at which point businesses may choose to disclose against them on a voluntary basis. Mandatory reporting must be introduced via changes to law, regulations or FCA rules.

Listed companies are quite accustomed to reporting on climate-related financial risks and opportunities, given that the UK was the first country to introduce mandatory reporting in line with the TCFD framework in 2021 (for premium listed companies, initially). The ISSB's S2 climate standard is very similar to TCFD in many respects, with some notable differences including mandatory disclosure of scope 3 emissions in all cases (subject to transitional relief), rather than "if appropriate" as per TCFD, and the disclosure of industry-based metrics relevant to a company's business model.

The FCA is proposing to amend the Listing Rules to remove references to TCFD, and instead require listed companies to disclose against S2, although scope 3 emissions disclosures may be omitted in year 1 and will be on a comply or explain basis from year 2. A limited number of "conceptual foundation" disclosures from the S1 general sustainability standard will also be required, where needed for a complete climate disclosure. These include rules around the reporting of metrics and targets, risk and opportunity time horizons and quality of information.

Overall, listed companies accustomed to disclosing under TCFD should find it reasonably straightforward to shift to S2 disclosures, though a gap analysis would likely be a helpful exercise.

The ISSB standards are designed to be applied together. Both standards provide that disclosures under one must be accompanied by the other when applied voluntarily. However, the standards themselves provide a transitional approach to disclosures, with the option for companies to disclose "climate-first" for the first year (S2 only), omitting disclosures on risks and opportunities other than climate (under S1). The UK SRS proposes to extend that transitional relief for a second year – in financial years beginning between 1 January 2027 and 31 December 2028, companies need only note that they have not made S1 disclosures.

Following the transitional period, listed companies will have three options:

1. Disclose in line with S1 on general sustainability,
   
   
2. Where those disclosures have been fully or partially omitted, but the business has identified sustainability-related risks and opportunities ("SRRO"), disclose what those SRRO are, the reasons for not disclosing on them, and any steps it is taking or plans to take plus a timeframe for making those disclosures in future, or
   
   
3. State that the business has not identified any SRRO.

Some businesses will be relieved to see this ongoing "comply or explain" option, rather than a legal requirement for disclosure in all cases, as for climate. However, the approach will need careful consideration – it will be a challenge for any company issuing a voluntary sustainability report to then use option 3 – no SRRO identified.

One hurdle for the business is to know what to disclose on. The EU's CSRD reporting standards provided a level of prescription that most found excessive, and a cumbersome, often overworked process for determining the business's material topics. However, the ISSB standards require businesses to understand the conceptual foundations of the disclosure regime and apply them independently. Some aspects will feel counterintuitive to CSRD reporters – to give a couple of examples, materiality relates not to topics but to information; a sustainability topic may be disclosable if investors expect to see it, even if the business is managing associated risks in a way that makes the subject not financially material or has eliminated risk entirely due to its business relationships.

The UK elected to advise – but not to require – the consideration of existing industry standards such as SASB in determining sustainability topics to disclose on. It will be helpful for businesses to have reference to the standards, even if (as the UK Government assumes) they may not be accustomed to disclosing in line with them. In contrast to the ISSB standards, SASB standards provide a short list of potentially relevant sustainability-related topics and metrics (and some qualitative disclosure points) for businesses to consider. If the business decides not to disclose against a SASB topic, it should consider how to justify this. The concept of "fair presentation" should be a helpful North Star for disclosers, requiring the company and, where applicable, its auditors to take a view on whether the report achieves a "true and fair" picture of the business's overall sustainability position.

The FCA intends to adopt an interim position in relation to climate transition plans, following the concurrent consultation in June 2025. It does not rule out that the Government will eventually fulfil its manifesto pledge to require FTSE100 and certain regulated financial institutions to adopt climate transition plans, but notes that the Government continues to consider its approach. As such, the FCA declines to put in place requirements for climate transition plan adoption, and will withdraw its current guidance that suggests companies take account of the TCFD Guidance for All Sectors regarding transition plan disclosures.

The FCA intends that listed companies should disclose in line with the S2 requirements on transition plans. S2 requires that the company disclose information about any climate-related transition plan that it has, including key assumptions in its development and dependencies on which it relies. That stops short of requiring the business to disclose the entirety of the plan, and does not require the adoption of a plan where none exists. In addition, the FCA proposes to require listed companies to disclose whether they have a climate transition plan, where it can be found if so, and why it has not adopted such a plan if it has not.

Exclusions from the scope of the new rules will align with exclusions from TCFD reporting, namely closed-ended investment funds, shell companies, and debt and debt-like securities. However, these entities should review the FCA's Primary Market Technical Note (801.4), also issued in January, which explains that certain topic-agnostic existing disclosure requirements may necessitate the provision to the market of climate- or sustainability-related information. This is based on the broad obligations on issuers to provide all information necessary to allow security holders to make properly informed decisions, and the FCA notes that omissions can change the import of information (and even amount to market manipulation). The notice further highlights that the Prospectus Rules may also require information on sustainability related matters which may be material to an investor, and that climate or sustainability risks may be appropriate for disclosure as risk factors in a prospectus.

It is implied that issuers who are covered by the new mandatory UK SRS reporting requirements may on rare occasions not be fully discharging their obligations via the annual report, given the ongoing requirements to disclose as soon as possible on an event-driven basis, depending on the severity of the event. The notice is an important indicator by the FCA of its view that climate- and sustainability risks are financial risks, and that the market should treat them as such.

Listed companies are not the only disclosers under TCFD – asset managers with more than £5 billion assets under management or advice will disclose for the third time (fourth for the largest) in 2026. Life insurers and pension providers must also make TCFD disclosures. Whilst we do expect the FCA to move from TCFD reporting to S2 reporting for these entities over time, that is not part of the current proposal.

The proposed rules do make consequential changes to the ESG 2 rulebook containing the TCFD reporting requirement, to benefit those firms who are within the scope of more than one sustainability reporting rule. The FCA estimates that 20-25% of listed entities covered by the new SRS reporting rules are also caught by either (or both) TCFD reporting or reporting under the Sustainability Disclosure Requirements ("SDR") and investment labels regime.

Where listed entities are producing S2 climate disclosures, they may refer to these disclosures in their TCFD entity report rather than producing a duplicate report. Firms producing a sustainability entity report under the SDR are also reminded that they can cross-refer to the SRS report. In the latter case, firms need to be disclosing in line with S1, rather than just S2, in order to meet the SDR requirements which relate to sustainability matters beyond climate. As noted above, producing a sustainability report of any nature is likely to limit the availability of the "comply or explain" options, given that by definition the firm will have to consider its SRRO in order to comply with the SDR requirements.

The FCA's consultation is open until 20 March 2026. Finalised rules can be expected to follow shortly after that date, in order to give businesses certainty ahead of the proposed 1 January 2027 date for mandatory application.

As they approach the 2026 reporting season, UK listed companies should be thinking about what additional disclosures may be required next year and what extra data may need to be collected. They should aim to put in place governance to ensure that data collection happens in a timely and robust fashion (bearing in mind that 2027 disclosures reflect 2026 data). Although the general sustainability disclosures will not apply for a further two years, businesses should keep them in mind in the drafting of other non-financial reports, whether on a voluntary or mandatory basis. Transparency and consistency are key levers for managing risks naturally arising from disclosing sustainability information to the market.