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Sustainability Reporting: UK

Varying regulations per country can be irritating and hard to oversee. In our series, we go through the world’s continents and parts with the most significant industries and give an overview of what sustainability reporting is mandatory or becoming mandatory in the next years.

Companies underlie various regulations about what they must report depending on where they are located and/or selling their products. Changing regulations for each country can be irritating and hard to oversee. In our series, we’ll give an overview of what sustainability reporting is mandatory and becoming mandatory in the following years and the most significant industries. After covering the EU in the first part of our series, today we’re following with the UK:  

In the United Kingdom, sustainability reporting is not mandatory for companies. The only exception is that UK-quoted companies (publicly traded) must report on their greenhouse gas emissions and global energy use as part of the annual Directors’ Report. While there is no stand-alone sustainability reporting, the government announced new Sustainability Disclosure Requirements (SDR) in October 2021. We explain how the new SDRs could impact your business and how they align with the Task Force on Climate-Related Financial Disclosures (TSFD) recommendations and the UK Green Taxonomy plans.  


Task Force on Climate-Related Financial Disclosures (TCFD)

The TCFD is the Task Force on Climate-Related Financial Disclosures. The Financial Stability Board created it in 2015 to develop international climate-related financial risk disclosures. Companies, banks, and investors are supposed to use them to provide critical information to stakeholders.  

While you could call TCFD another reporting framework, there is one key difference. Its use is not to find out about a company’s impact on the world and climate change but to reveal the effects of climate change on the company itself and the resulting financial risks. 

The final recommendations by the TCFD were published in 2017. The four recommendations relate to governance, strategy, risk management, and metrics: 

  • Governance: disclose the organization’s management of climate-related risks and opportunities 
  • Strategy: disclose the actual and potential impact of climate-related risks and opportunities on the organization’s operations, strategy, and financial planning 
  • Risk management: disclose how the organization identifies, assesses, and manages climate-related risks 
  • Metrics and targets: disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities 

The overall goal of the TCFD was to strengthen the financial system’s stability, contribute to a greater understanding of climate risks, and support financing the transition to a more stable and sustainable economy. 


Sustainability Disclosure Requirements (SDR)

The UK has set up the goal to be the first country to make the alignment with TCFD mandatory across the economy. They recently set out new Sustainability Disclosure Requirements (SDR) to get there. The SDRs are intended to create an integrated and streamlined framework that brings together sustainability-related reporting requirements.  

Designed to broaden the UK’s sustainability reporting, SDRs are supposed to give deeper insights into companies’ environmental and social impact, especially to investors. While SDRs are planned to be based on the TCFD recommendations, they go beyond the TCFD requirements  by looking at other environmental impacts and risks on top of climate change and requiring double materiality.  

What is double materiality? Double materiality means that disclosures should show how sustainability issues impact companies and how companies’ activities impact sustainable development in society and the environment beyond their primary operations. 

Still, SDRs are neither final nor in action yet. There’s a high probability of a long wait for legislative approval and further changes to the legislation. However, companies shouldn’t take this lightly. As soon as the SDR comes into place, enterprises will have to deal with the lack of data, especially in the deep tiers of your supply chains. Enterprises need to act now to be readily prepared for the challenges of reporting tomorrow. 


UK Green Taxonomy

Following the EU Taxonomy (read more about it here), the UK government is implementing a UK Green Taxonomy. Its use is to define which economic activities count as environmentally sustainable. This way, it aims to create consistency, improve understanding of companies’ contribution to environmental impact and provide a reference point for companies to develop and communicate Net Zero and capital investment plans. Same as EU taxonomy, it is supposed to improve sustainable investment and create security for investors, protect from greenwashing, motivate companies to be more sustainable, diminish market fragmentation and help shift investments to more sustainable options.  

The UK taxonomy will be compatible with international frameworks based on the EU taxonomy. To be aligned with UK taxonomy, same as EU taxonomy, company activities will need to meet three criteria:  

  • a substantial contribution to one of the six environmental criteria 
  • no significant harm to the other objectives 
  • complete a set of minimum safeguards 

Like the EU taxonomy, each environmental objective will be substantiated by detailed standards or the so-called Technical Screening Criteria (TSC). The finalization of the first two objectives, climate change mitigation, and adaptation, is planned for the end of 2022. The remaining objectives are supposed to follow in 2023.  


What does this mean for you?

The bottom line is that in the future sustainability reporting will be mandatory for UK companies. Trying to wait it out is a dangerous bet. Your company being accused of greenwashing will likely cost you more than investing in accurate reports now.   

The way out: invest in transparency and corporate sustainability. 

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