Only climate reporting will be mandatory under the UK’s listing rules, according to long-awaited proposals released Friday by the Financial Conduct Authority (FCA).
UK-listed companies will be expected to report climate-related information set out by the International Sustainability Standards Board (ISSB) standards from January next year, but can opt out of reporting Scope 3 emissions for one year before having to do so in 2028.
Listed companies can opt out of reporting non-climate sustainability information for two years until 2029.
Beyond those dates, the disclosure of Scope 3 emissions and non-climate sustainability information for listed companies will be implemented on a comply-or-explain basis, according to the FCA’s proposed rules. The FCA did not provide any indication that these requirements will be made mandatory in the future.
The consultation on these proposals, which is open until 20 March, comes amid the UK Department of Trade’s plans to publish its final UK Sustainability Reporting Standards (SRS) next month. The standards are based on the ISSB, with an S1 standard for general sustainability disclosures and S2 for climate.
The SRS also consist of reporting reliefs that go beyond those set out by the ISSB, for example, by extending the permission of a “climate-first” approach from one to two years.
However, Scope 3 provisions would be introduced in the second year of reporting under the UK SRS S2, in line with the ISSB standards.
The FCA, which mandated climate reporting for all listed companies in 2021 based on the Taskforce on Climate-related Financial Disclosures recommendations, noted market feedback indicated that Scope 3 reporting “remains difficult for some listed companies” because of data collection challenges.
It acknowledged that by opting to explain an omission of Scope 3 emissions, an issuer may not be able to state compliance with the UK SRS.
On non-climate disclosures, the FCA said that it recognised that reporting sustainability issues outside of climate “will be new to many of these listed companies and may present challenges”. Again, it noted that opting to explain rather than comply could mean a company is not compliant with the UK SRS.
Transition transparency
The FCA has taken a hands-off approach to climate transition plans, which has been a policy priority for the UK government, but said that companies should still explain the absence of one.
“Mandating that companies have transition plans is a matter for government. However, we acknowledge that investors find this information useful,” said the FCA.
The government published individual consultations on endorsing the ISSB standards, assurance requirements and transition planning in June last year.
It set out two implementation options for transition plans: a comply-or-explain approach or requiring companies to develop and disclose transition plans as part of annual reporting.
The FCA also proposed that companies should disclose whether they have obtained third-party assurance on sustainability disclosures.