Environmental, social and governance | UK Regulatory Outlook September 2023

European Sustainability Reporting Standards

The European Commission has adopted a delegated regulation setting out the first set of EU sustainability reporting standards. The European Sustainability Reporting Standards (ESRS) will be mandatory for use by companies that are required by the Accounting Directive, as amended by the Corporate Sustainability Reporting Directive, to report certain sustainability information.

The ESRS take a “double materiality” perspective: it obliges companies to report both on their impacts on people and the environment, and on how social and environmental issues create financial risks and opportunities for the company.

The ESRS now go to the Parliament and Council, who may accept or reject, but not amend, them. This set of Q&As from the Commission explains the timetable from here, the principal features of the ESRS, the companies to which they apply, and how they align with global standards such as those of the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative.

UK Sustainability Disclosure Standards

In a significant announcement for UK businesses, the government has published guidance on its framework to create UK Sustainability Disclosure Standards (UK SDS). Once in place these will require corporate disclosures on the sustainability related risks and opportunities that companies face, and will form the basis of any future requirements in UK legislation or regulation for companies to report on risks and opportunities relating to sustainability matters, including those arising from climate change.

UK SDS will be based on the IFRS Sustainability Disclosure Standards issued by the ISSB, and will only divert from the global baseline "if absolutely necessary for UK specific matters".

 The current intention is for the UK SDS to be in place by July 2024.

Taskforce on Nature-related Financial Disclosures publishes final disclosure framework

The final disclosure framework from the Taskforce on Nature-related Financial Disclosures (TNFD) has now been published and provides guidance for organisations when reporting on nature-related risks.

It recommends that businesses disclose the nature-related risks and opportunities relating to their governance, strategy, risk and impact management and metric and targets.

The recommendations are built on those of the Taskforce on Climate-related Financial Disclosures (TCFD) and are consistent with the global sustainability standards of the ISSB. David Craig, Co-Chair of the TNFD said: "Building on the language, structure and approach of the TCFD and consistent with the ISSB’s sustainability reporting baseline, the adoption of the TNFD Recommendations represents a step-change in the momentum and capacity for business and finance to identify, assess and disclose their exposure to nature-related issues in a manner consistent with climate-related-reporting.”

Consultation launched on SFDR implementation and options to improve framework

Please see Environment.