UKSIF responds to CP26/5. What the FCA’s Proposed SRS Rules Mean for UK Listed Companies.
Source | ESGTree
The landscape of corporate sustainability reporting in the UK is undergoing its most significant shift since the introduction of TCFD. Following the publication of the Financial Conduct Authority’s (FCA) consultation paper CP26/5, the UK Sustainable Investment and Finance Association (UKSIF), representing over 300 members and £19 trillion in global AUM, has issued a detailed response.
Context:
The FCA’s consultation proposes replacing the existing (and now static) TCFD-aligned rulebook with requirements based on UK SRS S1 (General Requirements) and S2 (Climate-related Disclosures). This move aligns the UK with the International Sustainability Standards Board (ISSB) global baseline.
The UK SRS standards include more granular requirements than TCFD, particularly around the financial effects of climate change and strategy resilience. UKSIF notes that this transition should, over time, lower the cost of capital for issuers by providing investors with more decision-useful, comparable data.
Rules and Guidelines:
Climate Reporting
FCA Proposal. Mandatory compliance for all in-scope companies (with the exception of Scope 3 emissions).
UKSIF Position: Supported. UKSIF views this as a logical and necessary progression from the existing TCFD framework. Mandatory S2 reporting ensures a level playing field and provides investors with the baseline climate risk data required for effective capital allocation.
Scope 3 Emissions Reporting
FCA Proposal. Apply on a 'Comply or Explain' basis. This allows companies to explain why they have not reported Scope 3 data rather than providing the data itself.
UKSIF Position: Disagreement. UKSIF argues for a mandatory pathway with a 2030 deadline. They caution that allowing broad use of 'explain' over 'comply' will create significant data gaps and limit comparability for investors, especially since Scope 3 often represents the most material portion of a company's carbon footprint.
General Sustainability Reporting (SRS S1)
FCA Proposal. Apply on a 'Comply or Explain' basis for non-climate sustainability factors.
UKSIF Position: Disagreement. UKSIF advocates for a clear pathway to mandatory disclosure by 2030. The response highlights growing investor demand for financially material information on nature-related risks and other sustainability factors beyond pure climate data.
Secondary Listings (Overseas Companies)
FCA Proposal. Exempt these companies from full UK SRS requirements; they would only need to state which overseas standard they follow (if any).
UKSIF Position: Concern. UKSIF warns this creates an uneven playing field that disadvantages UK-domiciled companies. They recommend that secondary listed issuers should face equivalent disclosure expectations, particularly those based in jurisdictions with no local sustainability reporting standards.
Location of Disclosures
FCA Proposal. Sustainability disclosures should be included within the company's Annual Financial Report.
UKSIF Position: Supported. This approach reinforces the "connectivity" between financial performance and sustainability risks, helping investors see how ESG factors impact the bottom line.
Next Steps:
While the consultation is a positive step, UKSIF’s response makes clear that the work is only half done.
The FCA's proposals are a necessary evolution. However, as UKSIF’s response underscores, the success of the UK’s sustainable finance hub status depends on a clear, long-term trajectory toward full ISSB compliance, particularly on the challenging but material frontier of Scope 3 emissions.
UKSIF, Sustainability disclosures with international standards.
