FCA proposes alignment with ISSB on climate disclosures

The UK Financial Conduct Authority (FCA) has released its long-awaited consultation paper “Aligning listed issuers’ sustainability disclosures with international standards” (CP26/5), proposing new requirements for climate‑related disclosures. The move would replace the existing TCFD‑based framework with requirements aligned to the emerging UK Sustainability Reporting Standards (UK SRS), based on the IFRS’s ISSB S1 and S2. The new rules are expected to come into effect from 2027.

It is important to note that the proposal applies to listed companies. Asset managers are not affected and will remain under the existing TCFD‑based rules while the FCA develops a separate framework for their sustainability reporting.

From TCFD to ISSB and UK SRS

The UK SRS translates ISSB’s global baseline directly into UK law, with UK SRS S2 governing climate disclosures, and S1 covering broader sustainability disclosures. The FCA plans to mandate climate reporting against UK SRS S2, replacing current TCFD‑aligned climate rules.

As such, almost all TCFD‑aligned climate content is moving into UK SRS S2, which will become the dedicated climate standard. Meanwhile, UK SRS S1 will house the general principles and cross‑cutting requirements that underpin climate reporting, including definitions of materiality, overarching explanation of sustainability governance, information on reporting boundaries, methodologies, and certain climate‑related disclosures that must be applied alongside S2. 

Key changes

Scope: who needs to comply

The proposed UK SRS‑aligned climate disclosure requirements apply to listed issuers in specific FCA listing categories including the following:

• Commercial companies (UKLR 6)

• Secondary listings (UKLR 14)

• Depositary receipts (UKLR 15)

• Non‑equity shares and non‑voting equity shares (UKLR 16)

• Transition category issuers (UKLR 22)

Financial institutions are only in scope if they themselves are listed in one of these categories, unlike previous FCA TCFD rules that applied more broadly to asset managers, insurers, and pension providers.

If asset managers are not included in these categories, the new rules will not apply directly to them. However, the FCA has signalled that a separate reform of asset‑manager climate reporting is expected soon, following a review of current asset‑manager TCFD reporting. This found that many asset managers found the current TCFD requirements too complex, with challenges around data availability and scenario analysis requirements highlighted. 

Mandatory reporting

Under the new proposal, companies within the main listing categories will need to report climate‑related disclosures in line with UK SRS S2 on a mandatory basis, replacing the previous ‘comply or explain’ approach used for TCFD. This means disclosures on governance, strategy, risk management, and metrics and targets would follow the UK SRS S2 standard directly, with only Scope 3 emissions permitted to remain ‘comply or explain’. Under the new approach, the flexibility to explain non‑compliance where a company doesn’t meet a recommended TCFD disclosure is removed making it more rigorous and challenging but ultimately increasing comparability and consistency while still acknowledging Scope 3 complexity.

Scope 3: comply or explain

Disclosure of Scope emissions 3 will not be mandatory under the new framework. Feedback from previous industry consultations highlighted challenges in obtaining value‑chain data, especially for financial institutions with more complex strategies. As a result, the FCA has opted for a pragmatic ‘comply or explain’ approach, which also aligns with its desire for clear and proportionate regulation. As in previous TCFD-aligned disclosures, companies that do not report Scope 3 will be required to explain any omissions and outline their intended path toward future compliance.

Transition plans and assurance: disclose or explain

The requirement for companies to create transition plans is not included in the latest proposal, though companies will be asked if they have already published such a plan and if not why. A similar ‘disclose or explain’ approach applies to assurance with companies not required to obtain third‑party assurance but instead asked to explain whether they have applied it in relation to their UK SRS disclosures, and if so, which standard they have used.

Timings and transition relief

The FCA plans to finalise its climate disclosure rules in 2026, with reporting requirements coming into effect from January 2027. However, in line with UK Government plans for UK SRS, organisations will be granted a period of ‘transition relief’ in certain areas to allow time to understand and implement the new rules. This will include:

• UK SRS S1: a 2-year transition period in which organisations would not need to report, after which a ‘comply or explain’ approach will begin from January 2029.

• UK SRS S2: a 1-year transition period in which companies would not be required to report Scope 3 data, after which a ‘comply or explain’ approach will begin from January 2028.

Location of disclosures

Under the FCA’s new proposal, companies will need to publish their sustainability (S1) and climate (S2) disclosures in their annual financial reports. Companies must also follow the UK SRS format for publication rather than choosing for themselves how to structure their disclosures.

Secondary listing and depositary receipts categories: avoiding duplication

Slightly different rules have been proposed for companies in the secondary listing (i.e. companies primarily listed overseas, with a UK secondary listing)  and depositary receipts (i.e. overseas companies whose UK‑traded securities are depositary receipts rather than ordinary shares) categories. For these organisations, the FCA is not requiring full UK SRS S1 or S2 disclosures. Instead, they will need to provide transparency about whatever climate and sustainability reporting requirements already apply in their primary listing location or place of incorporation, as well as any sustainability standards they voluntarily apply (including transition plans). They must also disclose what assurance, if any, has been undertaken over those disclosures. These rules would apply for financial years beginning on or after 1 January 2027.

What the changes mean

On a practical level, little will change for those already reporting fully against the TCFD framework. However, the mandatory requirement to report against all elements of SRS S2 (i.e. the TCFD framework) except Scope 3 will be more challenging for those who had previously opted to selectively fulfil the TCFD requirements i.e. explain rather than comply. On the other hand, flexibility around Scope 3 disclosure will take the pressure off one of the most demanding aspects of the process which will be very welcome for some.

This latest proposal sends a clear message about the UK Government and the FCA’s intentions regarding sustainability disclosures. Aligning to ISSB via the UK SRS will also bring clarity and structure both for companies and investors. Over time the use of this one overarching standard will also allow for improvements in data quality and transparency ultimately facilitating simpler, more standardised comparisons and a more streamlined (i.e. quicker and more efficient) reporting mechanism.

The new rules are yet to be finalised so there may still be changes. Companies also have plenty of time to digest and prepare for the new approach. Overall, we believe the proposal is fair and achievable whilst also moving the industry forward in a positive way.

For more information or advice on implementing the UK SRS climate regulations, please get in touch.