UK progresses long-awaited updates to rules on sustainability reporting, assurance and climate transition plans

Following a long hiatus since the announcement at COP26 in Glasgow in late 2021, the UK has commenced formal processes toward the adoption of reporting standards aimed at making the UK the “sustainable finance capital of the world”. The UK Government has launched three linked consultations on key sustainability and transparency reporting proposals: (i) the long awaited ISSB-aligned “UK Sustainability Reporting Standards” (UK SRSs); (ii) mandatory disclosure of climate transition plans; and (iii) a new proposal to establish a voluntary sustainability assurance registration regime. 

These are significant milestones and provide a much-needed sense of direction from the Government on its domestic sustainability reporting frameworks. 

In other welcome news, the Government also indicated that it will consult on streamlining the UK’s non-financial reporting framework, which will focus on updating the current regimes and removing “redundant and duplicative requirements”. 

Key highlights of each of the proposals are outlined below. Keep watch for future blogs as we take a deeper dive into what these changes may mean for different sectors and businesses. 

UK’s proposed ISSB-aligned standards

As anticipated, the proposed UK SRSs aim to implement the recommendations of the International Sustainability Standards Board (ISSB)’s general sustainability and climate standards, and accordingly adopt a single materiality approach, focused on financial risks and opportunities. Globally, at least 26 countries have engaged in the roll-out of the ISSB’s standards, supporting the goal to create a global baseline for sustainability reporting. In support of this aim, the Government’s stated goal is for the UK SRSs to minimise divergence from the ISSB Standards. The consultation suggests that only minor differences to ISSB have been proposed, including:

• Requiring companies to publish their sustainability reporting at the same time as financial reporting, in the first year. ISSB S1 allows these to published at separate times in the first year of reporting. 
• Allowing companies to delay reporting of scope 3 emissions until year 2 of reporting.
• Allowing companies to delay reporting on the wider sustainability scope until year 3 of reporting.

This consultation focuses only on the content of the UK SRSs, and the Government has confirmed that it will conduct a further consultation on the implementation and application to UK entities. The FCA will also consult on whether the UK SRSs will be embedded into the UK Listing Rules. 

See here for the link to the UK SRS consultation. 

Approach to transition planning 

The Labour Government committed in its manifesto to mandate UK-regulated financial institutions and large FTSE companies to develop and implement credible transition plans that align with the 1.5^oC goal of the Paris Agreement. 

This consultation, launched by Energy Security and Net Zero Secretary Ed Miliband, builds on that commitment, by proposing measures to encourage widespread transition planning to provide certainty for scaling sustainable finance. The consultation suggests that the proposal supports the UK Government’s Modern Industrial Strategy announced earlier this week. 

The consultation seeks views on how to take forward this commitment. In particular, it seeks views on how the Transition Plan Taskforce’s disclosure framework (see our explanatory blog) should be incorporated into any transition planning obligations. Feedback is also sought on whether the proposed UK SRS S2 standards (which do not require an entity to have a transition plan, but require related disclosures e.g. an entity’s level of ambition to decarbonise operations) are sufficient for users of the reporting. The consultation outlines options for implementation that include a “comply or explain” requirement in relation to transition plans, and mandating transition plans for certain large entities.  

See here for the link to the transition planning consultation. 

Sustainability assurance 

Following the FRC’s market study on sustainability reporting assurance in late 2024, the Government is also seeking to provide greater regulatory oversight through a registration regime for sustainability assurance providers. The proposed register, which would be overseen by the Audit, Reporting and Governance Authority, would provide transparency to those looking to obtain specific sustainability assurance expertise. However, organisations would not be required to use only registered providers in the initial phase as the assurance market develops.

This would enable assurance providers to be recognised as being capable of assuring against the UK SRS, as well as the European Sustainability Reporting Standards (ESRS) under the EU’s CSRD. It would also extend to any other jurisdictional standards affecting UK entities that are aligned to the ISSB Standards. The consultation specifically acknowledges that this regime could support UK assurance providers to “meet the European requirements for sustainability assurance under its CSRD”, potentially providing a solution to the CSRD audit compliance issue that has concerned a number of UK parent companies hoping to report under CSRD voluntarily, on behalf of their EU subsidiaries.

The Government proposal confirms support for the use of the International Auditing and Assurance Standards Board ISSA 5000 standard, on which the FRC are currently consulting for voluntary use in the UK.

See here for the link to the sustainability assurance consultation. 

Consultation on each topic is open until 17 September. Please get in touch with your usual Freshfields contact if you would like to discuss how these developments may apply on your sector.