UK Government consults on adopting ISSB sustainability reporting standards and mandating Transition Plans to develop a sustainability reporting framework

What you need to know

• On 25 June 2025, the UK Government published a package of three consultations as the first step in developing a UK sustainability reporting framework including:
  • A consultation on adopting the International Financial Reporting Standards (IFRS) sustainability reporting standards to create UK Sustainability Reporting Standards (UK SRS).
  • A consultation on introducing climate-related Transition Plan (TP) requirements.
  • A consultation on developing an oversight regime for the assurance of sustainability-related financial disclosures.
• The consultations on the UK SRS and TPs have been anticipated for some time and, subject to further consultations on specific disclosure requirements, will likely result in significant changes to the current sustainability reporting requirements under the Companies Act 2006 and UK Listing Rules.
• The consultation on the UK SRS proposes only minimal amendments to the IFRS SRS to adapt them for use in a UK context. Following endorsement of the UK SRS, the Government and FCA will each consult on requiring disclosure against the UK SRS by large companies and LLPs as well as listed companies. It is therefore still not clear from the consultation which entities will be covered by those requirements.
• The consultation on TPs sets out two main disclosure options that would either require in-scope entities to explain why they have not disclosed a TP or TP-related information, or mandate development and disclosure of a TP as part of a company's annual reporting. 

Overview

On 25 June 2025, the UK Government published a package of consultations as the first step in developing a UK sustainability reporting framework. The package includes:

• A consultation on the exposure drafts of the UK Sustainability Reporting Standards (UK SRS S1 and UK SRS S2).
• A consultation on options to take forward climate-related Transition Plan (TP) requirements.
• A consultation on developing an oversight regime for the assurance of sustainability-related financial disclosures.

The consultations are open for comment until 17 September 2025.

The UK sustainability reporting standards (UK SRS) and TP consultations have been anticipated for some time and are likely to result in significant changes to the UK's current sustainability reporting requirements under the Companies Act 2006 and UK Listing Rules.

Background

IFRS S1 and S2

In June 2023, the International Sustainability Standards Board (ISSB) published two sustainability reporting standards (SRS): IFRS S1 on general requirements for disclosure of sustainability-related financial information and IFRS S2 on climate-related disclosures. IFRS S1 and S2 were intended to address the fragmentation caused by multiple sustainability reporting standards and provide a single global baseline for sustainability disclosures upon which jurisdiction-specific requirements could be built (see ISSB publishes first standards on sustainability and climate disclosures and Disclosures required under the IFRS's Sustainability Disclosure Standards (ISSB S1 and S2)). Both S1 and S2 draw on the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations.

Many companies have reported against IFRS S1 and S2 on a voluntary basis but to become mandatory, the standards need to be formally adopted through national legislation. The Government committed, in 2023, to consult on a framework to adopt the ISSB's standards. The IFRS recently reported that over 30 countries have adopted, or are in the process of adopting, IFRS S1 and S2 to deliver a global baseline in sustainability reporting.

Since 2023, the UK has been following a process to endorse IFRS S1 and S2. In December 2024, the Technical Advisory Committee (TAC) made recommendations on the amendments that would be needed to IFRS S1 and S2 to make them relevant for UK reporting. In short, TAC recommended that IFRS S1 and IFRS S2 should be endorsed for UK use with only minor amendments, (see AGC Update - Issue 60 and Government publishes an update on UK Sustainability Disclosure Requirements (SDR) and Sustainability Reporting Standards (SRS)).

Transition Plans

In 2021, at the global climate talks in Glasgow (COP26), the UK Government committed to make 1.5 degree Paris-aligned TPs mandatory for large companies and some financial sector firms. It then set up the Transition Plan Taskforce (TPT), which published a Disclosure Framework and accompanying guidance in October 2023 (see Transition Plan Taskforce issues Disclosure Framework and consults on sector guidance).

The work of the TPT concluded in November 2024, with the International Financial Reporting Standards (IFRS) Foundation assuming responsibility for the TPT's disclosure-specific materials in June 2024. see Transition Plan Taskforce publishes final report on next steps for Transition Plans).

Assurance of sustainability-related financial disclosures

In February 2025, the Financial Reporting Council (FRC) published the findings of its market study on the assurance of sustainability reporting, which recommended the creation of a regulatory regime for sustainability assurance providers (see AGC Update – Issue 62).

Consultation on UK SRS

The exposure drafts of UK SRS S1 and S2 reflect all of the TAC’s December 2024 recommended amendments to IFRS S1 and S2. The consultation also proposes two additional amendments. The changes proposed by the TAC and the Government are summarised below:

• Removal of delayed reporting transition relief (IFRS S1): The UK draft removes the transition relief that allows entities to publish sustainability-related disclosures at a later date than their financial statements in the first year. The change has been made to ensure alignment and connectivity with financial reporting.
• Extension of 'climate-first' transition relief (IFRS S1): The period during which entities can limit their reporting to only climate-related matters (deferring broader sustainability disclosures) is extended from one to two years, providing more time for phased implementation. Entities can choose whether to use this relief or only to use it for some of the sustainability-related risk and opportunities (SROs) which they are required to report on. This means the minimum disclosure requirements would be:

• Removal of mandatory use of GICS (IFRS S2): The requirement to use the Global Industry Classification Standard (GICS) for financed emissions disclosures is replaced with the option to use any appropriate industry classification standard. The change has been made in an attempt to reduce costs and increasing flexibility for in-scope UK entities. The ISSB is currently consulting on an amendment to the requirement to use the GICS in IFRS S2 – the Government will consider the implications for UK SRS S2 in due course (see AGC Update – Issue 62).

• Removal of the ‘effective date’ clauses in IFRS S1 and IFRS S2: This reflects the fact that entities will be able to choose when they use UK SRS on a voluntary basis once they are endorsed subject to future mandatory reporting requirements (UK SDR) being put in place.
• Change from 'shall' to 'may' regarding SASB materials (IFRS S1 & S2): References to the Sustainability Accounting Standards Board (SASB) materials are amended such that entities "may" (rather than "shall") refer to and consider their applicability. This is to avoid entities being required by any assurance provider to prove they have considered SASB materials. The Government will review this amendment when the ISSB’s project to enhance the SASB standards concludes.
• Linking transition reliefs to mandatory reporting (IFRS S1 & S2): Transition reliefs are explicitly linked to the introduction of any UK SDR, ensuring that reliefs are available when reporting becomes compulsory. This amendment would not preclude entities from using the reliefs if they choose to report on a voluntary basis.

The consultation notes that the Government supports the TAC's request to the ISSB for clarification on the reporting of financed emissions.

The Government will also monitor the ISSB's proposals to amend IFRS S2 to exclude emissions associated with derivatives, facilitated emissions and insurance-associated emissions from the measurement and disclosure of Scope 3 Category 15 greenhouse gas and use global warming potential values based on a method other than the Greenhouse Gas Protocol Corporate Standard. Where necessary amendments may be made to UK SRS S2 in due course.

The consultation also seeks views on whether similar protection afforded to directors by section 463 of the Companies Act 2006 in relation to forward looking statements (FLS) in a company's Strategic Report and Directors' Report should apply to any reporting requirements that may be introduced for the UK SRS.

Consultation on Transition Plan requirements

The consultation on TP requirements seeks views on four elements of the Government's 2021 commitments and focuses on:

• Designing a TP;
• Disclosing the TP;
• Having a TP aligned with climate ambition; and
• Implementing a TP.

Design - In considering the design of TPs, the Government is seeking feedback on the role of the TPT's Disclosure Framework in any future obligations to develop a TP.

Disclosure - UK SRS S2, if adopted, would require companies which either voluntarily report against it or which in future are required to do so to disclose a TP if they have one  If a TP is produced, UK SRS 2 would also require disclosure of related information that standards like the TPT Disclosure Framework expect should be included in a TP, such as metrics and targets, key assumptions used in developing the TP, and dependencies on which the TP relies.

The consultation sets out two main disclosure options that would add to the UK SRS S2 requirements by (1) requiring entities to explain why they have not disclosed a TP or TP-related information ('comply or explain" disclosures)., or (2) mandating the development and disclosure of TPs through the Companies Act 2006 as part of an in-scope company's annual reporting. The second disclosure option would require publication of a standalone TP every three years in line with the TPT Disclosure Framework.

The consultation also seeks views on whether a financial or impact materiality filter should be applied to determine the disclosures to be made in a TP.

Net zero alignment - The Government seeks views on aligning TPs with net Zero by 2050, including setting interim (5-10 year) targets aligned with 1.5°C pathways, and the potential legal and practical implications of such alignment. Options for achieving net zero alignment include:

• A requirement for entities to disclose alignment of their TP with net zero by 2050, including whether they have set interim targets aligned with 1.5°C pathways.
• A requirement for entities to develop and disclose a TP aligned with trajectories to meet net zero by 2050, including setting interim targets aligned with 1.5°C global pathways.
• A requirement for entities to develop, disclose and implement a TP aligned with trajectories to meet net zero by 2050, including setting interim targets aligned with 1.5°C pathways.

The consultation notes that the last two options could include guidance for international operations and investments, with ‘best efforts’ or ‘reasonable efforts’ expectations for delivering on commitments set out in any TP to give flexibility for entities that face practical limitations on implementing net zero-aligned targets and TPs.

The Government is also seeking information on the standards and methodologies being used by entities that they consider are effective and reliable for developing and monitoring climate-aligned targets and TPs. In particular, it highlights methodologies developed by the SBTi and the Paris Aligned Asset Owners Net Zero Investment Framework (NZIF), as well as target-setting tools based on global pathways from the IPCC, the International Energy Agency (IEA), and the EU’s Carbon Risk Real Estate Monitor (CRREM).

Implementation - The consultation also explores the possibility of mandating the implementation of TPs (i.e. require putting them into effect). This would mean that a company would be legally required to take steps towards meeting their stated decarbonisation targets and other elements of their plan that are under their operational control.

The Government proposes that implementation would mean that an entity is either taking steps toward or is on track to meet the decarbonisation targets in their TP, while managing climate-related risk and seizing net zero opportunities.

The consultation acknowledges the uncertainties and dependencies which may affect the delivery of a plan and notes that the Government does not want to create undue legal risk for entities that have used their best efforts to deliver their targets and TP. However, the consultation also states that the Government wants any implementation requirement to have legal force and consequences if insufficient steps are taken to meet any such obligation that is introduced.

Adaptation and nature - The consultation considers broadening the scope of TPs to include climate adaptation as well as mitigation, resilience, and nature-related factors. This follows the Taskforce on Nature-related Financial Disclosures' (TNFD's) October 2024 consultation on integrating nature into climate TPs (see AGC Update – Issue 58).

Noting that the guidance and policy on adaptation is less developed than that on mitigation, the Government does not propose for the time being to require companies to take action to address climate-related risks that they identify or to ensure that their business is resilient. However, the Government believes that the use of 2°C and 4°C scenarios could support the development of company strategy and asks for information on whether companies are using these scenarios currently and how effective they are in supporting strategic business planning.

Similarly, the consultation states that development of requirements to include nature in climate TPs will also need to be developed over a longer time horizon and will be subject to further consultation. Noting the various developments by organisations like TNFD, the Government is taking a watching brief while practice around nature considerations and what it means to be 'nature positive' develops.

Scope - The consultation considers which entities should be in scope of any TP requirements. Specifically, whether only large, "economically significant" companies (e.g. FTSE 100 companies) and financial institutions (including pension funds) should be in-scope, how to ensure proportionality for supply chains and smaller companies (i.e. reduce the trickle down effect), and how to maintain the competitiveness of UK capital markets. The consultation states that SMEs are not envisaged as being within scope of any future requirements.

For more information on the implications of the consultation for financial services firms, see (UK Government Consultation on Transition Plan Disclosures for Financial Services).

Legal risk – The consultation seeks views on legal risks that may arise from TPs containing FLS that are underpinned by a range of estimates and assumptions outside the direct control of the reporting entity. As alluded to above, the Government is considering if section 463 of the Companies Act 2006 (which provides a safe harbour for company directors in relation to statements in certain specified documents) should apply for any reporting that takes place in accordance with UK SRS.

The environmental law charity, ClientEarth, published a legal Opinion on the potential liability for climate-related TP disclosures shortly before the publication of the consultations. The opinion by Andrew Thompson KC, Philip Morrison and Lily Church concluded that requiring companies to disclose TPs would not be likely to result in a materially heightened risk for companies or their directors. On the assumption that section 463 of the Companies Act (and other provisions) would apply to any TP disclosure, the opinion concludes that further safe harbours specifically for TPs would not be required.

Consultation on an oversight regime for sustainability assurance

The consultation proposes the introduction of a voluntary registration regime for providers offering assurance of sustainability-related financial disclosures, which would be operated by the Audit, Reporting and Governance Authority (ARGA) once established as the successor body to the FRC (see AGC Update – Issue 54).

The registration regime would be profession-agnostic to allow both audit and non-audit professionals and firms to register if they meet the eligibility criteria to be set by ARGA. A new legal category of 'sustainability assurance provider' would be created, distinct from statutory auditors, ensuring a broad range of expertise can be recognised and registered. ARGA would have monitoring and enforcement responsibility for the regime and related powers, although the consultation notes that the proposals are not intended to amend the FRC’s existing powers regarding oversight and enforcement of the UK audit market.

Registration would recognise an assurance provider as being capable of conducting assurance of disclosures against the UK SRS and other domestic standards that are based on ISSB disclosures, the TCFD and the European Sustainability Reporting Standards (ESRS). Introducing a regime would address the issue that was preventing UK assurance providers from providing  assurance for large UK-parent companies with operations in Europe.

The consultation seeks views on whether to move towards mandatory assurance of sustainability-related financial disclosures in the future, particularly for economically significant companies, and explores how the proposed regime would interact with EU requirements and existing UK regulations such as the non-audit services fee cap.

Next steps

UK SRS and UK SDS

Following the UK SRS consultation, the Secretary of State for Business and Trade will take a decision on whether to endorse the standards with a view to publishing the UK SRS in Autumn 2025.

Once the UK SRS are adopted, the Financial Conduct Authority (FCA) will consult on using the UK SRS to introduce requirements for UK-listed companies to report sustainability-related information. For UK companies that are not regulated by the FCA, the Government will consult on introducing UK SDR (based on the UK SRS) through the Companies Act 2006. Although the consultation does not specify which entities would be covered, it is likely at least to include those already subject to climate-related financial disclosure requirements.

The government intends to provide a roadmap of any future regulatory changes as part of the subsequent consultations.

The work to introduce the UK SDR will be complemented by a consultation, as part of the non-financial reporting review, on streamlining the UK’s current non-financial reporting framework under the Companies Act 2006. That consultation will focus on updating the structure of annual reports so as to integrate sustainability-related reporting requirements, whilst also removing redundant and duplicative requirements. Over the long term, the Government will also consult on the need to mandate assurance of disclosures against the UK SRS.

Transition Plans

The Government intends to bring forward its proposals on TP requirements in conjunction with its decisions on the UK SRS and assurance consultations.

The FCA will consult on strengthening its expectations for listed companies’ TP disclosures in the Listing Rules as part of its broader consultation on implementing UK SRS for listed companies, and by reference to the TPT Disclosure Framework.

The FCA has also stated that, in accordance with its Sustainability Disclosure Requirements (SDR) and investment labels regime, it will consider updating disclosure requirements for asset managers in line with the UK SRS standards and the TPT Disclosure Framework.

The Department for Work and Pensions will undertake a review of the Climate Change Reporting Regulations, and has asked the Pensions Regulator to assess the practicalities implementing a regime TPs for pension schemes and to present its findings later in 2025.

Comment

These consultations appear to take the UK in a different direction to the EU, which is currently scaling back its sustainability reporting and due diligence requirements (see Where has the EU's Omnibus got to now?). Nevertheless, the consultations recognise this and state that any new requirements must align with the Government's wider ambition to simplify the UK’s corporate and non-financial reporting framework and reduce the administrative costs of regulation for business.

What should companies do now?

Those likely to be in-scope of the new requirements should:

• Follow the consultation processes and the development of legislation to adopt the UK SRS and to introduce UK SDR and TP requirements.
• Confirm whether they are in-scope when legislation to introduce the UK SDR and Transition Plan requirements is published.
• For those in scope of UK SDR, conduct a gap analysis between their existing sustainability reporting and the new requirements to understand the uplift required to be compliant with the new requirements.

Want to know more?

• Government publishes an update on UK Sustainability Disclosure Requirements (SDR) and Sustainability Reporting Standards (SRS)
• Disclosures required under the IFRS's Sustainability Disclosure Standards (ISSB S1 and S2)
• ISSB publishes first standards on sustainability and climate disclosures
• Transition Plan Taskforce issues Disclosure Framework and consults on sector guidance
• Transition Plan Taskforce publishes final report on next steps for Transition Plans