UK Sustainability Reporting Standards
Everything you need to know about the recent update
Reporting on sustainability-related matters is becoming increasingly challenging with significant resource and investment needed to ensure compliance with the various international reporting requirements. The UK has announced that the future UK Sustainability Reporting Standards (SRS) will be aligned with the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards to promote a consistent and comparable approach to reporting. This will increase the scope of existing reporting requirements, including the introduction of a mandatory transition plan in line with the Transition Plan Taskforce (TPT) guidance. However, the UK has postponed the announcement date for full implementation details from July 2024 to Q1 2025.
As part of the UK’s Sustainability Disclosure Requirements (SDR), the Government is responsible for setting the UK SRS, aiming for alignment with IFRS S1 (general requirements for disclosure of sustainability-related financial information) and IFRS S2 (climate-related disclosures). The UK SRS taskforce is currently undertaking a review, subject to positive endorsement decisions, around how the IFRS standards will be implemented within the UK.
What will I have to report?
It is likely that the UK will follow the structure of the IFRS standards, with organisations having to report according to the guidelines outlined below.
IFRS S1
S1 requires entities to disclose material information about its sustainability-related risks and opportunities across its value chain. Organisations are expected to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s financial viability over the short, medium, or long term.
IFRS S2
S2 requires entities to disclose information about material climate risks (transition or physical) and opportunities that could reasonably be expected to affect the entity’s financial viability over the short, medium, or long term.
Similar to Taskforce for Climate-related Financial Disclosures (TCFD), both standards require disclosure on the following four pillars:
- governance
- strategy
- risk management
- metrics and targets.
You can read more about our take on the IFRS Sustainability Disclosure Standards here: IFRS Sustainability-related disclosure requirements and IFRS S2 climate reporting.
Do I have to report under the UK SRS?
Once the UK SRS have been implemented and passed through legislation, the UK Government and Financial Conduct Authority (FCA) will determine implementation thresholds. It is likely that the FCA will implement the UK SRS from Q1 2025 for UK-listed companies and financial institutions, with any legislative decisions on the requirements for other organisations to be announced Q2 2025.
What are the wider implications of the new UK disclosure announcement?
We have identified three key components of the framework that organisations should be aware of:
Start assessing your material topics, and topics subject to disclosure, early. The IFRS standards do not explicitly prescribe how to conduct a materiality assessment, differing to the EU’s Corporate Sustainability Reporting Directive (CSRD) framework. However, there are clear expectations for disclosure around the process(es) undertaken to identify the material information to be included in the sustainability-related financial disclosures.
We suggest that organisations use an established framework, such as CSRD, to ensure that the procedure is credible, robust, and in line with potential international expectations.
The UK Government has stated that there will be expectations for organisations to report on their transition plan in line with the guidance set by the Transition Plan Taskforce (TPT). Transition plans set out the strategy for an organisation to transition towards a lower-carbon economy and as outlined in figure 1. Transition plans are complex and take time to coordinate a range of functional perspectives, so organisations would be well advised to start preparing their plans of the formal adoption of UK SRS requirements.
Figure 1: Key recommended disclosure elements from the transition plan taskforce
Reporting on material scope 3 emissions is expected to become mandatory and should be in line with the GHG Protocol Scope 3 reporting Standard. This increased requirement for reporting is particularly relevant where scope 3 emissions are material to the organisation, such as financed emission for banks and insurers.
As well as GHG emissions, the UK SRS are expected to require increased disclosure of risk metrics such as the percentage of business activities vulnerable to climate-related physical risks. For several organisations, this expanded guidance around metrics and targets will be new and steps will need to be taken to establish sound governance over the capture and documentation of this information.
What should I do next?
Sustainability reporting will continue to mature and develop, with the upcoming UK SRS ensuring a consistent global approach by aligning to the IFRS standards.
Organisations should start preparation for reporting under the UK SRS, including undertaking a materiality assessment and setting metrics and targets. We recommend acting now by beginning to understand the TPT guidance and to set a clear transition plan, ready for the new reporting requirements. Organisations preparing to report under the UK SRS should be looking to streamline their reporting requirements – leveraging other reporting activities and maximising efficiency.
Through our practical and experienced team, Crowe continues to support our clients in setting their own agenda to address rapidly changing sustainability and climate-related reporting requirements. Please contact Alex Hindson or your usual Crowe contact for more information.
