New corporate sustainability reporting obligations in the UK

The final article in our series on sustainability reporting: today the focus is on the UK and the interoperability and harmonization of reporting standards.

The UK continues to develop its own revised and updated corporate sustainability reporting regime that will apply to UK companies. The following provides an overview of some of the sustainability reporting obligations in the UK.

Adoption of ISSB Reporting Standards in the UK?

On May 24, 2023, the Department for Business and Trade, working with the Financial Reporting Council (FRC), published a call for evidence for the review of the non-financial reporting requirements UK companies need to comply with to produce their annual report and to meet broader requirements that sit outside of the Companies Act. It is likely that going forward the UK will require listed issuers and companies currently subject to Task Force on Climate-related Disclosures (TCFD) reporting obligations to report in line with the sustainability standards developed by the International Sustainability Standards Board (ISSB).

ISSB standards

The ISSB was launched by the IFRS Foundation, which is the international body that governs the setting of global accounting standards adopted by the UK and over 140 other countries. In June 2023, the ISSB issued its inaugural sustainability standards, its mission being to formulate a comprehensive global baseline of high-quality sustainability disclosure standards. The ISSB standards were endorsed by IOSCO on July 25, 2023 following an assessment co-led with the UK FCA. The UK wants to be the first country in the world to endorse and adopt the standards for UK use and is calling on other countries to prepare for adoption of them in their jurisdictions.

The standards composed of IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) (collectively “ISSB Standards”). The ISSB Standards are effective for annual reporting periods beginning on or after January 1, 2024. 


  • requires an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect its cash flows, access to finance or cost of capital;
  • prescribes how an entity prepares and reports its sustainability-related financial disclosures, setting out general requirements for the content and presentation so that the information is decision-useful for existing and potential investors, lenders and other creditors; and
  • in particular, requires disclosures in four core areas (which will be familiar to TCFD users) enabling users to understand the entity’s governance process, controls and procedures, strategy and risk management processes for managing sustainability-related risks and opportunities, and performance regarding such risks and opportunities, including progress towards voluntary or mandatory targets.

Notably, a company is required to disclose “material” information about such risks and opportunities that could reasonably be expected to affect its prospects, i.e., single, not double, materiality. This contrasts with the EU double materiality approach under CSRD and is more closely aligned with the single materiality approach in the US. Accordingly, the UK and US would share a single materiality approach.

Any company applying IFRS S1 must apply IFRS S2. IFRS S2 focuses on climate-related disclosures and broadly aligns with the TCFD. IFRS S2 requires an entity to identify and disclose material information about climate-related risks and opportunities that could affect its prospects enabling users to understand its governance, strategy, risk management and performance related to climate. 

Notably, a company must disclose its total greenhouse gas (GHG) emissions across Scopes 1, 2 and 3. Asset managers, banks and insurers are required to disclose information about those emissions associated with its investments, so-called “financed emissions”. To help companies transition, Scope 3 disclosures (including “financed emissions”) may be omitted for the first year.

Current UK corporate sustainability reporting obligations

The UK has enacted the following sustainability related reporting obligations to which UK corporates are already subject.

Streamlined Energy and Carbon Reporting

In the UK, since April 2019 large UK companies and large UK parent companies have been subject to Streamlined Energy and Carbon Reporting (SECR) if they exceed at least two of the following three size criteria on an individual or consolidated basis:

  • (1) turnover of £36m ($45.5m);
  • (2) balance sheet total of £18m ($22.7m);  
  • (3) 250 employees

and additionally

  • (4) consumed more than 40,000 kWh of energy in the UK during the year.

Pursuant to SECR, directors are required to include in their directors’ report information on UK energy use:

  • as a minimum, gas, electricity and transport, including UK offshore area;
  • associated GHG emissions;
  • previous year’s figures for energy use and GHG emissions;
  • at least one intensity ratio;
  • energy efficiency action taken and methodology used in calculation of disclosures.

On October 19, 2023, the Department for Energy Security and Net Zero published a “call for evidence” on UK GHG emissions reporting, seeking views on SECR and the costs, benefits, and practicalities of Stage 3 GHG emissions reporting.  Feedback gathered will inform a review of SECR with findings scheduled for publication in April 2024.

Section 172(1) statement under Companies Act

In addition, for financial years starting on or after January 1, 2019, large UK companies and large UK parent companies (as defined above) must publish a Section 172(1) statement in their strategic report, which describes how directors have had regard to certain sustainability matters set out in S.172(1)(a) to (f) when performing their management duties.

The information that any particular company should include in their section 172(1) statement will depend on the individual circumstances of each company but guidance states that companies will probably want to include information on some or all of the following:

  • the issues, factors and stakeholders, the directors render relevant in complying with section 172(1)(a) to (f) and how they have formed that opinion; 
  • the main methods the directors have used to engage with stakeholders and understand the issues to which they must have regard;
  • information on the effect of that regard on the company’s decisions and strategies during the financial year.

Climate-related Financial Disclosures

Pursuant to the Climate-related Financial Disclosure Regulation, high-turnover UK companies or high-turnover UK parent companies are required to include in their strategic report their climate-related financial disclosures drawn up in line with the recommendations of the TCFD as of financial years starting on or after April 6, 2022 with the first reports being published in 2023. High-turnover UK companies are:

  • UK companies with more than 500 employees and which have either transferable securities admitted to trading on a UK regulated market or are banking companies or insurance companies (namely those UK companies that are currently required to produce a non-financial information statement);
  • UK registered companies with securities admitted to AIM, and which have more than 500 employees; and
  • UK registered companies not included in the categories above, which have more than 500 employees and a turnover of more than £500m ($632m) (high turnover companies).


The Conduct Committee of the FRC has the legal authority to review a directors’ report and a strategic report and, if the report fails to comply with the statutory requirements, to go to court and compel a company to revise its report. The court can order that the costs incurred by the company in preparing a revised report are borne by the directors personally. However, where possible, the FRC operates by agreement with companies whose reports it reviews without having to resort to the courts.

In case of a failure to comply with the requirement to prepare a directors’ report or a strategic report, a criminal offence (punishable by a fine) is committed by every person who both:

  • was a director of the company immediately before the end of the period for filing accounts and reports for the financial year in question.
  • failed to take all reasonable steps for securing compliance with that requirement.

Where a company publishes a directors’ report or strategic report that contains untrue or misleading statements or omits material facts or there is dishonest delay in publication, and a person acquires, holds or disposes of shares in the company in reliance on the information and suffers loss as a result, the company and/or the directors of the company may incur liability under statute. 

If the company’ auditor has reviewed the climate-related financial disclosures and determines that these contain uncorrected material misstatements, this should be recorded in the auditor’s report.

Interoperability between different corporate standards

The provisions outlined above demonstrate that going forward, corporates will be subject to different sustainability reporting regimes. If the UK decides to make it mandatory for certain companies to report under the ISSB Standards, two important jurisdictions in Europe would have different regimes in place that multinational corporations would have to adhere to, if the corporate group or individual subsidiaries fall under their respective rules.

The difference between UK and EU laws, however, is only the tip of the iceberg, as more and more legislators mandate sustainability disclosure rules. In the US, for example, the state of California has already gone ahead mandating certain sustainability disclosures, whilst issuers are still waiting for the SEC to publish their long-awaited climate rules.

The interoperability and harmonization of different corporate sustainability reporting standards will be of utmost importance going forward. If multinational corporates had to comply with a multitude of regional standards, requesting different data points, it would potentially create challenges for existing reporting structures and certainly extra costs. It is the right approach, therefore, that EFRAG aspired to ensure a high level of alignment of the ESRS with the ISSB Standards.

Nevertheless, some key differences exist between their respective standards and ISSB is expected to produce materials which help companies navigate them. One of the most notable differences is the under the ISSB, corporations need to report based on single materiality, whereas the ESRS have adopted a double materiality approach.

In addition, the ESRS and the ISSB Standards are new, whilst large corporations often already report under certain sustainability frameworks, most notably the TCFD recommendations and the Global Reporting Initiative (GRI). It may therefore be hoped that the European Commission will soon adopt decisions on which sustainability reporting standards it deems “equivalent” to the ESRS. If a positive equivalence decision is adopted, corporates would not need to report under the ESRS, but reporting under the “other” sustainability framework would be sufficient.

However, it is to be expected that in order for another reporting standard to be deemed equivalent, it would have to include also Social and Governance reporting obligations and not just climate and environmental obligations. The big question remains, whether a standard embracing single materiality (such as the ISSB Standards) could be deemed equivalent. At the moment, it seems the GRI Standards are most likely to be a runner-up to be deemed “equivalent”.

William Yonge is a Partner and specialises in UK and European financial services law and regulation, an area in which he has more than 20 years’ experience, drawing on his background of working in-house for UK financial services regulators. Veronika Montes is Of Counsel and counsels companies, boards, and investors on capital markets transactions, mergers and acquisitions, and German stock corporation law. Allison Soilihi is a Partner and a corporate energy lawyer focusing on mergers and acquisitions, private equity transactions, joint ventures, and project development. Morgan Lewis