Broader Standards, More Flexible Rules: What the FCA's UK SRS Decision Means for Climate Disclosure

On 30 September 2026 the Financial Conduct Authority published PS26/19, the rules that move in-scope listed companies off TCFD-based climate reporting and onto UK SRS S1 and S2. The regime applies to accounting periods starting on or after 1 January 2027. First reports land in 2028.

 

Read one way, this is a familiar story moving on. TCFD gave way to the ISSB, the ISSB standards became UK SRS, and now the listing rules catch up. Companies will report on more than climate, inside the annual report where investors already look.

 

Read another way, the regulator has stepped back. In January the FCA proposed that climate disclosures under UK SRS S2 would be mandatory, with only Scope 3 emissions left on comply-or-explain. The final rules put the whole framework, S1 and S2 alike, on comply-or-explain.

 

So the UK is asking companies to report on a wider set of issues while giving them more room to decline any single disclosure. Those two moves pull against each other. How they settle will decide whether this reform changes what investors actually see.

 

What genuinely moved forward

 

The old regime was narrow by design. The FCA introduced TCFD-aligned rules for premium-listed companies in 2020 and extended them to other listed issuers in 2021. Companies reported against four pillars and 11 recommended disclosures, all of them about climate. The TCFD was wound up in October 2023 once its work had been folded into the ISSB, which left the UK rules tied to a framework the TCFD was no longer updating.

 

UK SRS replaces that. The Department for Business and Trade published the standards in February 2026 as the UK-endorsed version of the ISSB's IFRS S1 and S2. S2 covers climate and builds directly on the TCFD structure. S1 is the bigger change. It requires companies to disclose material information about sustainability-related risks and opportunities that could reasonably be expected to affect their prospects. Water stress at a key plant. A supply chain exposed to forced labour. A product line that depends on a scarce mineral.

 

The detail becomes more prescriptive too. TCFD already addressed Scope 3 emissions and scenario analysis. UK SRS S2 goes further: it requires material Scope 3 disclosures with additional measurement information, requires climate-related scenario analysis to inform the assessment of resilience, and introduces industry-based metrics drawn from the ISSB framework.

 

The perimeter widens as well. International companies with a secondary listing, and depositary receipt issuers, were going to be allowed to signpost their home-country reporting. Under the final rules they report against UK SRS on comply-or-explain like everyone else. That closes a gap respondents warned could tempt UK companies to restructure their listings to escape the rules.

 

Over 90% of respondents to the FCA's consultation question on the switch backed replacing TCFD with UK SRS.

 

What the FCA dropped

 

The January consultation, CP26/5, drew a clean line. Climate reporting had five years of practice behind it, so S2 would be mandatory. Scope 3 data was harder to get, so it would be comply-or-explain. S1 was new ground, so it too would be comply-or-explain, after a two-year delay.

Only the first row moved towards flexibility. It is also the row that matters most.

 

The FCA's reasons were specific. Some respondents questioned whether mandating S2 was proportionate and whether it would hurt the international competitiveness of UK-listed companies. Smaller companies with little climate exposure argued that their disclosures were of limited use to investors anyway, and that a mandate would cost them heavily for little return. Reuters reported the decision as a retreat after companies raised cost and competitiveness concerns.

 

The saving is easy to measure. The FCA's estimate of the equivalent annual net direct cost to business falls from £33.18m under the proposal to £27.12m under the final rules. That is a difference of about £6m a year. Separately, the FCA estimates that moving to the more flexible compliance basis produces £100.04m in cost savings over its ten-year appraisal period. The same analysis prices the other side. Quantified benefits to investors fall from £519.20m to £407.58m, partly because the model assumes more companies will explain rather than disclose. The FCA says that fall is probably overstated, but on its own figures the estimated net benefit of the rules drops from £233.61m to £174.10m.

 

The aggregate figures also hide how the cost is shared. The FCA accepts that smaller issuers face proportionately heavier costs, and for a small company with little climate exposure that burden is real. But UK SRS already contains materiality and proportionality mechanisms, including provisions in specific areas that require companies to use reasonable and supportable information available without undue cost or effort. A fix aimed at small issuers would have kept the mandate for everyone else. Set against what was given up, the only part of the climate regime that would have been compulsory, the saving looks a thin justification.

 

What "explain" has to say

 

Calling this deregulation overstates it. The TCFD rules were comply-or-explain too, and Reuters reports that an FCA review found 92% of FTSE 350 companies complied with TCFD in their 2025 annual reports. The FCA itself says the final rules are not a significant change measured against either the proposal or the status quo.

 

Explaining is not the same as ignoring, either. A company that skips any S2 requirement must summarise which requirements it has not met, give its reasons, and set out any steps it plans to take to make those disclosures later. The draft Technical Note 803.1, still out for consultation until 28 October 2026, signals that generic boilerplate will not meet the FCA's expectations. The FCA has also reminded issuers of an older duty under DTR 4.1.8R: if climate is among a company's principal risks, choosing to explain under UK SRS does not let it drop the subject.

 

The floor, then, is higher than the word "flexible" suggests. The bigger concern is how many companies will stay close to that floor. The FCA's cost-benefit analysis assumes that 37% of domestic listed issuers will explain against most of UK SRS. It is a modelling assumption rather than a forecast, but it means the FCA has priced in more than a third of domestic issuers handing investors explanations instead of disclosures.

 

Its reasoning also contradicts itself. When respondents asked for size thresholds, the FCA refused. A company's climate risk, it said, depends on its business model and industry, and it named energy and transport companies of any size as likely to be heavily exposed. Yet the case for dropping the S2 mandate rested largely on the burden for smaller companies. If size is the wrong test for who reports, it is an odd test for whether climate reporting should be compulsory.

 

The policy statement also leaves the longer-term direction unresolved. Support for comply-or-explain on S1 was broad but conditional. Seventy-eight of 113 respondents backed it, and more than a quarter of those supporters asked the FCA to set out a clear path towards mandatory S1. Nearly a third disagreed. Several of them, mainly investors, wanted S1 mandatory from the start, while a smaller group preferred a voluntary approach or longer relief. Comply-or-explain is now the final design. The FCA says it will monitor how the regime works, but it does not expect a formal post-implementation review and has set no review date or committed pathway towards mandatory S1 or S2. The absence of a review timetable leaves investors uncertain about whether mandatory disclosure will be reconsidered.

 

The timetable adds another layer of give. In the first year, companies can leave out Scope 3 entirely. For the first two, they can omit non-climate S1 disclosures, while continuing to apply the S1 requirements relevant to their climate reporting. While a relief runs, they only have to state that they are using it. No explanation is required. The full framework applies without relief only to periods starting on or after 1 January 2029, and even then on comply-or-explain.

 

The reliefs answer real difficulty. Scope 3 figures depend on suppliers and customers the reporting company does not control, and the methods are still settling. S1 asks companies to identify, assess and report wider sustainability risks under a dedicated framework for the first time.

 

The result is that the broader regime arrives in stages, with its broadest parts last. A company with a December year-end will publish its first S1 report without relief in 2030. The relief defers disclosure; it does not remove the data challenge companies will face once it expires.

 

Where the pressure will come from

 

The FCA expects investor demand to encourage disclosure beyond the regulatory minimum wherever climate and sustainability matter to a company's business. That expectation has some footing, because of where the disclosures will live.

 

They have to sit in the annual report, or be cross-referenced from it under UK SRS S1's rules. That puts them beside the financial statements, in front of the audit committee and the people who sign off the accounts. A company that names a serious physical climate risk in its UK SRS section, then assumes it away in its impairment testing, will struggle to defend both pages in the same document.

 

Two smaller rules add to the visibility. Companies must say whether they obtained third-party assurance over their sustainability disclosures and, if so, who provided it, which disclosures it covered, at what level and against which standard. Most must also say whether they have published a climate transition plan, and if not, why not, although secondary-listed and depositary receipt issuers are outside this requirement. Neither forces the work. Both make its absence easy to spot.

 

For FTSE companies already reporting under TCFD, the real job is closing the gap between a TCFD-style narrative and what S1 and S2 actually demand: Scope 3 methods that hold up year to year, scenario analysis tied to strategy, and controls that let a finance director stand behind the numbers. Repeated explanations may become increasingly difficult to justify to investors, particularly when companies fail to demonstrate progress.

 

A shared language, with more flexible compliance

 

The UK is not alone. Linklaters says the decision echoes the simplification in the EU's Omnibus package, which cut back the CSRD, and Reuters places it alongside EU moves to water down its own flagship regime.

 

S1 and S2 remain the reference point, and alignment with the ISSB baseline is still the FCA's stated purpose. The UK has kept the ISSB-aligned standards but given companies more flexibility in how they apply them. If other markets follow, the ISSB framework could become a common vocabulary that each country applies with as much or as little compulsion as its politics allow.

 

A common vocabulary is an improvement on fragmented standards. My concern is that comparable data still depends on companies reporting the numbers. Describing the same gaps in the same format does not get investors there.

 

The FCA says it will set out its supervisory approach in the second half of 2027, ahead of the first reporting season. That document, and the first reports in 2028, will show which version of this reform investors get. If explanations are specific, name the missing data and shrink year by year, comply-or-explain will have done its job and January's mandate will look unnecessary. If the 37% of issuers the FCA's model assumes will explain produces the same three paragraphs every spring, the regulator will be back at the question it chose not to answer this time: when, if ever, S2 climate disclosure becomes mandatory.

 

Sources

• FCA, PS26/19 policy statement page

• FCA, PS26/19 full policy statement (PDF)

• FCA, CP26/5 consultation paper (PDF)

• Macfarlanes, The UK SRS: the FCA's latest consultation and the comply or explain approach

• Corporate Disclosures, UK SRS rules move to comply or explain