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Update on UK Sustainability Disclosure Requirements

Last week, the UK government provided an update on the implementation of the UK's Sustainability Disclosure Requirements (SDR) framework. Introducing economy-wide SDRs is central to the government's long-term strategy of facilitating transparent flows of information between key stakeholder corporates, investors and other stakeholders in order to ensure that those looking to allocate capital with sustainability in mind can do so on the basis of readily available and reliable data. This update builds upon past strategic documents, Greening Finance: A Roadmap to Sustainable Investing (2021) and Mobilising Green Investment: 2023 Green Finance Strategy (2023), and is set against a background of rapidly evolving international sustainability standards driven by the launch of the International Sustainability Standards Board (ISSB) in June 2023.

A key component of the SDR framework is the adoption of UK Sustainability Reporting Standards (UKSRS), which will be UK-endorsed ISSB standards. This is important because the ISSB's standards IFRS S1 and IFRS S2 are voluntary, it is for national governments and other regulators to make compliance mandatory. The UK government is currently in the process of assessing the ISSB standards in consultation with the FCA and other stakeholders, regulators and standard setting bodies to decide whether to proceed with endorsement. Once endorsed, the UKSRS will not automatically become mandatory but will form the basis of future requirements in, or amendments to, UK legislation and regulation. In conjunction with the update on the wider SDR framework, the government also published its Policy Paper: Framework and Terms of Reference for the Development of UK Sustainability Reporting Standards which gives more detail on how the endorsement and implementation process will work.

Key updates concerning the UKSRS are as follows, all of which are subject to the government giving the green light on endorsement:

  • The government expects to make the UKSRS available in Q1 2025.
  • Following a consultation period, the FCA will be able to use the UKSRS to introduce requirements for UK-listed companies to report sustainability-related information.
  • Disclosure requirements against the UKSDS will be developed for companies that are not regulated by the FCA.
  • A decision on future requirements involving the UKSRS is expected to be taken in Q2 2025.

Other points to note regarding the SDR framework are:

  • Transition plan disclosures: The government will consult shortly on how the UK's largest companies can most effectively disclose their plans to transition towards net zero, whilst the FCA plans to consult on strengthening its expectations for transition plan disclosures under the UKSRS with reference to the existing framework developed by the Transition Plan Taskforce.
  • Investment labels: The FCA finalised its SDR and investment labels regime for funds based in the UK in November 2023 but is currently consulting on extending the regime to portfolio managers based in the UK. The government also intends to open a new consultation in Q3 2024 on whether to broaden the scope of SDR to include funds under the Overseas Funds Regime.
  • Green Taxonomy: The government is continuing to work on the proposed UK Green Taxonomy and expects to consult on it in due course. Once the Taxonomy is finalised, the government will introduce a testing period of at least two years for voluntary disclosures before deciding whether to introduce mandatory disclosures (such decision being subject to further consultation).
Building on global best practice and leading standards, SDR is a framework to facilitate and streamline the flow of robust, decision useful information between corporates, consumers and investors and capital markets.

Tags

corporate, sustainability and esg