Tuesday 21st May 2024
UK Government’s Sustainability Update: Key Takeaways for Business
Last week, the UK Government published an implementation update on its Sustainability Disclosure Requirements, which included the delay of the endorsement of the ISSB standards and the publication of the UK-specific standards. The Government now aims to reach a decision on the approval of the ISSB’s rules by March 2025, extending beyond its initial target of July of the current year. Later in 2025, pending endorsement, the Financial Conduct Authority (FCA) may require UK-listed companies to report sustainability information to investors based on the UK’s standards, following a consultation process. Additionally, the Government will consider disclosure requirements for UK companies outside the FCA’s jurisdiction, subject to endorsement decisions, through a consultation in Q2 2025. Considering the timelines for consultation and legislative implementation, it is unlikely that any new requirements will be enacted before accounting periods starting on or after 1 January 2026.
To aid the assessment and endorsement process, an independent UK Sustainability Disclosure Technical Advisory Committee (TAC) has been established to provide advice to the Secretary of State for Business and Trade.
Additionally, the Government decided to rename the UK Sustainability Disclosure Standards (UK SDS) to UK Sustainability Reporting Standards (UK SRS), likely in an effort to synchronise terminology with the European Sustainability Reporting Standards (ESRS).
On transition plans, considering the alignment between ISSB standards and the Transition Plan Taskforce (TPT) Disclosure Framework, the Government plans to seek input on the most effective methods for the UK’s largest companies to disclose their transition plans in Q2 2024. Concurrently, the FCA will seek feedback on enhancing its requirements for transition plan disclosures as part of its consultation on updating Task Force on Climate-Related Financial Disclosures (TCFD)-aligned rules to align with UK SRS in 2025.
On nature, the Government has urged the ISSB to consider the work and comprehensive approach to nature risk management outlined by the Taskforce on Nature-related Financial Disclosures (TNFD). The Government encourages institutions to engage in the TNFD UK National Consultation Group and consider the TNFD recommendations. There are currently no intentions to incorporate TNFD into the UK SRS, though the Government is expected to align with decisions made by the ISSB.
On the proposed Green Taxonomy, the announcements indicate that the Government anticipates conducting consultations “in due course.” Following the finalisation of the Taxonomy, there will be a trial period for voluntary disclosures and use for a minimum of two reporting years before considering mandatory disclosures. The Government has not yet made a decision on introducing mandatory disclosures, which will depend on the evidence from the initial voluntary phase and further consultation.
Additionally, the FCA has finalised its Sustainability Disclosure Requirements (SDR) and investment labels regime for UK-based funds. The regime includes investment labels, naming and marketing rules, and an anti-greenwashing rule effective from 31 May 2024. Other elements will be phased in, with labels available from 31 July 2024 and further requirements rolling out over the next two years.
In addition to this announcement, the Government unveiled plans to raise the threshold for medium-sized companies’ employee count, increasing it from a maximum of 250 employees to a maximum of 500. Furthermore, medium-sized companies are proposed to be exempted from strategic report requirements. This consultation initiative stems from the earlier announcement in March regarding proposed revisions to monetary thresholds for company size, with legislative action anticipated in Summer 2024. These measures are part of a broader effort to streamline regulation, aligning with the Government’s Better Regulation Framework introduced last year.
Overall, the announcements offer some clarity on the Government’s timeline. It is crucial that the Government commits to delivering within these new timeframes to ensure policy certainty and create confidence among financial institutions to unlock finance towards net zero. B4NZ will closely monitor consultations and keep our members informed of any potential changes that could impact their business.
Contact
Elena Pérez Celis,
Head of Policy & Public Affairs
E: elena.perezcelis@bankersfornetzero.co.uk
