UK Sustainability Reporting Landscape Update

Sustainability reporting and assurance

UK Sustainability Reporting Standards

• Key points. The UK government has issued for public comment Exposure Drafts of UK Sustainability Reporting Standards (UK SRS).

• The proposed UK standards are closely aligned with sustainability-related disclosure standards issued by the International Sustainability Standards Board (ISSB Standards), with small amendments to ease application in the UK.

• The standards incorporate and build from existing voluntary standards and frameworks. These include the recommendations of the Taskforce on Climate-related Financial Disclosures, which form the basis for existing climate-related disclosure requirements in the UK.

• Next steps. The consultation is open until 17 September. It is focussed solely on the content of UK SRS. The decision on introducing mandatory reporting against UK SRS will be subject to separate consultation processes – by the Financial Conduct Authority in respect of listed companies; and by the government in respect of other large UK-registered entities. Companies may choose to report voluntarily against UK SRS prior to any requirements coming into effect.

• Relevance to NEDs. There is growing momentum behind the adoption of ISSB Standards, with 35 other countries around the world on the journey. This consultation will ensure that the UK keeps pace with global developments. As the UK’s requirements are finalised, NEDs will have an important role in overseeing effective implementation in their organisations and satisfying themselves of the quality of disclosures on an ongoing basis.

Other relevant developments on sustainability reporting

• Assurance over sustainability disclosures. Confidence in corporate disclosures relies on an effective regime for third-party assurance. The government is therefore also seeking feedback on proposals to introduce a registration regime for providers of assurance over sustainability disclosures. The consultation will run until 17 September.

• Simplification of EU sustainability reporting (known as the EU Omnibus package). Work continues in the European Union to simplify sustainability reporting. A “Stop-the-Clock Directive” was approved in April and is now being implemented by Member States, delaying reporting requirements for companies that have not yet begun reporting. Negotiations continue on potential changes to the content and scope of reporting requirements. On 11 July, the European Commission announced additional reliefs for companies that are already reporting.

Transition Planning

UK government consultation on climate-related transition plan requirements

• Key points. The UK government is consulting on strengthening transition planning requirements. If mandatory reporting against UK SRS is introduced (see above), companies will be required to disclose material information about their climate transition and any transition plans that they have.^* The government’s consultation seeks feedback on (non-mutually exclusive) options that extend beyond the disclosure provisions in UK SRS, including requiring companies to:

• • explain why they have not disclosed a transition plan or transition plan-related information

• • develop and disclose transition plans

• • take implementation actions consistent with their transition plan disclosure

• • align transition plans to Net Zero by 2050.

• Next steps. The consultation is open until 17 September. The questions in the consultation are framed in an open way and invite broad-based feedback. Since the options build on disclosure of information about transition plans, there is a close link to the consultation on UK SRS.

• Relevance to NEDs. Transition planning is an integral aspect of corporate strategy, and fundamental to protecting and enhancing corporate value as the economy transforms. Overseeing credible and effective transition planning is therefore firmly the domain of the Board. As legal and regulatory expectations evolve in this area, NEDs can draw on the Chapter Zero Transition Planning Toolkit and other resources on transition planning available in the Knowledge Hub.

Other relevant international developments

• International Organization for Standardization (ISO). As momentum builds behind transition planning, ISO has two standard-setting initiatives underway to support companies globally, and build confidence in how they are tackling the transition:

• • On 20 June, a draft international standard for Net Zero Transition Planning for Financial Institutions was launched for consultation. This standard is designed to support a robust and rigorous process for transition planning that embeds transition objectives in firms’ risk and financing decisions.

• • A parallel process was launched in June 2024 to develop a Net Zero Standard. This work is building on existing ISO Net Zero Guidelines to create a common reference point for net zero efforts across the economy.

Climate-related risks

Bank of England consultation on banks’ and insurers’ approaches to managing climate-related risks

• Key points. On 30 April, the Prudential Regulation Authority (PRA) published a consultation (CP 10/25) on revised expectations for banks’ and insurers’ approaches to managing climate-related risks:

• • Informed by observing banks’ and insurers’ practices since the PRA issued its first supervisory statement on climate-related risks in 2019 (SS 3/19), the proposals are principles-based and aim to “set out clear, straightforward and concise expectations about climate-related risk identification, management and governance outcomes that the PRA would like to see from firms.” The proposals represent a significant uplift in ambition relative to SS 3/19.

• • The proposals set expectations in relation to governance, risk management, scenario analysis, data, and disclosures – also including expectations specific to banks and insurers, respectively.

• • Importantly, the focus is on integrating consideration of climate-related risks across all aspects of firms’ operations and governance arrangements.

• Next steps. The consultation is open until 30 July. If adopted, the policy will take effect immediately upon publication of a final supervisory statement, replacing SS 3/19.

• Relevance to NEDs. With a clear emphasis on on integration, governance, and action, the PRA’s proposals will be highly relevant to NEDs of financial services firms. In particular, the PRA now expects climate risk management to inform business strategy, be embedded across the three lines of defence, and be regularly reported to boards with sufficient technical detail to support decisions. This will require purposeful action across the sector: e.g., new models, workflows, data systems and governance arrangements. NEDs should therefore encourage their firms to engage early and begin building capabilities to be able to meet these new expectations.

^* New guidance developed by the IFRS Foundation, which builds on disclosure-specific materials published by the Transition Plan Taskforce, will help companies do this effectively.