The Financial Conduct Authority has finalised new sustainability reporting rules for listed companies, but stopped short of making every climate disclosure compulsory. Instead, firms within scope must report against the UK Sustainability Reporting Standards or explain where and why they have not followed a requirement.
The decision, published on 30 September, changes the proposed treatment of climate reporting. The consultation had proposed mandatory reporting against UK SRS S2, the climate standard, while allowing explanations for some wider sustainability information. The final rules extend the comply-or-explain approach across the full UK SRS framework, including both climate disclosures and wider sustainability reporting.
A change in the reporting model
The standards are the UK-endorsed version of standards developed by the International Sustainability Standards Board. UK SRS S2 focuses on financially material climate risks and opportunities. UK SRS S1 covers sustainability-related risks and opportunities more broadly. The FCA is replacing listing rules aligned with the former Task Force on Climate-related Financial Disclosures framework with rules based on these newer standards.
Comply or explain is not the same as having no reporting obligation. Companies are expected to provide information under the standards, or make clear where they have not done so and explain the circumstances. The FCA’s stated aim is to retain comparable, decision-useful information for investors while giving issuers room to address differences in their reporting capacity and circumstances.
For investors, the information is intended to show how climate and other sustainability-related matters could affect a company’s prospects and financial position. A common structure can make it easier to compare disclosures across businesses, but explanations will matter: a missing data point may reflect a genuine limit in what a company can report, and readers will need to judge that explanation rather than treat every gap alike.
The new requirements cover companies in the commercial companies, transition, non-equity or non-voting equity, secondary listing and depositary receipts categories. The rules also bring international commercial companies with secondary listings and depositary receipt issuers into the UK SRS framework on this basis, rather than relying only on signposting disclosures under their home-market regimes.
Timetable and transition
The rules apply to accounting periods beginning on or after 1 January 2027, with the first reports expected in 2028. Transitional relief is available for two areas that may require additional data and preparation: companies have one extra year for Scope 3 emissions disclosures and two years for the wider sustainability disclosures under UK SRS S1.
Scope 3 emissions are those associated with activities across a company’s value chain, rather than only emissions from its own operations and purchased energy. Gathering this information can involve suppliers and other counterparties, which makes the transition period relevant to businesses building reporting systems beyond their own operations.
The practical effect will vary by issuer. Companies that already publish detailed climate information may need to map existing reports to the new framework and identify gaps. Others will have to decide which requirements they can meet, what information is available and how to explain any omissions. Investors, in turn, will need to read explanations alongside reported data when comparing companies.
Guidance still to come
The FCA is consulting until 28 October on a technical note intended to clarify how issuers should apply the comply-or-explain approach. It has scheduled a webinar for 19 October and plans further supervisory information in the second half of 2027, ahead of the first reporting season.
The final framework therefore sets a common reporting direction without imposing an identical immediate burden on every company. Its effectiveness will depend in part on the quality of explanations, the consistency of disclosures and whether investors can still assess climate and sustainability risks across different issuers.
