Expected changes to ESG reporting requirements in the UK&I

In both the UK and Ireland, there are mandatory Environmental, Social and Governance (ESG) reporting regulations that businesses must comply with, such as the Taskforce on Climate-Related Financial Disclosures (TCFD).

But the regulatory landscape continues to evolve. Our recent research found businesses feel increasing pressure from investors, banks and other stakeholders to demonstrate environmental action. In addition, there’s increased scrutiny from regulators and governments to ensure businesses are transparent about their progress against sustainability goals, to reduce greenwashing and help both investors and consumers make more informed-buying decisions.

In response, new regulations are being developed in the UK, Europe and globally to further strengthen ESG reporting requirements. These are being developed to further measure, control and steer positive action on sustainability issues.

There is no single framework or standard for ESG reporting, so staying on top of the changing regulatory landscape is critical – but challenging. Let’s explore some of the upcoming regulations which businesses in the UK and Ireland should be aware of, in addition to their current mandatory requirements.

Future ESG reporting regulations to keep an eye out for

The below information is correct as-of October 2023 – and remember, UK businesses that have legal entities in the EU will need to comply with both UK and EU regulations.

This is not an exhaustive list and should not be considered legal advice. You should conduct your own independent scoping exercise with legal support to understand all upcoming regulatory changes that will affect your organisation.

Corporate Sustainability Reporting Directive (CSRD)

This is a new directive being adopted by the EU to further expand its sustainability reporting requirements. It requires more organisations to provide detailed reporting on how sustainability issues impact their operations; and how their business operations impact the planet. It will begin to be enforced from 2024 onwards.

EU Green Taxonomies

The EU has introduced an EU taxonomy to help classify what ‘sustainable’ economic activities are. It is designed to help tackle greenwashing and make it easier for companies and investors to understand if the investments they’re making are genuinely sustainable. It is already in place for some companies, but the scope of companies affected by this taxonomy is expanding every year, to include more companies based on revenue and FTE. What’s more, the UK government plans to introduce a similar taxonomy in the future.

Transition Plan Taskforce

Businesses are increasingly publishing climate transition plans to outline their net zero commitments. However, these can vary in detail, quality, and transparency. The Transition Plan Taskforce was introduced by HM Treasury in 2022 to help tackle this. They have developed a ‘gold standard’ for private sector climate transition plans, with sector-specific guidance to follow soon. With greater standardisation across climate transition plans, it’s hoped that it will allow for better-informed spending decisions.

International Sustainability Standards Board (ISSB)

The International Sustainability Standards Board (ISSB) have begun to launch high-quality, comparable and consistent sustainability standards for companies to report against. These will help investors to better understand an organisation’s sustainability-related risks and opportunities. It will be built on the principle of single materiality, which means companies will report on how sustainability impacts the firm. They won’t have to also take into account the company impacts the wider environment (double materiality). The UK is expected to adopt the ISSB, and will confirm this in 2024.

Sustainability Disclosure Requirements (SDR)

Sustainability Disclosure Requirements (SDR) are a set of rules that are being developed by the Financial Conduct Authority (FCA). It aims to reduce and prevent greenwashing, by introducing new guidelines around how products are labelled, named and marketed. It’s hoped that the changes will make it easier for consumers to understand the sustainability credentials of the products and services they buy, helping them to make informed buying decisions. The rules are expected to be introduced by the end of 2023.

Voluntary reporting frameworks

In addition to mandatory ESG reporting requirements, a range of voluntary frameworks also exist. These can give your internal and external stakeholders a more comprehensive view of your business’s progress against sustainability goals, helping to increase transparency and accountability.

Key voluntary frameworks to be aware of include:

• Carbon Disclosure Project (CDP)
• The UN’s Sustainable Development Goals (SDGs)
• The Sustainability Accounting Standards Board (SASB)
• The UN’s Global Compact
• Workforce Disclosure Initiative (WDI)
• Corporate Mental Health Benchmark (CMHB)

As part of Centrica Plc, we choose to report against all these frameworks, as part of our People and Planet Plan.

It’s clear that the new regulations that are being developed will give businesses stricter guidelines for net zero. In response, many organisations are now planning to ramp up their net zero strategies. But with a tough macroeconomic backdrop, it may feel challenging to prioritise environmental action.

If you need support in turning your net zero strategies into action, our Net Zero Pathway Consultancy team can help. Using science-based methodologies, they can help you to deploy new technologies and reduce commercial risk using our “Cut, Convert, Complete” framework. This can help to strengthen your narrative when you’re required to report on ESG-related matters.

Alternatively, if you're not sure where to start with your net zero plans, we surveyed 300 European executives to understand how they plan to overcome compliance, cost and technology challenges in the years ahead. Download our report for practical advice on how you can prepare the business case for more sustainable operations now, so you’re ready when compliance targets come into force and the price of carbon emissions go up.

All information in this blog was accurate as-of October 2023. This blog does not constitute legal advice, and we recommend you seek independent guidance on all your reporting requirements.