UK SRS: How Can You Prepare?

What are the UK SRS?

The ISSB established a global baseline for sustainability reporting, which the UK aims to adopt and enhance through its own standards.

Objectives: The UK SRS seeks to provide clear, comparable, and decision-useful information to investors and stakeholders. The IFRS S1 and S2 standards, developed by the ISSB, are central to this effort. IFRS S1 addresses general requirements for sustainability-related financial information, while IFRS S2 focuses on climate-related disclosures. The UK government plans to assess and most likely endorse these standards by Q1 2025.

Key Components of UK SRS

IFRS S1 and S2 Foundation: The IFRS S1 and S2 standards, published on 26 June 2023, serve as the foundation for the UK SRS. IFRS S1 addresses general requirements for sustainability-related financial information, while IFRS S2 focuses on climate-related disclosures. The UK government plans to assess and potentially endorse these standards by Q1 2025.

Government Support: The UK government has shown strong support for the ISSB’s standards, intending to integrate them into the national regulatory framework. The Financial Conduct Authority (FCA) will play a critical role in implementing these standards for UK-listed companies, following an endorsement decision and consultation process.

Impact on Companies: UK-listed companies will be required to report sustainability-related information based on the endorsed standards starting no earlier than 1 January 2026. Non-listed companies may also be subject to disclosure requirements, considering the cost-benefit balance for reporting entities and the information needs of investors.

Overlap with TPT Disclosure Framework: The UK SRS is expected to align with the Transition Plan Taskforce (TPT) Disclosure Framework, promoting transparency on net-zero targets and ensuring comprehensive transition plan disclosures. However, this alignment is not yet confirmed and will be decided based on future consultations.

Overlaps with Other Reporting Standards

Comparative Analysis with ESRS: UK businesses with operations in the EU will need to navigate the complexities of adhering to both the UK SRS and the EU’s Corporate Sustainability Reporting Directive (CSRD), which is based on the European Sustainability Reporting Standards (ESRS) developed by the European Financial Reporting Advisory Group (EFRAG).

Key Differences:

• Materiality Focus: The UK SRS, aligned with the ISSB standards, focuses primarily on financial materiality. In contrast, the CSRD and ESRS adopt a double materiality approach, considering both financial and environmental/social impacts.
• Disclosure Requirements: The first UK SRS will be based on IFRS S1 and IFRS S2, which emphasize general sustainability-related financial information and climate-related disclosures. The ESRS includes broader requirements that cover a wider range of sustainability issues.
• Implementation Timelines: UK SRS standards are expected to be available by Q1 2025, with reporting starting for accounting periods no earlier than 1 January 2026. The CSRD requirements will start earlier, impacting the 2024 reporting cycle for some companies.

Mutual Benefits: Aligning with both the UK SRS and CSRD provides companies with comprehensive reporting that meets various regulatory demands, improves transparency, and supports global sustainability goals. Companies that manage to integrate both standards effectively will likely gain a competitive advantage in terms of sustainability performance and investor relations. For further information, stakeholders can refer to the recently published interoperability guidance between the ESRS and IFRS standards, which outlines how companies can achieve compliance with both sets of standards efficiently.

What’s Next for Companies?

Implementation Timeline: The UK government aims to finalize the endorsement of IFRS S1 and S2 by Q1 2025. Companies should start preparing now to meet the upcoming reporting requirements.

Preparation Tips:

1. Assess Current Practices
   • Conduct a Materiality Assessment: Undertake a materiality assessment to identify and prioritize the sustainability issues that are most significant to your business. We recommend adopting the double materiality approach of the ESRS for a more holistic view of your company’s impacts, risks, and opportunities. 
   • Evaluate Existing Sustainability Practices: Perform a thorough evaluation of your current sustainability practices to determine how well they align with the anticipated requirements of the UK SRS. This assessment should include reviewing your data collection processes, reporting accuracy, and overall sustainability strategy. 
   • Identify Necessary Changes in Governance and Data Processes: Ensure that your governance structures and data processes are robust enough to support the enhanced reporting requirements. This may involve integrating new software solutions, providing staff training on new protocols, and establishing clearer communication channels for sustainability data management.
2. Voluntary Alignment
   • Start Disclosing in Line with IFRS S1 and S2 Standards Voluntarily: Begin reporting according to IFRS S1 and S2 standards ahead of the mandatory requirement. This proactive step will help your organisation adjust to the new standards and enhance transparency with stakeholders.
   • Implement the Draft TPT Disclosure Framework and Guidance: Adopting the draft TPT Disclosure Framework early will facilitate smoother compliance when the requirements become mandatory. It also demonstrates your commitment to robust sustainability reporting.
3. Leverage Technology and Data Providers
   • Use AI and Other Technologies for Data Collection: Employ AI and other advanced technologies to gather data from publicly available sources efficiently. This can enhance the accuracy and comprehensiveness of your sustainability reporting.
   • Engage with ESG Data Providers: Collaborate with ESG data providers to ensure the data you use is reliable and meets the reporting standards. Conduct due diligence on their methodologies to confirm they align with your reporting needs.
   • Ensure Interoperability: Leverage technology to ensure that data collected is interoperable across multiple frameworks, such as IFRS S2 and ESRS E1. This approach minimizes redundancy and streamlines the reporting process, making it more efficient and effective.
4. Embrace Opportunities
   • Use the UK SRS as a Lever for Whole-of-Business Transformation: View the UK SRS not just as a compliance requirement but as an opportunity for business transformation. Integrating sustainability into your core strategy can drive innovation, improve operational efficiency, and enhance your company’s reputation and competitiveness. 
   • Adopt a Value Creation Mindset: Focus on the potential value creation from enhanced sustainability performance. This includes identifying new market opportunities, improving stakeholder relationships, and attracting investment by demonstrating a strong commitment to sustainable practices. 

Conclusion

The UK SRS represents a significant advancement in sustainability reporting, promoting transparency and accountability. By preparing now, companies can ensure compliance with future regulatory requirements and seize the opportunities presented by the transition to a more sustainable economy.

At Position Green, we offer comprehensive advisory and platform solutions to help you navigate these new standards and integrate sustainability into your business strategy. Our expert team is ready to assist you with aligning your reporting practices with UK SRS, ensuring you stay ahead of regulatory changes and maximize the benefits of enhanced sustainability performance.

Contact us today to learn more about how our services can support your journey towards compliance and sustainability excellence.