ESG reporting: Latest update to the UK’s adoption of IFRS S1 and S2 standards

The UK’s journey towards comprehensive and standardised sustainability reporting has taken a significant step forward. The UK is set to adopt the International Sustainability Standards Board’s (ISSB) S1 and S2 standards in 2025. Notwithstanding the recent change in government, further announcements are expected in early 2025 with the first published sustainability reports expected for periods beginning 1 January 2026.

If endorsed by the government, the new UK Sustainability Reporting Standards (SRS) will support the existing Sustainability Disclosure Requirements (SDR) published in late 2023. The first reports to be published under this regulation are expected to be for periods beginning 1 January 2026.

What are the S1 and S2 standards?

S1 (General Requirements for Sustainability-Related Disclosures)

Covers a broad range of sustainability topics, including environmental, social and governance (ESG) issues. Companies are required to report on how sustainability-related risks and opportunities may affect their financial position, performance and prospects.

We expect the UK to adopt a double materiality approach, similar to the EU’s CSRD. This does, however, need to be weighed against other ongoing reforms to ensure the London Stock Exchange remains competitive.

S2 (Climate-Related Disclosures)

Focused specifically on climate-related issues, S2 provides detailed guidance on reporting the impact of climate change on a company’s business, including risk management, metrics, targets and scenario analysis.

S2 is consistent with TCFD, meaning that those currently disclosing under TCFD will be well positioned to pivot to S2. IFRS has published a comparison guide to support the transition.

Recent developments in the UK

In a significant move towards enhancing sustainability reporting, the UK government and regulatory bodies have announced their commitment to adopting ISSB S1 and S2 standards.

Government endorsement

The UK government has formally endorsed the adoption of ISSB S1 and S2 standards, highlighting their importance in improving the quality and consistency of sustainability reporting.

How will these standards integrate with existing regulation?

The Financial Reporting Council (FRC) and the Department for Business and Trade are working closely to integrate these standards into the UK’s existing regulatory framework. This involves aligning the ISSB standards with the UK’s current corporate reporting requirements and ensuring a smooth transition for companies.

When will companies be required to report against the new standards?

A phased implementation approach is being considered to allow companies sufficient time to adapt to the new standards. The government is expected to provide a timeline for reporting by 2025 Q1. We anticipate that the UK’s largest and listed companies will likely be required to report against ISSB for reporting periods beginning 1 January 2026.

How will adoption of the standards affect UK companies?

The adoption of ISSB S1 and S2 standards in the UK is expected to have several significant implications:

• Enhanced transparency: Companies will be required to provide more detailed and comparable sustainability disclosures, improving transparency and helping investors make better-informed decisions.
• Investor confidence: The standardised approach to sustainability reporting will boost investor confidence, potentially attracting more investment into UK businesses that demonstrate strong ESG performance.
• Regulatory compliance: Companies will need to align their reporting practices with the new standards, necessitating updates to their sustainability reporting frameworks and processes.
• Competitive advantage: Early adopters of the ISSB standards may gain a competitive edge by showcasing their commitment to sustainability and robust reporting practices.

Contact us

To discuss how the UK’s adoption of IFRS S1 and S2 Standards could affect your company, please contact Charlie Killingbeck or Lydia Bennett-Li in our ESG team.

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