Sustainability insight | 09 May 2025 |

Travers Smith's Sustainability Insights: Sustainability reporting season

Listen now or read the full briefing below

KEY INSIGHTS

Upcoming Reporting Deadlines: Many European firms face impending sustainability reporting deadlines, including UK-mandated TCFD reports and EU SFDR filings, while inaugural entity-level reports will be required in the coming years for many UK asset managers.

Strategic Advantage in Compliance: Firms can turn mandatory reporting into a strategic benefit by identifying emerging risks and showcasing climate-related opportunities. It makes sense to use the TCFD framework to engage management and stakeholders with an asset manager's value creation story.

Master Global Reporting Challenges: Align efforts with emerging global standards like ISSB and California disclosure requirements. Streamline activities to ensure consistent compliance across varied regimes.

A regular briefing for the alternative asset management industry.

While European lawmakers ponder the future of sustainability reporting, the business of writing reports continues – and a number of deadlines are looming. But how much resource do firms need to allocate to those reports? How much time and effort should they spend on them?

Burden reduction, one consequence of a focus on growth and competitiveness, is the order of the day in Europe. In the UK, the current government's previous commitments to require large companies to publish transition plans and detailed sustainability reports are being re-tested for their impact on growth. In the EU, politicians are very likely to agree to a significant rollback in corporate reporting as part of the so-called "omnibus" initiative, while industry calls to ease some of the burdens of the Sustainable Finance Discloure Regulation (SFDR) are likely to get a sympathetic hearing.

But firms should not be distracted by these deliberations. UK-regulated firms are already turning their attention to their next (for many firms, their second) mandatory TCFD-aligned report on climate-related financial risks and opportunities – due by 30 June. Many UK portfolio companies are doing a similar exercise, either voluntarily or because UK law requires it. Firms with products that are classified as Article 8 or Article 9 under the SFDR have to file their mandatory reports in a few months' time, and for many those reports will include a Taxonomy report and "principal adverse impact" indicators for the portfolio. Looming on the horizon is the entity level report that many UK-regulated fund managers will have to produce in 2026 (or, for the largest firms, by this December) under the SDR, the UK's version of the SFDR. That will be a more challenging exercise, with a longer lead time.

For a UK-regulated firm with at least £5 billion of assets under management (or, in many cases, advice), now is the time to focus on the firm's TCFD report. The TCFD recommendations – finalised in 2017 and now widely used by companies of all types – provide a flexible framework for qualitative and quantitative reporting on climate-related risks and opportunities for the firm and its portfolio. Last year, many asset managers and advisers explained significant data gaps, and promised to try to plug them in future. Others will have benchmarked their own reports against peers and will see where they could do better. The FCA was forgiving of data gaps last year, but this transitional lenience is likely to wane over the next year or two.

    "The reporting can also help the firm to articulate its value creation story to investors and other stakeholders …"

But how important are these disclosures? Of course, a regulatory requirement cannot be ignored, and at least some resource will need to be assigned to producing the reports. But firms should evaluate how to get a return on that investment. The TCFD framework includes many forward-looking disclosures and requires a firm to explain its strategy for assessing and managing climate-related risks and opportunities, as well as to report on (backward-looking) metrics. Sustainability professionals could view this as an opportunity to make sure that senior management is properly apprised of the business benefits of a clear and systematic focus on the transition. It is both a source of opportunity and a means to improve the resilience of the business.

The reporting can also help the firm to articulate its value creation story to investors and other stakeholders, though the varying degrees of appetite for climate action presents a particular challenge this year that was less evident in the last reporting cycle. Focussing – as TCFD guides reporters to do – on how climate risk can translate into financial risk and opportunity for the business should go some way to insulating businesses from claims of wrongly prioritising "ESG" factors over financial returns.

For firms facing cuts to their sustainability resource, it is more important than ever that reporting efforts are not duplicated. Though climate reporting under the Corporate Sustainability Reporting Directive (CSRD) might have been – at least temporarily – removed from the to-do list for many companies, thanks to the EU's sustainability reforms, some firms will be reporting under California's climate disclosure regime for the first time towards the end of this year. Mandatory obligations to report under the ISSB's sustainability standards – which are often "climate first" – continue to proliferate around the world. Taking a birds'-eye view of current and upcoming requirements can minimise the overall burden on firms and head off risks from inconsistent reporting across regimes.

As our recent podcast emphasised, the polarisation of views on sustainability – especially climate – is often over-stated. Telling the value creation story clearly in a TCFD report, as part of a coherent response to the unstoppable decarbonisation of the global economy, can make it more than a mere compliance exercise. Even if no-one outside your firm (regulator included) ends up reading the report, the process of writing it may be more valuable than the output.