UK’s FCA Drops Plans for Mandatory IFRS-Based Climate Reporting

The Financial Conduct Authority (FCA), the UK’s conduct regulator for financial services firms and financial markets, announced the release of it finalized rules for listed companies to begin climate and sustainability-related reporting in line with the UK’s new IFRS-based Sustainability Reporting Standards (UK SRS), choosing to allow companies to take a “comply-or-explain” approach, instead of a mandatory approach for climate reporting initially proposed by the regulator.

The FCA said that it selected the comply-or-explain approach following feedback raising concerns that mandatory application of the climate-related reporting standard could place disproportionate burdens on smaller companies, and that disclosures by smaller companies whose business models were not materially impacted by climate or sustainability matters were often of limited use to investors.

The release of the new policy follows a consultation launched by the FCA in early 2026 on a proposal to significantly revise sustainability reporting requirements for listed companies, including expanding reporting obligations for companies beyond their currently-mandated climate-related disclosures, and from the current requirement to base disclosures on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

Most notably, in order to increase international alignment, the new policy will shift disclosure by UK listed companies to new standards based on the IFRS Foundation’s International Sustainability Standards Board’s (ISSB) sustainability (IFRS S1) and climate-related (IFRS S2) reporting standards. The UK released its new UK Sustainability Reporting Standards earlier this year, “UK SRS S1” and “UK SRS S2,” which correspond to the ISSB’s standards.

Under the FCA’s initial proposal, the new rules would have required companies to make mandatory climate-related disclosures in line with UK SRS S2, while general sustainability reporting under UK SRS S1 was set to begin after 2 years on a comply-or-explain basis, and companies were also to be given a one-year relief for Scope 3 reporting, which would also have been implemented at first on a comply-or-explain basis.

The new policy, however, expands the comply-or-explain basis to all reporting requirements, while retaining the reliefs for UK SRS S1 and Scope 3 reporting.

Sustainable investing groups welcomed the move to IFRS reporting, but expressed concern about the FCA’s shift away from mandatory climate disclosure. Luke Hildyard, Head of UK Policy at responsible investing NGO ShareAction said:

“This summer’s heatwaves show that climate change is already reshaping our economy. Few companies will escape material climate risk, and they must report on it. The FCA’s alignment with international standards is welcome, but comply-or-explain risks leaving stakeholders, including investors safeguarding more than £3trn of UK pension savings, without complete, reliable and comparable data if some complacent boards choose not to comply.”

The FCA’s new reporting requirements will apply to accounting periods starting from January 1, 2027, with initial reporting to begin in 2028.

In a post announcing the new rules, Alicia Kedzierski, Head of Sustainable Finance and Defence, Security and Resilience at the FCA said:

“Following extensive market engagement, including our consultation earlier this year, we have decided to apply the rules on a comply-or-explain basis across the full UK SRS. We believe this will support the consistent disclosure of financially material, decision-useful information while retaining flexibility for issuers, particularly those at an earlier stage of their lifecycle.”

The FCA said that it has also initiated a consultation on a new technical note to help companies apply the comply or explain approach in a proportionate way. Click here to access the new policy and the new consultation.