The UK Financial Conduct Authority (FCA) has published today (30 September) its final requirements for listed companies to report against the ISSB-aligned UK Sustainability Reporting Standards (UK SRS).
All UK SRS disclosures will now apply on a ‘comply or explain’ basis for in-scope companies, in a significant change to the securities regulator's original proposals for updating the sustainability disclosure obligations in its listing rules.
Before the public consultation, it had initially proposed requiring full compliance with the UK SRS S2 disclosure requirements on direct (Scope 1 and 2) GHG emissions and climate-related risks from the start of 2027, with Scope 3 emissions and non-climate disclosures then phased in on a comply or explain basis at a later date.
Explaining the change in its policy statement, the FCA writes: “Given the feedback that disclosing fully in line with UK SRS is not yet feasible for certain smaller issuers, it would not be appropriate to introduce a mandatory approach as this may be disproportionately burdensome for small companies.
“Our updated approach reflects feedback that a well-reasoned explanation can give investors decision-useful information”, it continues. “Where disclosures cannot be prepared in line with UK SRS, an explanation provides an important and valuable way to help investors understand the issuer’s position and any next steps.”
Under the final implementation timeline, UK SRS S1 and S2 will be introduced on a comply or explain basis for accounting periods beginning on 1 January 2027, with the first disclosures to be published in 2028.
A one-year transitional relief is in place for Scope 3 emissions, meaning companies can choose not to explain why they did not provide this information. A similar two-year relief is in place for reporting sustainability risks and opportunities beyond climate. Full comply or explain reporting across both UK standards will therefore come into effect from January 2029.
When explaining why a disclosure has not been provided, in-scope companies must summarise the requirements not met or the risks and opportunities not disclosed. They must also provide the reasons for the omissions and set out any necessary steps to make the disclosures in the future.
On transition plans, companies must disclose whether they have a climate-related transition plan and where it can be found, or explain why they have not published one. They are not required to have a plan in place, however.
Preparers must also state whether they have obtained third-party assurance over their UK SRS disclosures. If they have, they must name the provider, say which disclosures were assured and to what level, identify the assurance standards used and say where the assurance report can be found. No explanation is required where assurance has not been sought.
The FCA has reminded issuers of their obligation to disclose principal risks and uncertainties. Where climate or other sustainability risks are among them, companies choosing to explain rather than comply should consider how those risks are reflected in their reporting.
These reporting requirements will apply to issuers listed in the five categories that are already subject to the TCFD reporting rules, including: commercial companies; transition issuers; overseas issuers with a secondary listing; issuers represented via depositary receipts; and non-equity shares and non-voting equity shares.
International companies may rely on home-country reporting where it aligns with UK SRS outcomes, but must explain any gaps. They are also not subject to the transition plan requirement.
The FCA estimates the annual cost of compliance to be £27.12m, down from an estimated £33.18m under its original proposals.
Alongside the rules, the regulator is consulting on a new technical note covering how much detail to provide under the comply or explain approach, which is open until 28 October. It will host a webinar next month (19 October) to discuss its final ISSB-aligned reporting rules.