UK Finance Responds to FCA CP26/5: ISSB Alignment Welcome, Scope 3 Cliff-Edge a Concern
Credit: ESGTree
Banks support the transition from TCFD to UK SRS but press for clearer mandatory pathways and workable transition relief for the most challenging disclosure categories.
Context:
UK Finance submitted its formal response to FCA Consultation Paper CP26/5 Aligning Listed Issuers' Sustainability Disclosures with International Standards, ahead of the 20 March 2026 deadline. CP26/5 proposes replacing existing TCFD-aligned listing rules with requirements for UK-listed companies to report against the UK Sustainability Reporting Standards (UK SRS), based on ISSB IFRS S1 and S2. The new rules are intended to take effect on 1 January 2027.
UK Finance's response reflects the dual perspective of its members: as issuers of listed securities subject to the new disclosure obligations, and as investors and asset managers that are users of sustainability disclosure data. The response is broadly supportive of the reform direction; the move from TCFD to ISSB alignment is endorsed by approximately 40 jurisdictions globally and represents a significant improvement in international comparability, whilst raising several specific concerns about the implementation design.
The backdrop is the UK's parallel Modernising Corporate Reporting (MCR) programme, which will extend UK SRS reporting obligations beyond listed companies to economically significant non-listed entities via the Companies Act. UK Finance's response sought to ensure that the FCA's listed company rules and the MCR programme are designed in a mutually consistent way, to avoid fragmented reporting standards across listed and unlisted firms in the same group.
Rules and Guidelines:
Under CP26/5: climate reporting under UK SRS S2 would be mandatory for most listed issuers from January 2027, with a one-year deferral available for Scope 3 emissions (to January 2028) and a two-year deferral for non-climate sustainability disclosures under UK SRS S1 (to January 2029). Both deferrals operate on a 'comply or explain' basis, with issuers who use the deferral unable to claim full compliance with UK SRS. The policy statement is targeted for autumn 2026 and incorporates feedback from the consultation.
UK Finance's key rule-level concerns: First, Scope 3 reporting, UK Finance acknowledged the operational complexity of Scope 3 data collection but warned that a permanent comply-or-explain treatment risks perpetuating the structural disclosure gaps that investors have consistently identified as the most significant weakness in current TCFD-aligned reporting. UK Finance pressed for a firm mandatory date for Scope 3 through the MCR programme, with the comply-or-explain treatment available only as a genuine transitional tool. Second, financed emissions, UK Finance noted that ISSB S2 guidance on how financial institutions should calculate and disclose financed emissions (a subset of Scope 3) is still developing, and pressed the FCA to engage with ISSB and PCAF to ensure UK SRS guidance is clear before the 2028 mandatory requirements apply.
Businesses Affected:
UK-listed banks, building societies, insurers, and investment firms subject to the FCA Listing Rules who are issuers under the new disclosure regime and users of disclosure data for investment and stewardship purposes.
Sustainability, investor relations, and legal teams at listed firms must begin gap analysis and data infrastructure upgrades for the January 2027 go-live.
Asset managers, pension funds, and insurance companies that use sustainability disclosures from listed issuers in investment decision-making, engagement, and regulatory reporting under the ISSB S1 and S2 frameworks.
Finance groups with both listed and unlisted operating companies, who need to plan for eventual MCR programme extension of UK SRS obligations to non-listed entities.
Next Steps:
Begin UK SRS gap analysis now. Compare existing TCFD disclosures against UK SRS S2 climate requirements. Identify data infrastructure gaps for Scope 3 value chain emissions.
Engage with PCAF and ISSB guidance on financed emissions methodology before the mandatory Scope 3 deadline. Firms that invest in robust methodology now will be better positioned when the comply-or-explain ends.
Monitor the FCA Policy Statement in autumn 2026 for final decisions on transitional arrangements. Any change to the Scope 3 deferral structure will require a rapid operational response.
Review group reporting architecture. If your group includes both listed entities (in scope for January 2027 UK SRS) and unlisted entities (subject to future MCR obligations), a unified reporting infrastructure will reduce long-term cost.
Source | UK Finance | Response to Sustainability Disclosures
