UK’s SDS and Green Finance Strategy: Opportunities for UK Listed Companies

The UK’s Sustainability Disclosure Standards (SDS) are set to reshape corporate sustainability reporting in the country. Announced by the Department of Business and Trade (DBT) in August, these standards align closely with the IFRS Sustainability Disclosure Standards developed by the International Sustainability Standards Board (ISSB).

Green Finance Strategy

The SDS announcement follows the UK government’s plans under its Green Finance Strategy, to lead as the world’s first net-zero financial center. This strategy aims to:

• Foster Economic Growth: it supports the UK financial services industry in thriving and staying competitive during a transitioning economy.
• Drive Green Investment: it seeks to attract additional private investment into the green economy.
• Ensure Financial Stability: emphasis is placed on promoting financial stability, a crucial factor in the sustainability of these initiatives.
• Nature and Climate Adaptation: the strategy integrates nature and climate adaptation, acknowledging their vital roles in achieving net-zero emissions.
• Capital Alignment: efforts are made to align capital flows with climate and nature objectives.

Key Initiatives

Basically, the strategy introduces various initiatives with significant relevance to the financial sector, including:

1. UK Green Taxonomy – A forthcoming consultation on the UK Green Taxonomy, expected in July 2024, will begin as a voluntary reporting mechanism for the first two years. However, it will become mandatory for larger companies thereafter.
2. Net-Zero Transition Plans – An upcoming consultation will explore the requirement for larger companies to disclose their net-zero transition plans, building on previous commitments in this area and the launch of the Transition Plan Task Force
3. Global Reporting Standards – Considerations are in place for the adoption of the ISSB global reporting standards into the UK’s Sustainability Disclosure Requirements (SDR).
4. Scope 3 Emissions – A call for evidence is forthcoming on scope 3 emissions reporting, assessing its costs and benefits.
5. Climate Adaptation Metrics – The development of climate adaptation metrics and guidance is slated for 2024.
6. Regulatory Framework Review – The Government, FCA, FRC, and TPR will collaborate to review the regulatory framework for investor stewardship.
7. Clarifying Fiduciary Duty – The government will consider whether to clarify fiduciary duty and engage with the industry on this matter.
8. ESG Ratings Regulation – HM Treasury has published a consultation on bringing ESG ratings providers under FCA regulation and supervision, encompassing both UK and overseas firms.

Alignment with International Standards

Furthermore, in the updated Green Finance Strategy, the UK government commits to evaluating the IFRS Standards once published. Ultimately, aligning the UK SDS with these international standards and publishing comparable sustainability data, will:

• enhance the global competitiveness of UK-listed companies and
• broaden their access to sustainable finance opportunities worldwide.

Implementation Timeline

The UK government aims to establish the UK Sustainability Disclosure Standards by July 2024. Evidently, these standards will apply to UK-listed companies, large UK registered private companies and large limited liability partnerships. In preparation, UK-listed companies should:

• Familiarize Themselves with IFRS Standards: since the UK SDS will be based on IFRS, companies must start by assessing current data collection practices to identify gaps. Comprehensive and robust data will help protect against potential allegations of greenwashing.
• Double Materiality Principle: The IFRS Standards emphasize “double materiality,” a concept less familiar to UK-listed companies. It requires disclosures to address how sustainability issues affect companies and how companies’ activities impact society and the environment beyond their immediate operations. It is presumed that this principle will be reflected in the UK SDS.

Upcoming CSE Solutions Program

In particular, for those seeking to navigate the complexities of sustainability reporting and double materiality, consider joining the Europe Certified Sustainability (ESG) Practitioner Program, Leadership Edition 2023, scheduled for December 7, 8, and 11. This online program with live Zoom sessions equips participants with the latest reporting skills to address the challenges presented by the IFRS Sustainability Disclosure Standards and double materiality issues.