UK Government consults on ISSB adoption and sustainability assurance oversight

What does this mean?

The consultations are the first phase of the Government’s longer-term plan to develop a modernised disclosure and assurance framework for sustainability-related financial disclosures. They sit alongside the UK’s wider non-financial reporting review (announced October 2024).

Consultation: Exposure draft of UK Sustainability Reporting Standards: UK SRS S1 and UK SRS S2

The Department for Business and Trade (DBT) is consulting on whether to endorse two draft standards, based on International Financial Reporting Standards (IFRS) S1 and S2, as the UK SRS.  

The consultation seeks views on the costs and benefits of UK SRS reporting, the need for further guidance (e.g. on calculating financed emissions for the given reporting period), and legal risks associated with forward-looking disclosures. It also asks which other sustainability-related requirements organisations report against or expect to report against, and how this affects their assessment of UK SRS.

Scope

Initially voluntary, the UK SRS may become mandatory under the Companies Act 2006 for economically significant companies. The Government says it will consult on any requirements “in due course”.  The FCA also intends to consult on applying the UK SRS to listed companies.

The Government plans to review climate-related reporting requirements for pension schemes, including whether rules based on the Task Force on Climate-related Financial Disclosures (TCFD) should be updated. The Department for Work and Pensions (DWP) will also consider how UK SRS could support this reporting.

Recognising the potential impact on small and medium-sized enterprises, particularly where they are asked to provide data for value chain reporting, the consultation seeks views on what support may be needed and what is already available.

Proposed deviations from IFRS S1 and S2

The Government proposes to closely align the UK SRS with the International Sustainability Standards Board (ISSB) standards, while introducing targeted adjustments for the UK context. Six proposed deviations are under consultation:

• The UK would remove the delayed reporting transition relief in IFRS S1, which permits entities, in their first year of applying the ISSB Standards, to publish sustainability-related disclosures later than their financial statements, as this delay could potentially undermine the intended connection between the two.

• Proposals would extend the ‘climate-first’ transition relief in IFRS S1 by one year to allow entities to focus solely on climate-related disclosures for the first two years of reporting, deferring other sustainability-related disclosures. Entities may choose whether or how to apply this relief.  

• The requirement in IFRS S2 to use the Global Industry Classification Standard (GICS) for disclosing financed emissions would be removed, allowing the use of GICS or another suitable classification already used by the entity.  

• The ‘effective date’ clauses in IFRS S1 and S2 would be removed, with application dates instead to be set through legislation or regulation.

• The references to the Sustainability Accounting Standards Board (SASB) materials in IFRS S1 and S2 would be amended from "shall refer to" to "may refer to" them, making use of these materials optional. 

• The reporting periods in which transition reliefs apply would be explicitly linked to the effective date of future mandatory reporting requirements.

Other consultation topics

The consultation also seeks feedback on the following areas where no deviations from ISSB standards are currently proposed:

• the challenges of calculating and reporting financed emissions;

• whether disclosures should include carbon credits purchased and used in the current period, alongside the planned future use already addressed in IFRS S2. Feedback is also requested on usefulness, barriers, and possible additional disclosures;
• the proposed ISSB amendments to IFRS S2 to greenhouse gas emission disclosures and whether the UK Government should endorse the standards subject to the amendments proposed.

Consultation: Developing an oversight regime for assurance of sustainability-related financial disclosures

A second consultation proposes developing a regulatory oversight regime for the assurance of sustainability-related financial disclosures. It builds on the Financial Reporting Council’s (FRC) market study (February 2025) and proposes a voluntary registration regime for sustainability assurance providers, to be overseen by the Audit, Reporting and Governance Authority (ARGA) once established. 

Key proposals include:

• creating a new legal category of “sustainability assurance provider” open to audit and non-audit professionals and firms, subject to ARGA eligibility criteria;

• ARGA would register providers, set qualification criteria, monitor compliance, and enforce through deregistration or fines;

• recognising providers as capable of assuring disclosures under UK SRS, TCFD, European Sustainability Reporting Standards (ESRS), and other ISSB-based frameworks;

• requiring providers to follow relevant international standards, such as ISSA 5000 (note that the FRC is currently consulting on introducing a UK version of this standard, the ISSA (UK) 5000, for voluntary use); and

• the Government supports the ISSA 5000 standard and intends ARGA to oversee future UK sustainability assurance standards.

Other considerations highlighted in the consultation include seeking early views on the potential future mandating of assurance over the UK SRS and the registration of assurance providers. Views are also sought on the implications for the non-audit services fee cap; however, these areas will be subject to subsequent consultation.

What do firms need to do?

The current consultations provide firms with an important opportunity to help shape the UK’s evolving sustainability reporting and assurance landscape. While formal requirements are still to come, the direction of travel is clear. Firms should review both consultations in detail, along with the transition plan consultation, and consider responding.

Firms already reporting under TCFD through the Companies Act or FCA Listing Rules should not be complacent, as reporting under the proposed UK SRS S2 will represent a significant uplift from current requirements. It will be important to assess how current TCFD disclosures compare to the proposed standard and identify the gaps that will need to be addressed.

The UK SRS will require disclosure of material information about sustainability-related risks and opportunities. Firms should review their existing process for identifying financially material sustainability topics against the requirements for the proposed UK SRS S1. Those with double materiality assessments should consider how to adapt their approach to reflect the financial materiality lens. Others without a materiality assessment process should begin developing one aligned to the UK SRS.

Integration between financial and sustainability reporting will need to improve. Firms should assess how well financial and non-financial disclosures align today and where improvements in data, assumptions, and processes are needed. This may also require stronger collaboration between financial and sustainability departments. 

Although assurance is not yet mandatory, both consultations signal that it may be expected in the future. It may be helpful for firms to review the extent to which their current reporting processes and policies could support assurance requirements.

Next steps