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UK sustainability reporting standards anticipated in 2025

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The UK government has said it expects to set out new sustainability reporting standards, aligned to international standards, early next year, paving the way for new regulatory obligations to be imposed on UK-listed companies in the first instance.

However, in a fresh announcement regarding its implementation of sustainability disclosure requirements, the government failed to confirm whether it intends to impose nature-related disclosure requirements on UK businesses.

Global standards regarding sustainability disclosure were published by the International Sustainability Standards Board (ISSB) last summer. It is voluntary for UK businesses to commit to the standards, but where they do so they must disclose material information about the sustainability‑related risks and opportunities that could reasonably be expected to affect the entity's prospects.  

In August 2023, the UK government confirmed its intention to establish UK sustainability disclosure requirements based on the ISSB standards. It said it would “only divert from the global baseline if absolutely necessary for UK specific matters”. At the time, it said it hoped to endorse the new UK standards by July 2024. That timeline has slipped, however, with the government now confirming that it is aiming to issue the new ISSB-aligned UK sustainability reporting standards in the first quarter of 2025.

Hayden Morgan, expert in sustainable finance at Pinsent Masons, said: “The UK government has reaffirmed clear intent to align with the ISSB standards albeit with a new target date. Firms are now put on notice. Prudent firms will have to consider the full compliance implications of these incoming requirements and assess what it means to their business operations. Full compliance can be complex and take time to implement.” 

In addition, new sustainability disclosure and fund labelling requirements are set to take effect in the UK asset management industry from 31 July 2024, with the new far-reaching anti-greenwashing rule coming into effect from 31 May 2024.

Plans to expand the SDR regime to portfolio management services within the UK’s financial services sector are currently open to consultation.

The first set of sustainability disclosure requirements, which will be overseen by the Financial Conduct Authority (FCA), are based on recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD) – the ISSB’s standards built on the TCFD’s work, and the government is intent on ensuring future regulation reflects the ISSB’s standards.

“Subject to a positive endorsement decision by the UK government, and following a consultation process, the Financial Conduct Authority (FCA) will be able to use the UK sustainability reporting standards to introduce requirements for UK-listed companies to report sustainability-related information,” the government said in its latest update.

“Subject to a positive endorsement decision, the government will also decide on disclosure requirements against UK sustainability reporting standards for UK companies that do not fall within the FCA’s regulatory perimeter. That decision will take into account a number of factors, including costs for reporting companies and benefits for investors that may wish to use this information. The government expects a decision regarding future requirements to be taken in Q2 2025,” it said.

“At that time, the government will also consider whether to create exemptions from pre-existing requirements in the Companies Act 2006 for those companies that choose to use the standards on a voluntary basis. Any decision that the government takes on these matters will involve consultation and will require parliamentary approval for the introduction of any new legislation. As a result, any changes that may be introduced would be effective no earlier than accounting periods beginning on or after 1 January 2026,” it added.

”The government also confirmed that existing regulatory requirements pertaining to the development of climate transition plans will be strengthened by the FCA in respect of transition plan disclosures, in tandem with the other work being done to align UK rules with the ISSB’s standards.

However, while welcoming work done by the Taskforce on Nature-related Financial Disclosures (TNFD) in developing recommendations in respect of reporting exposure to nature-related issues – and stating that it “encourages” businesses to consider the recommendations of the TNFD – the government made no commitment in its update to implementing nature-related disclosure obligations into the UK regulatory framework. The TNFD’s work closely mirrors that done by the TCFD in respect of climate-related risks and opportunities.

In a separate development, the government has published a consultation in which it is proposing to exempt eligible medium-sized businesses from having to produce a strategic report, and to raise the employees threshold for medium sized companies to a maximum of 500 employees, up from a maximum of 250.

Sharon E. Smith of Pinsent Masons said: “Raising the employees threshold for medium sized companies means that less companies would fall into the ‘large company’ bracket, and so less companies would be subject to the requirement to disclose certain non-financial information in their strategic report, including a section 172(1) statement. This consultation follows an earlier call for evidence on non-financial reporting and ministerial statement on plans to increase monetary thresholds that also determine company size for reporting purposes.”

Morgan added: “This package of measures from the UK government is intended to help investors and consumers avoid greenwashing, access the data and information that they need, and better consider sustainability implications of investment decisions. However, there will be significant challenges for firms around implementation and operational integration for compliance. This is, in part, due to the differences in interoperability between these requirements and other similar, but different, regimes mandated by the EU and other jurisdictions around the globe”.

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