FCA sets new sustainability reporting regime

The Financial Conduct Authority has finalised a new sustainability-disclosure regime for listed companies, replacing its existing climate-reporting rules with requirements aligned to the UK Sustainability Reporting Standards from accounting periods beginning on 1 January 2027.

The rules will operate on a comply-or-explain basis, giving listed issuers greater flexibility than a fully mandatory model while establishing UK SRS as the central framework for market disclosures.

Companies covered by the regime include issuers in the commercial companies, transition, non-equity or non-voting equity shares, and secondary listing or depositary receipts categories.

First reporting under the new framework will take place in 2028. Transitional relief includes one year for Scope 3 emissions disclosures and two years for wider sustainability disclosures under UK SRS S1.

The framework replaces requirements based on recommendations developed by the Task Force on Climate-related Financial Disclosures. TCFD became an important reference point for corporate climate reporting before international standard-setting shifted towards the International Sustainability Standards Board.

UK SRS S1 and S2 were finalised by the government earlier this year. S1 covers general requirements for disclosing financially relevant sustainability risks and opportunities, while S2 concentrates on climate-related risks and opportunities.

The standards are UK-endorsed versions of the ISSB’s global reporting baseline. Their use is intended to make disclosures from British companies more comparable with information produced under similar international regimes while giving investors a more consistent basis for assessing sustainability-related financial risks.

The comply-or-explain approach affects how companies prepare for implementation. Businesses will need systems capable of supporting the standards, but they can explain why particular requirements have not been followed rather than treating every element as an absolute obligation from the first reporting period.

That flexibility does not remove the operational work. Scope 3 emissions data often depend on suppliers, customers and organisations outside a company’s direct control. Wider sustainability reporting can require businesses to connect operational data with financial assumptions, risk management, strategy and board oversight.

The transitional period gives issuers additional time to improve those systems. It places immediate emphasis on governance and implementation: companies need to establish which data are material, where information sits across the organisation, how it is controlled and who is responsible for approving disclosures.

Finance functions are likely to play a larger role as sustainability information becomes more closely integrated with mainstream corporate reporting. Data once held largely by ESG, sustainability or corporate-affairs teams increasingly needs to withstand investor scrutiny alongside financial information.

Requirements may also reach beyond companies formally covered by the listing rules. Large issuers frequently rely on suppliers and commercial partners for emissions and other sustainability information, transmitting data requirements through supply chains even where smaller businesses are not directly regulated by the FCA.

The regulator is separately consulting on a technical note to help issuers apply the comply-or-explain approach proportionately. That consultation closes on 28 October, with further information about the supervisory approach expected during the second half of 2027.

The reforms follow several years of consolidation in international sustainability standards. Moving from a TCFD-based climate regime to UK SRS broadens the framework beyond climate alone and brings UK listing requirements closer to the ISSB structure adopted or considered in other markets.

Listed businesses now have just over a year before the first accounting periods within scope begin. Formal reports will not appear until 2028, but much of the underlying data infrastructure, control environment and governance will need to be established before that reporting cycle starts.