FCA unveils planned update to UK sustainability disclosures

Regulator kicks off consultation on its proposed approach to the UK SRS and climate transition plans

The Financial Conduct Authority (FCA) has opened its long-awaited consultation on the UK Sustainability Reporting Standards (UK SRS). 

In a lengthy document released on Friday, the regulator explained how it plans to switch its current requirements, which are based on the Taskforce on Climate-related Financial Disclosures (TCFD), with those in the UK SRS, which are based on the International Sustainability Standards Board (ISSB). 

The Department of Business and Trade (DBT) published a draft version of the UK SRS last June, and received more than 200 responses to a consultation over the summer. 

It has indicated its intention to finalise the standards this quarter, meaning the FCA’s proposal is based on the draft standards, and subject to change.

For now, the plan is to mandate climate disclosures from 2027, with the exception of Scope 3 emissions, which will be required on a comply-or-explain basis from 2028. 

Non-climate-related sustainability disclosures will also be comply-or-explain, starting from 2029. 

The phased-in approach appears to be a response to a letter the DBT sent to the FCA earlier this month, in which it wrote: 

“The majority of the respondents agreed with the content of the draft UK SRS but one area we wanted to write to you about in advance of your consultation going live is the approach to implementation. 

“Stakeholder feedback, which we have shared with your team at the FCA, strongly advocated for giving entities sufficient time to align with the most challenging parts of the Standards.” 

In addition, concern about the interplay between government and FCA rules had prompted the DBT to remove application deadlines from its own proposal, leaving them instead to the FCA (and those in charge of amending the Companies Act). 

The FCA wants its rules to apply to the same companies as its TCFD requirements, with a looser version applicable to a subset of issuers likely to be captured by overseas sustainability reporting rules. 

In keeping with the ISSB’s single-materiality approach, disclosures will focus on “information that could reasonably be expected to affect companies’ prospects and is therefore useful for investors”. 

The FCA doesn’t plan to mandate climate transition plan disclosures. 

It said it wasn’t appropriate to do much on the topic, because the Department for Energy Security and Net Zero hasn’t yet published the result of its November consultation on transition plan requirements.  

Instead, the FCA will ask companies to explain “whether and where they have published a transition plan, or the reason why not”.

It will delete current guidance pointing to the TCFD’s recommendations on transition-plan disclosures, and may replace it with a reference to materials from the ISSB’s parent body, the IFRS Foundation, which are based on guidance from the Transition Plan Taskforce. 

The consultation is open until March 20th, with a final policy statement expected in the autumn, subject to the completion of the UK SRS.