UK FCA adopts ‘comply or explain’ for sustainability reporting

The UK Financial Conduct Authority (FCA) has released final rules regarding the implementation of the UK Sustainability Reporting Standards (UK SRS). Moving away from its initial proposal to mandate certain climate-related disclosures, the regulator has decided to adopt a ‘comply or explain’ approach for the entirety of the UK SRS.

The standards consist of UK SRS S1, which covers general sustainability-related financial disclosures, and UK SRS S2, which focuses on climate-related disclosures. These standards are based on the International Sustainability Standards Board (ISSB) framework and are intended to replace the current TCFD-aligned listing rules. Under the new regime, companies that do not follow the UK SRS must provide an explanation for their non-compliance.

The rules will apply to various categories of listed companies, including commercial companies and those with secondary listings. The new requirements are set to take effect for accounting periods beginning on or after January 1, 2027, with the first reports expected in 2028. Transitional measures include a one-year grace period for Scope 3 emissions disclosures and a two-year period for broader sustainability disclosures under UK SRS S1.