Post # 105
October 7, 2026
Hilary Eastman
Our sustainability consultant Hilary sees much more reason for celebration than lamentation, as the UK finally implements Sustainability Reporting Standards for listed companies.
TL;DR:
On 30 September, the FCA updated the UK Listing Rules to incorporate UK SRS on a comply-or-explain basis, starting with climate disclosures from 1 January 2027.
The UK is now part of a growing number of jurisdictions adopting or otherwise using the ISSB Standards – improving the quality of sustainability information available to investors and other capital market participants, and comparability across borders.
Comply-or-explain is not a free choice and it’s not a watering down. UK SRS S1 (general requirements) brings conceptual foundations and guidelines to improve rigour and consistency in application, while UK SRS S2 (climate matters) is more detailed and prescriptive than TCFD.
The updated rules apply to commercial companies, amongst other listing categories. We don’t know yet when or how UK SRS will apply to private companies.
Part of a growing cohort of ISSB-aligned jurisdictions
The UK has long led in corporate reporting and governance, influencing how other jurisdictions approach their own rules and practices.
That makes the FCA’s 30 September announcement especially significant: the UK appears to be the 25th jurisdiction adopting or otherwise using the ISSB Standards. In Policy Statement PS26/199, the FCA updated the UK Listing Rules to introduce UK Sustainability Reporting Standards (UK SRS) on a comply-or-explain basis, replacing TCFD. The rules cover commercial companies and international commercial companies with secondary UK listings, among other categories.
UK SRS comprises two standards. UK SRS S1 sets general requirements and covers non-climate sustainability matters; UK SRS S2 addresses climate. UK SRS S2 applies on a comply-or-explain basis from 1 January 2027, with Scope 3 emissions disclosures following a year later. UK SRS S1 applies on the same basis from 1 January 2029. The revised rules also increase transparency about sustainability assurance, and the existence and location of transition plans. It remains unclear when or how UK SRS will apply to private companies, although voluntary use is already possible.
Watering down sustainability reporting? Hardly!
Some were disappointed that UK SRS is ‘only’ comply-or-explain, particularly after the FCA moved away from January’s proposal to mandate climate reporting. Some have described the change as a watering down or U-turn that removes the prospect of full sustainability disclosures.
I disagree. This is a major improvement in the quality of UK sustainability disclosure requirements and creates a clear market signal when companies do not meet them. I was more concerned by January’s proposal for mandatory climate reporting alongside comply-or-explain for other sustainability matters. UK SRS’s fundamental improvement is in its investor materiality lens: companies report only sustainability-related risks and opportunities relevant to their prospects (cash flows, access to finance or cost of capital); and only information useful to investors’ decisions to buy, sell, hold, engage or vote. Applying UK SRS S2 without first assessing climate’s relevance to the business could have risked continuing one of our biggest challenges with TCFD reporting: pages of immaterial information disconnected from principal risks and strategy narratives, diverting investors’ and business leaders’ attention from matters that genuinely affect the company.
UK SRS brings a new approach to sustainability disclosures that centres on financial materiality. UK SRS S1 does much of the work: if an issue does not qualify as a sustainability-related risk or opportunity, it should not be reported. Comply-or-explain reinforces that focus while making clear when material information is omitted and why.
Although climate disclosures remain comply-or-explain, they now rest on a more robust conceptual foundation. UK SRS S2 draws on TCFD but adds principles aligned with accounting standards, as well as clearer guidance and greater specificity, supporting more consistent application.
Nor is comply-or-explain a free choice about whether or what to disclose. The regime expects compliance – the annual financial report ‘must’ include the UK SRS disclosures, with explanation serving as a pragmatic response where a disclosure is not relevant or a company is not yet ready. Companies Act requirements for climate-related financial disclosures also remain, and the Modernising Corporate Reporting consultation proposes allowing UK SRS S2 to satisfy them. UK SRS includes reliefs and guidance for companies at different stages of maturity. Moreover, explaining may not be easier than complying – companies must identify what is missing, explain why and describe what they are doing to be able to make the disclosures in the future. That list will itself signal information to investors.
What about using ESRS?
A further question arises for UK companies whose European subsidiaries are within the scope of the Corporate Sustainability Reporting Directive, and who report at group level using European Sustainability Reporting Standards (ESRS): can the ESRS sustainability statement also satisfy UK SRS? There are overlaps, but the detailed interoperability challenges are substantial, as discussed in the report I authored for the Future of Sustainable Data Alliance. UK SRS S1 allows the use of ESRS when there is not a specific UK SRS standard for a sustainability topic. But to be able to state compliance, the disclosures must meet the general requirements in UK SRS.
Whether a general acceptance of an ESRS sustainability statement in place of UK SRS disclosures will be permitted remains unresolved, particularly without UK-EU equivalence decisions. The FCA’s draft Primary Market Technical Note allows international companies to use home-jurisdiction reporting to comply with UK SRS, or explain gaps, but does not expressly let domestic companies rely on foreign standards. International companies must still meet the UK SRS S1 requirements relevant to climate information, some of which differ from ESRS. A UK company using ESRS and choosing to explain would therefore need to summarise unmet UK SRS requirements (including relevant S1 requirements), explain the omissions, and set out how it will make those disclosures in the future. It also must make sure that the impact-only ESRS disclosures don’t obscure the material information required by UK SRS, a requirement that will be reinforced if the explicitly investor-led purpose of the annual report proposed in the Modernising Corporate Reporting consultation is finalised.
Change continues, but progress is clear
Acceptance of ESRS for UK reporting notwithstanding – the FCA’s announcement marks significant progress. The UK now has robust sustainability standards that build on the existing framework, improve reporting quality and strengthen global comparability for companies and investors. We're not quite at a point where sustainability reporting can claim the same rigour and transparency as financial reporting, but we are at the end of the beginning of its maturity cycle, and that is worth celebrating.
Hilary is a member of a member of the UK Sustainability Disclosure Technical Advisory Committee (TAC). These are her personal views and do not represent the views of the TAC.