The UK is set to move forward towards comprehensive and standardised UK sustainability reporting in 2025.

It is expected that the UK will broadly adopt the International Sustainability Standards Board’s (ISSB) S1 and S2 standards in 2025, creating the UK Sustainability Reporting Standards (SRS). Further announcements are expected in Q1 2025, and the first published sustainability reports are expected for periods beginningor after 1 January 2026.

In this blog we look at current UK reporting requirements for companies and how these changes will affect UK businesses going forward.

Current UK sustainability disclosure requirements

General strategic report

Currently, all companies that are not classed as small must provide an overview of their business, including a description of the principal risks and uncertainties facing the company, in a strategic report.

The strategic report provides a company’s shareholders an overall picture of a company’s business model, strategy, risks, development, performance, position and future prospects including relevant non-financial information.

If the directors consider a sustainability matter to be a principal risk or uncertainty facing the company, this should be disclosed in the strategic report.

Specific reporting requirements on environmental matters within the strategic report are also required for quoted companies and public interest entities (PIEs) with over 500 employees. The requirements state that any details of policies adopted on environmental matters and how effective these policies are must be reported.

S172 reporting in the strategic report

In the strategic report, large companies must include a statement which details how the directors have performed their duty under section 172 of the Companies Act 2006.

This requirement means that directors must promote the success of the company for the benefit of its members as a whole. When undertaking this requirements they have to consider the impact of company operations on the community and the environment, among other things.

Climate-related financial disclosures

In 2022, mandatory climate-related financial disclosure requirements were introduced for some UK large companies and LLPs. This is required as part of the Non-Financial and Sustainability Information (NFSI) statement within the strategic report. Disclosure covers key areas such as governance, strategy, risk management, metrics and targets.

LLPs do not have to produce a strategic report but should include the information in the Energy and Carbon report.

You can find more guidance here on how to meet requirements from the Department for Business Energy and Industrial Strategy.

Streamlined energy and carbon reporting directors report

Streamlined Carbon and Energy Reporting (SECR) regulations are applicable to large companies, quoted companies, and large LLPs. Companies must include the associated disclosures in the directors’ report. LLPs must include the disclosures in the Energy and Carbon report which is part of the annual report.

Financial statements and sustainability related information

When applying accounting standards and where climate-related matters are considered material in the context of the financial statements, disclosures are required.

The Financial Reporting Council (FRC) and the Department for Business and Trade are working to integrate ISSB standards into the UK’s existing regulatory framework. The integration will include aligning ISSB standards with the UK’s current corporate reporting requirements.

For UK GAAP reporters, the FRC’s factsheet on climate-related matters for FRS 102 reporters gives further information.

Future UK sustainability reporting requirements

With a new Labour government in power and Labours manifesto pledge on energy independence and clean energy by 2030, along with climate transition plans, it is likely that businesses of all sizes will see some impact as a net zero economy will require work by all sizes of business to decarbonise. However, larger corporates are being targeted first by the new plans, but it is expected that other reporting and regulatory compliance requirements will filter down to other sizes of companies over the coming years.

The UK is one of several countries that have committed to adopt the IFRS Sustainability Disclosure Standards (SDS). The UK’s Sustainability Disclosure Requirements (SDR) will require UK companies to report sustainability-related information. The International Sustainability Standards Board (ISSB) published global standards on sustainability disclosure are being adopted by the UK in 2025. The new sustainability standards focus on sustainability-related risks and opportunities and will be aligned with international standards and will affect UK-listed companies.

Following a consultation process, the UK government is expected to endorse the new standards by July 2025.

ESG reporting standards and implementation

The UK will adopt the International Sustainability Standards Board’s (ISSB) S1 and S2 standards in 2025. The adoption of ISSB S1 and S2 standards is a significant step forward in the UK’s journey towards comprehensive and standardised sustainability reporting.

In its March 2023 Green Finance Strategy update, the previous UK Government confirmed its commitment to assess and decide whether to endorse the standards for UK use. The new UK Sustainability Reporting Standards (SRS) will support these existing Sustainability Disclosure Requirements (SDR). These standards will provide the basis for future obligations within company law and FCA listing requirements. We anticipate that the current UK Government to continue with this approach.

The first reports to be published under this regulation are expected to be for periods beginning on or after 1 January 2026.

Transition plans

Under IFRS S2 there is a requirement for companies to disclose their climate-related transition plan. This transition plan should form part of the company’s overall strategy and should detail targets, actions or resources for its transition towards a lower-carbon economy.

The Transition Plan Taskforce (TPT) has developed a Disclosure Framework for transition plans. The TPT Framework provides a practical and useful complement to the Standards. It is a useful tool for companies in developing their transition plans and informing the disclosure requirements in IFRS S2. However, there is no legal requirement to report against the TPT Disclosure Framework, but it is likely that the largest private companies will be asked to disclose their transitions plans if they have them.

UK green taxonomy

The previous government was set to implement a UK Green Taxonomy.

The six environmental objectives of the Taxonomy are:

1. Climate change mitigation.
2. Climate change adaptation.
3. Sustainable use and protection of water and marine resources.
4. Transition to a circular economy.
5. Pollution prevention and control.
6. Protection and restoration of biodiversity and ecosystems.

The previous government indicated that once the UK Green Taxonomy has been consulted on and finalised, there will be a minimum two-year voluntary application period before the introduction of mandatory obligations. We are yet to see if Labour will continue with the previous government’s plans.

Summary

Climate change and climate related issues are already having a very real impact on companies and individuals alike. As a result, we are already seeing some companies developing plans to transition to lower carbon business models and for larger companies that haven’t started on this journey yet, the introduction of updated UK Sustainability Reporting Standards will force them to follow suit.

With a new Labour government in power and Labours manifesto pledge on energy independence and clean energy by 2030, along with climate transition plans, it is likely that businesses of all sizes will see some impact as a net zero economy. Forward looking businesses are likely to embed sustainability and climate actions strategically that go beyond current regulation requirements.

The adoption of ISSB standards is expected to improve the quality and consistency of sustainability reporting and companies will need to adapt to these new sustainability reporting requirements. Companies should consider the impact of ISSB standards on their financial position, performance and prospects.

Resources

The government has published guidance on the implementation of the UK’s Sustainability Disclosure Requirements and implementation (SDR) and information on the UK government’s framework to create UK Sustainability Reporting Standards (UK SRS).

Companies can also contact the Financial Reporting Council (FRC) or the Department for Business and Trade for guidance on the implementation of the new standards.

For further help and advice on Sustainability Reporting Standards, contact Barnes Roffe.

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