The UK government has updated its timeline for implementing the Sustainability Disclosure Requirements (SDR), a move that will have significant implications for corporate finance teams across the nation.
The SDR was first set out in Greening Finance: A Roadmap to Sustainable Investing in 2021, and structured as an economy-wide framework with a number of separate but connected components, including the UK Green Taxonomy and Transition Plan Disclosures.
The updated guidance is aligned with the framework established by the International Sustainability Standards Board (ISSB), ensuring compatibility with most jurisdictions. The consultation on the draft standards is slated to begin in the first quarter of 2025, with the earliest implementation date set for January 2026.
This shift in the timeline is a response to the global call for more comprehensive financial reporting, which now encompasses sustainability and other Environmental, Social, and Governance (ESG) issues.
The rapid proliferation of ESG and sustainability reports has outpaced existing regulatory frameworks, leading to inconsistencies and potential legal complications.
Motivations Behind the Change
The push for enhanced ESG reporting has been driven by international organisations, fund managers, and market forces. At the heart of this movement is the desire to provide investors and stakeholders with the necessary information to make informed decisions that align with their sustainability goals.
The UK’s 2023 Green Finance Strategy outlines the government’s long-term strategy to facilitate the flow of robust, decision-useful information between corporates, consumers, investors, and capital markets. The updated SDR is central to this strategy, building on global best practices and leading standards.
The updated timeline for SDR implementation will require corporate finance teams to adapt to new reporting standards. Small and Medium-sized Enterprises (SMEs), which make up 90% of all organisations globally, will be particularly affected as they are integral to the value chain.
The creation and use of sustainability-related information will enable SMEs to better manage their opportunities and risks, thereby strengthening their financial position. This, in turn, will facilitate easier access to investment and more favourable trade terms with suppliers. Moreover, it will aid in the recruitment and retention of high-calibre employees.
The UK Sustainability Disclosure Technical Advisory Committee, an independent group of 15 sustainability experts, will perform a technical assessment of the ISSB standards and make recommendations to the Secretary of State for the Department for Business and Trade. This recommendation is expected to be made public and open to feedback in Q1 2025.
Updates on further regulatory intiatves
The Implementation Guidance document provides updates on a number of other elements of the broader SDR framework, including:
- Transition Plan Disclosures: In April 2022, the government launched the Transition Plan Taskforce to help companies communicate their net zero plans. The government confirmed intentions for relevant regulators to strengthen expectations for transition plan disclosures alongside work to align UK rules with the ISSB standards.
- UK Green Taxonomy: The document notes that “The Government continues to work at pace and expects to consult in due course” on the proposed Green Taxonomy, although no specific date is given. Following consultation feedback, there will be a voluntary testing period for at least two years before the possibility of exploring mandatory disclosures.
- Nature-Related Disclosures: Although the government welcomes the work of the Taskforce on Nature-related Financial Disclosures (TNFD) in developing recommendations on nature-related issues,4 it does not commit to implementing any nature-related obligations in the UK regulatory framework.