Author – Anchal Singh

On 25 June 2025, the UK Government published the long-awaited draft UK Sustainability Reporting Standards (UK SRS, S1 and S2).

With the announcement still fresh in our minds, we wanted to take a look into what this could mean for our clients, particularly in the asset management space.

As businesses worldwide grapple with increasing demands for transparency and accountability, the UK is taking a significant stride forward by developing a clear, coherent, and proportionate sustainability disclosure regime.

Moreover, investors across the world have been crying out for better consistency in sustainability reporting across different jurisdictions to replace the ‘alphabet soup’ of different frameworks which had emerged across the globe.  International investors have long called for a ‘baseline’ of reporting standards to make it easier for them to compare investment opportunities and make well-informed capital allocation decisions.

The Foundation: UK Sustainability Reporting Standards (UK SRS)

These standards are a direct adaptation of the International Sustainability Standards Board’s (ISSB) inaugural standards: IFRS S1 ‘General Requirements for Disclosure of Sustainability-related Financial Information’ and IFRS S2 ‘Climate-related Disclosures’. The UK’s decision to align with the ISSB standards demonstrates a pragmatic stance, helping towards that ‘holy grail’ of a global baseline of consistency in sustainability reporting.

Both UK SRS S1 and S2 are designed to be applied together and follow the well-established four-pillar structure of the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations: Governance, Strategy, Risk Management, and Metrics and Targets. This integration means that entities already applying TCFD recommendations will be well-placed to transition to UK SRS.

Tailored for the UK: Practical Amendments

While closely aligned with the ISSB standards, the draft UK SRS proposes a small number of carefully considered amendments to reflect the UK context and support the development of the global baseline without causing significant divergence. These include:

• Removal of Delayed Reporting Relief: The UK SRS S1 removes the transition relief that previously permitted reporting entities to publish sustainability-related disclosures at a later time than their financial statements in the first year of application. This change, based on TAC’s recommendation, aims to maintain the principle of ‘connectivity’ with financial statements, especially since many UK entities already make climate-related financial disclosures aligned with TCFD recommendations on the same timescale.
• Extended ‘Climate-First’ Transition Relief: UK SRS S1 extends the transition relief, allowing a ‘climate-first’ approach for an additional year, making it available for two years. This means that in year 1, entities would disclose climate-related risks and opportunities (excluding Scope 3 emissions), in year 2, all climate-related risks and opportunities (including Scope 3 emissions), and in year 3, climate-related risks and opportunities, Scope 3 emissions, and wider sustainability-related risks and opportunities. This provides entities with more time to familiarise themselves with the new standards and understand their value chain for full reporting.
• Removal of GICS Requirement: UK SRS S2 removes the requirement for reporting entities to use the Global Industry Classification Standard (GICS) 6-digit industry-level code for financed emissions. Based on the TAC’s recommendation, entities will now be permitted to use any appropriate classification standard, including GICS or an existing alternative, to reduce unnecessary additional costs and allow for increased connectivity with existing reporting practices.
• Removal of ‘Effective Date’ Clauses: Both UK SRS S1 and S2 remove the specific ‘effective date’ clauses. The section will be reworded to “Initial application,” and a clarifying sentence will be added to state that any effective date for application will be set out in relevant legislation or regulation. This amendment aligns with the voluntary availability of UK SRS for entities to use at their discretion.
• ‘Shall’ Amended to ‘May’ for SASB Materials: In UK SRS S1 and S2, the requirement that entities “shall refer to and consider the applicability of” Sustainability Accounting Standards Board (SASB) materials has been amended to “may refer to and consider the applicability of” these materials. This change was proposed by the government following PIC discussions, acknowledging that SASB materials have not undergone the same detailed due process as ISSB Standards. It also addresses stakeholder concerns about mandatory use and the burden of proving consideration by assurance providers if the materials are not deemed relevant.
• Linking Transition Reliefs to Mandatory Reporting: The wording regarding transition reliefs in UK SRS S1 and S2 has been amended to explicitly link their application to the introduction of any mandatory reporting requirements under UK law or regulations. While entities can still use these reliefs if they report voluntarily, the amendment ensures that for mandatory reporting, the reliefs apply from the point when such requirements officially come into force, thus facilitating their use without penalising early voluntary adoption.

Benefits Beyond Compliance

The implementation of UK SRS is expected to yield significant benefits for reporting entities and the broader financial market. Investors have strongly supported the use of ISSB Standards, seeking access to high-quality, comparable information across entities and jurisdictions. By adopting these standards, UK companies are anticipated to:

• Reduce Cost of Capital: Providing relevant and reliable sustainability information can lead to a reduction in the cost of capital, making UK entities more attractive to investors.
• Enhance Strategic Decision-Making: A greater awareness of sustainability-related risks and opportunities will enable entities to develop more effective and innovative strategies, improving both sustainability outcomes and business performance.
• Streamline Reporting: Instead of navigating multiple voluntary frameworks, companies can leverage one comprehensive set of standards, leading to more consistent and efficient reporting practices. The government is also actively exploring opportunities to simplify existing non-financial reporting obligations to avoid duplication.

The Road Ahead: Preparing for Implementation

The UK government aims to publish the final UK SRS S1 and S2 in autumn 2025. While the initial use will be voluntary, decisions on mandatory reporting requirements, including for economically significant private companies, will follow further consultations.

A consultation is also on the horizon to examine whether mandatory adoption will be required, which will likely target larger companies and financial institutions first. The Financial Conduct Authority (FCA) is also set to consult on working the UK SRS into the Listing Rules, directly impacting publicly traded firms.

For businesses and investors, the crucial next step is to prepare. Businesses should consider conducting a comprehensive gap analysis between current sustainability reporting practices and the proposed UK SRS S1 and S2 requirements. Key areas to focus on include: evaluating readiness for the phased climate-first approach, reviewing current classification systems if GICS is not already in use, and assessing whether existing TCFD frameworks can be leveraged as a foundation. Asset managers and larger companies should pay particular attention to upcoming FCA consultations on Listing Rules integration, while private companies should monitor developments around mandatory reporting thresholds.

[As a leading provider of customised ESG/sustainability research and advice, SustainoMetric is uniquely positioned to assist organisations in this transition. Our expertise in Sustainability Regulation & Frameworks, ESG Data & Thematic Reporting, and Supply Chain Due Diligence can help your firm navigate these evolving standards, enhance data quality, and integrate sustainability considerations into core strategic recommendations. Proactive engagement with these standards will not only ensure compliance but also unlock new opportunities for sustainable and resilient growth.]