Gifts for summer with some significant announcements yesterday by the UK Government, coinciding with a number of related publications as part of Climate Action week, re: draft UK Sustainability standards consultations with proposals to to adopt IFRS sustainability standards S1 (general) and S2 (for climate) with some UK specific amendments proposed, UK assurance standards, and consultation on transition plans (close 17 Sept)
See summary of proposals below (care of the Investment Association) & further information (NB: FCA to consult separately on application to UK listed companies, TBC implications for UK regulated investment firms)
Enjoy reading!
Regards
James
Plans for UK to become sustainable finance capital of the world - GOV.UK
Exposure drafts: UK Sustainability Reporting Standards - GOV.UK
The UK Government has published consultations on: (i) Exposure Drafts on the UK Sustainability Reporting Standards (UK SRS); (ii) the development of an oversight regime for sustainability-related assurance; and (iii) potential implementation routes for transition plans.
As part of the Mansion House Package in November 2024, the government set out the steps that it is taking to establish a world-leading sustainable finance framework that delivers credible and decision-useful sustainability-related financial information to the financial markets. In addition, the government believes that a high-quality and competitive sustainability assurance market is also crucial in underpinning trust and confidence in reporting provided by corporates.
With these considerations in mind, the government is taking a phased approach to modernising the UK's framework for corporate reporting, ensuring that market participants have sufficient opportunity to influence the UK's future legal framework. The first phase consists of 3 consultations:
Consultation on UK Sustainability Reporting Standards (UK SRS) Exposure Drafts
The first consultation (issued by the Department for Business and Trade) seeks views on the exposure drafts of UK Sustainability Reporting Standards (UK SRS) which are based on the standards published by the ISSB. The UK SRS will serve as the foundation for the UK's future sustainability disclosures regime and this consultation is the culmination of the UK's process to assess the suitability of the ISSB Standards for use in the UK. International comparability has been a priority and the government has aimed to limit divergence from the ISSB standards as far as possible, reflecting an effort of many jurisdictions around the world to converge on a single set of standards.
The consultation is seeking views on the costs and benefits of UKSRS- which will inform future government decisions on whether to require economically significant companies to disclose information in accordance with UK SRS. The consultation also proposes some minor amendments to the standards to reflect their use in a UK context including:
- No effective date: the UK will set its own timeline.
- SASB is made optional: instead of "shall consider" the UK SRS says "may consider" SASB.
- The Global Industry Classification System (GICS) is not required- companies can use other classification systems to report financed emissions.
- Capital markets language is modified to reflect domestic regulation.
- No comparatives in year 1: companies will not need to show prior-year data in their first reporting cycle.
- Subsidiary disclosure references have been removed- this avoids duplication with UK company law.
- Some ISSB transition reliefs have been dropped, however climate-first reporting is still supported.
Following analysis of the responses to this consultation, the UK government will make a final decision on whether to endorse the draft UK SRS S1 and S2 for use in the UK. If endorsed, the government aims to publish the final version in autumn 2025.
The decision to introduce legal or regulatory requirements in relation to UK SRS will follow separately. The FCA will consult on proposals to require use of UK SRS by listed companies within its listing rules. The government will assess the merits of requirements for entities outside the FCA's regulatory perimeter, bearing in mind the wider context of proposed legislative changes that may arise from the UK government's review of non-financial reporting.
Consultation on an Oversight Regime for Sustainability-related Assurance
The second consultation (issued by the Department for Business and Trade) focuses on providers of assurance over sustainability-related financial disclosures following the conclusion of the FRC's recent Assurance of Sustainability Reporting Market Study. The government is seeking views on the following proposals:
- The government will create a new category of 'sustainability assurance providers' qualified to provide third party assurance over an entity's sustainability-related financial disclosures. Both audit and non-audit professionals and firms will be registered as providers if they are qualified according to criteria set by ARGA.
- A proposal to introduce a registration regime operated by ARGA once it has been established. ARGA would register these providers, set the eligibility criteria for registration, monitor their performance and where needed take proportionate enforcement action where they perform poorly. This will form part of the government's work to strengthen the audit and corporate governance regime.
- The regime would recognise assurance providers as being capable of assuring information against UK SRS, European Sustainability Reporting Standards and any jurisdictional standards that are aligned to the ISSB standards.
The government proposes that the registration regime will operate on a voluntary basis, with market participants opting in to registration rather than government making registration a pre-condition for offering assurance services. A further consultation will follow on detailed elements of the registration regime, once established.
Consultation on Implementation Routes for Transition Plans
The third consultation (published by the Department for Energy, Security and Net Zero) seeks views on the government's manifesto commitment on the theme of transition planning. The consultation is seeking views on how transition plan requirements could be taken forward including the interactions with UK SRS requirements.
The consultation seeks views on how the government should take forward the manifesto commitment in a way that:
- supports an orderly transition in line with global climate goals
- enhances transparency for investors and promotes efficient capital allocation
- supports companies in capturing the opportunities from the global net zero transition
- supports the growth of the UK's financial services industry by ensuring its sustainable finance framework is internationally competitive and maintains the UK's status as a global financial hub.
It is seeking views on the following areas
- The benefits and use cases of transition plans;
- Implementation of transition plan requirements; and
- Related policy and frameworks.
Future Consultations on Strengthening the UK's Corporate Reporting Framework
Collectively, these consultations represent the first step in developing a UK sustainability reporting framework that is fit for the long term. There will then be further phases of consultation, which will cover proposals on sustainability reporting and assurance. This work will be complemented by a consultation that will focus on streamlining the UK's current non-financial reporting framework under the Companies Act 2006, as announced by the Secretary of State for Business and Trade in October 2024. The consultation, delivered as part of the Non-Financial Reporting Review, will focus on updating the structure of the Annual Report so that it can integrate sustainability related reporting requirements, whilst also removing redundant and duplicative requirements that have built up over the years. The updated framework will seek to ensure that only information that is decision-useful is required to be disclosed and that this is provided in a format that best meets the needs of investors and other users. In doing so, the non-financial reporting review aims to support growth and the UK's international competitiveness, while contributing to the government's ambition to achieve a 25% reduction in the administrative costs of regulation for business.
------------------------------
James Doyle
Director, Green Finance, Investment Management
------------------------------