The government is adopting two main disclosure models set by the International Sustainability Standards Board (ISSB) with modifications for UK businesses. 

The ISSB IFRS S1 and IFRS S2 standards are expected to apply to accounting periods beginning on or after January 1, 2026, with public consultation on the standards set for this spring.

IFRS S1 outlines general requirements for disclosing sustainability-related financial information across various Environmental, Social and Governance (ESG) topics, while IFRS 2 focuses on climate-related risks and opportunities which companies need to disclose.

The government endorses these standards as part of its Sustainability Disclosure Reporting framework, drawing heavily from the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and they are expected to be the UK's primary sustainability reporting standards.

Main benefits of adopting the standards:

• Transparency. Companies will provide more detailed and comparable disclosures

• Investor confidence. The standardized approach will help investors make better-informed decisions

• Competitive advantage. Early adopters may gain an edge by demonstrating their commitment to sustainability

IFRS S1 and IFRS S2 require companies to identify and disclose sustainability-related risks and opportunities that could significantly impact financial performance, including potential effects on cash flows, access to capital, and cost of capital. 

S1 provides a general framework but companies should consider industry-specific sustainability factors when making disclosures, using frameworks such as those provided by the Sustainability Accounting Standards Board (SASB). 

The government has backed of the development of the standards since announcement of the creation of the ISSB at COP26, the 2021 UN Climate Change Conference in Glasgow, with the task of creating a global baseline for sustainability reporting.

The ISSB is a standard-setting board of the International Financial Reporting Standards (IFRS) Foundation, a not-for-profit organisation that sets global corporate reporting standards through the International Accounting Standards Board (IASB). (1)

The aim is to provide standards to deliver information for investors for comparison between companies which could support efficient allocation of capital and effective operation of capital markets. ISSB published IFRS 1 and IFRS 2 standards on 26 June 2023. (2)

Mobilising green investment

The government has been a strong supporter of the ISSB since its launch and the green finance strategy in 2023 laid plans to establish a framework to assess the suitability of IFRS S1 and IFRS S2 for endorsement in the UK. (3)

Assuming the final endorsement is given, the UK would create other first two UK Sustainability Reporting Standards (SRS), based on IFRS S1 and IFRS S2. The government aims to consult on the exposure drafts of UK SRS in this first quarter (2025). The standards will be part of a wider Sustainability Disclosure Reporting framework led by HM Treasury. (4)

When adopted, the Financial Conduct Authority (FCA) can use UK SRS to require UK-listed companies to report sustainability-related information to investors, subject to consultation. The government also aims to consult on “economically significant companies” disclosing information using future UK SRS. (5)

Assessment and endorsement of IFRS S1 and IFRS S2, and any implementation of resulting UK SRS is being conducted by an independent Technical Advisory Committee (TAC) and a Policy and Implementation Committee (PIC).

TAC role

The TAC is focusing on technical elements and will provide independent recommendations on endorsement to the Secretary of State for Business and Trade Secretary.

The Secretary of State’s final decision will be informed by the TAC, based on whether endorsing the standards would be beneficial in the long term, with an eye on economic growth and international competitiveness, while at the same time ensuring compatibility with UK domestic legislation and regulation.

The UK Endorsement Board (UKEB), which endorses IFRS Accounting Standards for use by UK companies, is represented on the TAC, and would be assessing connectivity issues between IFRS Sustainability Disclosure Standards and IFRS Accounting Standards. (6)

A further consultation process will be launched before scope and implementation of mandatory reporting requirements against UK-endorsed standards is finalised. Decisions that mandate disclosure for UK registered companies and limited liability partnerships will be taken independently by the government, while the Financial Conduct Authority (FCA) will oversee UK listed companies.

When making implementation decisions, the UK government and the FCA will work closely together to ensure consistency with UK government priorities and coherence across the UK’s reporting landscape.

PIC role

The main role of the PIC is to coordinate implementation of UK SRS with membership from UK government departments and regulators, including:

• Bank of England

• Department for Energy Security and Net Zero (DESNZ)

• Department for Environment, Food and Rural Affairs (Defra)

• Department for Work and Pensions (DWP)

• Financial Conduct Authority (FCA)

• Financial Reporting Council (FRC)

• HM Treasury

• the Foreign, Commonwealth and Development Office (FCDO)

• UK Endorsement Board (UKEB)

There will also be further consultation on precise positioning of the sustainability disclosures within company reporting.

IFRS S1 and IFRS S2 currently contain first-time reporting reliefs, including a one-year relief on disclosure of comparative information and Scope 3 greenhouse gas emissions. The TAC has asked for views on whether these would give companies the space to evolve reporting systems and capabilities.

Further comfort can be gained from the fact that IFRS S2 integrates well with current recommendations like the UK’s Climate-related Financial Disclosure Regulations and so companies adhering to those frameworks could be well-placed to apply UK SRS in future. (7)

There are no decisions yet around the future of the UK’s existing climate-related financial disclosure regulations, but implementation of UK versions of IFRS S1 and IFRS S2 could aim to avoid duplication of reporting obligations.

Assurance requirements

There are no decisions yet around assurance requirements for sustainability disclosures and full consultation would precede any mandatory process.

Bibliography

1 “UK Sustainability Reporting Standards” (Accessed March 2025) https://www.gov.uk/guidance/uk-sustainability-reporting-standards

2 “IFRS Sustainability Standards Navigator” (Accessed March 2025) https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/ 

3 “Green finance strategy” (Accessed March 2025) https://www.gov.uk/government/publications/green-finance-strategy

4 “Sustainability Disclosure Requirements: Implementation Update 2024” (Accessed March 2025) https://www.gov.uk/government/publications/sustainability-disclosure-requirements-implementation-update-2024

5 “Framework and Terms of Reference for the Development of UK Sustainability Reporting Standards” (Accessed March 2025) https://www.gov.uk/government/publications/framework-for-developing-uk-sustainability-reporting-standards

6 “IFRS S1 and IFRS S2 in the UK” (Accessed March 2025) https://www.icaew.com/technical/corporate-reporting/non-financial-reporting/international-sustainability-disclosure-standards/ifrs-s1-and-ifrs-s2-in-the-uk

7 “IFRS Foundation publishes comparison of IFRS S2 with the TCFD Recommendations” (Accessed March 2025) https://www.ifrs.org/news-and-events/news/2023/07/ifrs-foundation-publishes-comparison-of-ifrs-s2-with-the-tcfd-recommendations/