What The UK FCA’s Softer Sustainability Reporting Rules Mean For Firms

In September 2026, the Financial Conduct Authority (FCA) confirmed that listed firms will report under the UK Sustainability Reporting Standards (UK SRS) on a ‘ comply-or-explain’ basis, rather than on a mandatory basis as proposed in January. Since 2021, listed firms in the UK have reported in line with the Task Force on Climate-Related Financial Disclosures (TCFD), which also operates on a comply-or-explain basis. So, how different will UK SRS be for organizations?

What has changed with the new FCA requirements?

The January proposal aimed to bring UK reporting in line with international standards, going beyond existing TCFD requirements. UK SRS S1 now covers non-climate topics such as water and nature, while S2 requires difficult-to-calculate Scope 3 emissions and is more demanding on climate scenario analysis, quantified financial effects and industry metrics. In the September revision, the FCA kept the requirements in full but dropped the mandatory element, citing the cost burden on smaller firms and international competitiveness. Organizations must now either report against UK SRS or explain why they haven’t from January 2028.

Is this a step back?

Compared with the FCA’s original proposal of mandatory climate reporting, the decision to apply comply-or-explain rules is a weaker regulatory approach. A 2022 FCA review of TCFD disclosures found instances where firms had claimed consistency with recommended disclosures but, once reviewed, the disclosures lacked detail. The same could happen under UK SRS, especially under the comply-or-explain approach.

But organizations should not view this as a retreat on sustainability. Even on a comply-or-explain basis, UK SRS still goes beyond existing TCFD reporting. Whether it amounts to progress will depend on how rigorous the ‘explain’ must be.

What will a credible ‘explain’ require?

The FCA has so far set out only in draft what ‘explain’ will require. The draft technical note establishes that generic explanations are not enough – subject firms should provide:

• Which disclosures have been omitted.
• Reasons for the omissions.
• Details on plans to disclose in the future.

A credible explanation will mean organizations must understand their data gaps and assess the work needed to address them and meet future disclosure requirements. Scope 3 data collection, quantifying financial effects and preparing for assurance – all of which are required under the new draft requirements – are challenging and require investment. Firms must be ready to comply or credibly explain why they cannot.

Where will the pressure to comply come from?

While comply-or-explain will push in-scope organizations to provide more sustainability data, the stronger pressure to comply will come from investors and customers. Larger firms, for example, will need emissions data from their suppliers for their own Scope 3 reporting. Expect listed organizations to fall into one of two camps: firms under market pressure to disclose, and firms that explain why they have not met certain requirements. With the first UK SRS reports due in January 2028, organizations should start collecting data now, so they are ready when regulators, investors or customers come asking.

For more information about the regulatory landscape in the UK, please see Strategic Focus: Understanding ESG And Sustainability Regulations In The UK.