Key Takeaways:
- The standards are changing how large companies think about risk, money, and long term stability.
- They apply to UK listed companies and large UK private companies that meet the government’s size thresholds.
- They bring sustainability and climate risks directly into core business and financial reporting.
The UK Sustainability Reporting Standards are reshaping how large companies report risk, money and long term stability.
Built on the global ISSB standards from the International Sustainability Standards Board, they bring climate-related financial disclosures and sustainability-related business risks into mainstream reporting.
Using S1 and IFRS S2 under the reporting standards UK SRS, companies now have to treat environmental risk with the same seriousness as financial risk.
Our latest article explains what the standards actually are, and how this pushes businesses to take climate risks more seriously. It outlines the reporting requirements, who is in scope and exactly how the rollout will work.
UK Sustainability Disclosure Standards 2026
Overview
A disclosure is a piece of information that a company is legally required to write down and publish.
The UK Sustainability Disclosure Standards have pulled financially relevant sustainability and climate risks into the core of business reporting. After 5 – 6 years in the works, this now applies to all large companies over the UK’s defining threshold.
Purpose Of The Standards
Large companies have to produce annual financial documents, filed with Companies House, to ensure legal transparency and accountability across financial activity.
The purpose of the new Sustainability Standards is to crucially broaden what counts as a business risk within the documents’ contents.
Before it focused on debts, cash, competition, supply, inflation and all other financial activity, they must now also identify and explain sustainability and climate risks, bringing climate impacts into financial decision making.
How UK Sustainability Disclosure Standards Work
The standards work by forcing companies to identify all their climate and sustainability risks that could affect their money. This means instead of just thinking about revenue, costs, and competition, they now have to understand how flooding, energy use, emissions, supply chains, and regulation affect those numbers.
Identified risks must go into the report, allowing environmental considerations, emissions exposure or physical climate impacts to influence long-term investment decisions.
Relationship To Financial Reporting
Under the general requirements, companies must identify and disclose all sustainability-related risks that could materially affect their financial performance and long term stability.
Who Must Comply
Organisations In Scope
The organisations in scope are UK-listed companies and large UK private companies meeting the government’s threshold of large.
- This involves:
Turnover above £54 million
- Balance sheet total above £27 million
- More than 250 employees
Moreover, subsidiaries of international groups under ISSB style standards are required to use the new standards.
Voluntary And Mandatory Application
Larger companies must follow the standards, which is non-optional, from 2026 onwards.
Anyone under the threshold then gains the choice to do it voluntarily. From this they’d gain key business future-proofing from unavoidable climate changes and growing sustainability pressures.
To ease the transition, the UK government is offering a phased approach: companies only need to report on Climate (S2) in their first year, with complex Scope 3 supply chain data benefiting from a two-year grace period.
Interaction With Existing UK Reporting Requirements
For companies that already apply to reporting requirements, the new standards pull existing UK sustainability and climate reporting into one clear system.
These standards connect many existing reporting schemes like financial reporting and SECR into one place.
With everything together, it’s harder to hide bad data, and everything is clearly outlined.
Structure Of The UK Sustainability Disclosure Standards
The standards are split into clear parts, making it easier for companies to understand exactly what they need to report on. This broadly falls under two rulebooks, S1 and S2. They are two instruction books telling companies what they must write in those reports.
S1 and S2 tell the company what they have to say under each of those headings.
UK SRS S1 General Sustainability Disclosures
Standard 1 is for all sustainability risks that may affect the business’s finances, from governance and strategy to targets and risk management and even climate.
For instance, under S1 they could have to write water risks, supply chain risks, land use, environmental laws, or social or labour risks.
UK SRS S2 Climate-Related Disclosures
UK SRS Standard 2 is the climate focused rulebook. It requires companies to disclose their greenhouse gas emissions, exposure to carbon pricing, physical climate risks like flooding and heat, and how they plan to transition to lower carbon operations.
Alignment With International Sustainability Standards
The standards align with the global ISSB framework (mostly IFRS S1 and S2), a format established and recognised by investors, regulators and lenders.
Capital is global, so standards should be recognised to make business easy to compare and contrast at a global level. Companies can make money in many different countries, so having an international system allows risk reporting across borders.
General Sustainability Disclosure Requirements (S1)
Governance
This section requires companies to explain who is responsible for sustainability and climate risks at the highest level of the business.
It covers which board members oversee these issues, how decisions are made, and how management is held accountable, ensuring sustainability is treated as a core leadership responsibility.
Strategy And Business Model
Explains how the identified risks affect how the company makes money, and what it does. This revolves around climate change, regulation, resource limits as well as market shifts.
It delves into how the business will grow in a more regulated, low-carbon world as all frameworks, policies and laws are ultimately heading.
Risk And Opportunity Management
Beyond identifying risks, they must be assessed to explore how they will be managed. This involves sorting them by order of priority, highlighting how to spot them, the lens of analysis, and ultimately how they would be dealt with within business practice.
Metrics And Targets
This section requires companies to disclose the data they use to measure sustainability and climate performance, and the targets they are aiming for. It includes emissions, energy use, resource efficiency, and progress against climate or sustainability goals.
With real numbers, it makes it clear which companies have genuine plans in place, and which are just sprouting targets without actionable direction in place.
Climate-Related Disclosure Requirements (S2)
Climate Governance
In this section, it shows which people in the business are responsible for different climate decisions.
This highlights which senior management could be held responsible, keeping climate-related risks on par with serious business risks. Instead of keeping things vague, this clearly outlines who can be held accountable.
Climate Strategy And Transition Planning
Here they discuss the business’s plan to adapt to the low carbon economy. Plans must be realistic and consider future regulations and policy shifts addressing climate needs.
Linking future financial planning with climate concerns, it reveals if a company can truly survive moving away from normalised high-carbon activities.
Climate-Related Risks And Opportunities
This section describes how climate change could create risks or opportunities for the business. It includes physical risks such as flooding or heatwaves, as well as transition risks like carbon taxes or new environmental rules. It also covers where the business could benefit from new low carbon products, services, or market demand as the economy shifts.
Climate Metrics And Targets
Businesses must clarify exactly what data and measurements they will use to keep practices in line with climate requirements.
This just means they must show the hard numbers, not just present weak promises. This is where carbon accounting software becomes a need, and where platforms like Gaia’s Carbon Accounting Software are used to track emissions data and guide future investment decisions.
Greenhouse Gas Emissions
This section requires companies to report how much greenhouse gas they emit across their operations and supply chains. It shows where emissions come from and how they are expected to change in the future. This creates a clear, comparable picture of the company’s contribution to climate change and its exposure to carbon related costs.
Materiality And Decision-Useful Information
Financial Materiality
This is about weighing up whether the risk is worth reporting, based on how much it realistically impacts costs, assets, profits and future value. It must matter in the eyes of lenders and investors, beyond just a social and environmental focus.
Because money drives behaviour, this forces companies to take environmental risks seriously, as ignoring them would be financially damaging.
Time Horizons
Businesses must adopt a variety of time horizons from short-term considerations to long-term future-proofing.
It prevents them from just looking into the next year’s numbers and instead consider resource limits, harsh regulations and worsening climates can affect decades of financial business activity.
Connectivity With Financial Statements
Connectivity means sustainability and climate disclosures must be consistent with financial statements and forecasts
If a company says climate risks are serious, those risks must be reflected in asset values, budgets, and future projections.
Data, Systems And Controls
Data Collection And Methodologies
This section delves into the data collection tools and methods used to show exactly how their findings have been calculated. This adds validity and transparency, and is exactly where trusted tools like Gaia’s Carbon Accounting Software come into play.
Internal Controls And Documentation
Instead of pulling numbers and figures straight from tools into the report, they must be checked and validated.
Use Of Estimates And Assumptions
When exact future climate impacts are not yet known, estimates and assumptions must be made. This section crucially discloses how estimates have been calculated, what sources they use, and showcases logical, realistic outcomes based on science and high-quality thought processes.
Assurance And Reliability
Internal Review Processes
Companies must have clear internal processes for reviewing, approving, and signing off on sustainability and climate disclosures before they appear in the annual report. This includes management review, senior oversight, and documented checks.
External Assurance Expectations
Beyond extra internal checks, responsible companies should seek external auditors and validators to check their information. This section outlines exactly which third-party stakeholders will check their data, their methods used, and their conclusions on whether the disclosures are accurate.
Consistency And Comparability Over Time
Companies must use consistent methods and definitions when reporting sustainability and climate information over time, allowing readers to track progress, spot trends, and see whether performance is improving or worsening.
Reporting Format And Publication
Location Of Sustainability Disclosures
Rather than in a separate glossy ESG brochure, the sustainability and climate disclosures must be located alongside the financial and business risk statements. This is to treat them with the same severity.
Digital And Narrative Reporting
Companies must provide written explanations as well as structured digital data for their sustainability and climate disclosure, allowing people to read the story behind the numbers and also analyse the data easily.
Timing And Update Cycles
Under the new standard, disclosures must be updated as part of the company’s regular annual reporting cycle, with changes explained each year.
Implementation Roadmap
- 25 June 2025: The UK government published exposure drafts of the UK SRS S1 and S2 for consultation.
- 17 September 2025: Consultation on the draft standards closed.
- February 2026: Final versions of UK SRS S1 and S2 are expected to be endorsed and published, allowing companies to begin voluntary use.
- Mid 2026: Regulators are expected to consult on making the standards mandatory within UK reporting rules, such as the FCA’s listing rules and Companies Act changes.
- From accounting periods starting 1 January 2027: Once finalized and regulated, large companies must apply the standards as part of their annual reporting.
Common Challenges And Risks
The biggest challenge companies face is not having the systems to produce reliable emissions data at scale.
Many still rely on spreadsheets or fragmented tools, which makes compliance risky.
Carbon accounting is where a business hires an in house consultant, builds in house systems, or most commonly uses specialised software like Gaia’s to manage and report emissions data.
Gaia’s out of the box software can help your business embrace carbon accounting and take meaningful strides to invest in your future, turning complex climate reporting into something accurate, auditable, and decision ready.
More Information
https://energysavingtrust.org.uk/carbon-emissions-accounting-business
FAQs
What is a sustainability disclosure?
A disclosure is a piece of information that a company is legally required to write down and publish.
What do the UK Sustainability Disclosure Standards do?
The UK Sustainability Disclosure Standards have pulled financially relevant sustainability and climate risks into the core of business reporting.
How do the standards work in practice?
The standards work by forcing companies to identify all their climate and sustainability risks that could affect money.