The UK Financial Conduct Authority (FCA) has finalized a significant overhaul of sustainability reporting requirements for listed companies, stepping back from an earlier proposal that would have made climate-related reporting under the UK's new sustainability standards mandatory.

On September 30, 2026, the FCA published Policy Statement PS26/19, confirming that in-scope listed companies will be expected to report against the UK Sustainability Reporting Standards (UK SRS) using a “comply or explain” approach across the entire framework. The new requirements will apply to accounting periods beginning on or after January 1, 2027, with the first reports expected in 2028.

The decision represents an important change from the FCA's original proposal. However, it does not mean that the UK is abandoning climate or sustainability reporting for listed companies. Instead, the FCA is replacing its existing TCFD-aligned disclosure regime with a new framework based on the UK-endorsed International Sustainability Standards Board (ISSB) standards, while giving issuers greater flexibility in how they implement those requirements.

What Changed?

The UK government finalized UK SRS S1 and UK SRS S2 in February 2026. The standards are based respectively on the ISSB's IFRS S1, which addresses general sustainability-related financial disclosures, and IFRS S2, which focuses specifically on climate-related disclosures.

Under the FCA's original proposal, reporting against UK SRS S2 would largely have been mandatory for affected listed companies, while broader sustainability reporting under UK SRS S1 would initially have been subject to a more flexible approach.

The final rules take a different path. Rather than making UK SRS S2 climate disclosures mandatory, the FCA will apply a comply-or-explain model to all components of the UK SRS framework. Under this approach, companies are generally expected either to make the disclosure required by UK SRS or explain why they have not done so.

This distinction is important. The FCA has not simply eliminated climate reporting requirements. In-scope issuers will still be subject to the new UK SRS reporting regime. The principal change is that companies will have more flexibility where a particular disclosure is not provided, provided they appropriately explain their approach.

Why Did the FCA Change Course?

According to the FCA, consultation feedback raised concerns about the proportionality of imposing mandatory UK SRS S2 reporting across the entire population of affected issuers. In particular, respondents highlighted concerns about the cost and complexity of implementing the standards for smaller listed companies, as well as circumstances in which climate or broader sustainability matters may have limited financial relevance to a company's business model.

The FCA ultimately concluded that applying comply-or-explain across the framework would allow for greater proportionality while continuing to encourage internationally comparable, decision-useful sustainability information for investors.

Who Will Be Subject to the New Rules?

The FCA's new sustainability disclosure requirements apply to companies with shares listed in several UK Listing Rules categories, including:

• commercial companies;

• companies in the transition category;

• issuers of non-equity shares or non-voting equity shares; and

• companies within the secondary listing or depositary receipts categories.

The regime therefore broadly continues the FCA's approach of applying sustainability disclosure requirements to specified categories of listed issuers rather than introducing a general company-size threshold.

For companies already reporting under the FCA's TCFD-aligned Listing Rules, the change represents a transition from the TCFD framework toward the more comprehensive UK SRS framework.

Transitional Relief Will Give Companies Additional Time

The FCA is also retaining important transitional provisions intended to give companies more time to develop some of the more complex disclosures. The new rules apply to accounting periods beginning on or after January 1, 2027, with the first reports expected to be published in 2028. In addition:

• companies will receive one year of transitional relief for Scope 3 greenhouse gas emissions disclosures; and

• companies will receive two years of transitional relief for wider sustainability disclosures under UK SRS S1.

During these transitional periods, companies may defer the relevant disclosures without initially having to provide the explanations that would otherwise be required under the comply-or-explain framework.

The transition provisions should be particularly significant for companies that have historically concentrated primarily on climate reporting under TCFD and have not yet developed systems capable of supporting the broader sustainability-related financial disclosures contemplated by UK SRS S1.

TCFD Reporting Is Being Replaced, but Not Sustainability Reporting Itself

One of the most significant aspects of the new regime is the formal transition away from the FCA's existing TCFD-aligned Listing Rules. The FCA introduced TCFD-aligned disclosure rules for listed companies beginning in 2021. Since then, the international sustainability reporting landscape has changed substantially. The TCFD was disbanded in 2023 after its recommendations were incorporated into the ISSB framework.

The FCA will now replace those TCFD-based requirements with UK SRS reporting requirements, aligning the UK listed-company disclosure regime more closely with the emerging international ISSB framework.

As a result, characterizing the FCA's decision simply as “dropping mandatory climate reporting” risks missing the broader regulatory development. The FCA is continuing to expand the underlying sustainability reporting framework — but it has chosen a more flexible mechanism for enforcing compliance with individual disclosures.

What Should Companies Do Now?

For companies within scope, the FCA's decision should not be viewed as a reason to stop preparing for UK SRS. Companies should begin assessing how their existing climate reporting compares with UK SRS S2 and identify where additional data, governance processes, controls or financial analysis may be required.

Businesses should also begin considering the broader requirements of UK SRS S1. Even with the two-year transitional relief, reporting under S1 can require companies to identify sustainability-related risks and opportunities that could reasonably be expected to affect their prospects and integrate those matters into their financial reporting processes.

Companies should also establish a process for documenting decisions not to provide particular disclosures. Under a comply-or-explain framework, an explanation can itself become an important regulatory disclosure. Decisions about non-reporting should therefore be supported by appropriate governance, materiality analysis and internal documentation.

What Comes Next?

Alongside the final rules, the FCA is consulting on proposed Technical Note TN 803.1, which is intended to provide additional guidance on how companies should apply the comply-or-explain framework proportionately. The consultation remains open until October 28, 2026. The FCA has also indicated that it intends to provide further information about its supervisory approach during the second half of 2027, before the first reporting season under the new regime.

The September 2026 decision therefore settles one of the major outstanding questions surrounding the UK's adoption of ISSB-based reporting standards: climate reporting will not initially be mandatory in the form originally proposed. But UK SRS reporting is very much moving forward.

For listed companies, the focus now shifts from whether the new sustainability reporting regime will take effect to how they will prepare for it — and when they may be able to rely appropriately on the FCA's new comply-or-explain flexibility.