UK’s FCA Drops Plans for Mandatory IFRS-Based Climate Reporting

UK, 1 OCTOBER 2026 —

The Financial Conduct Authority (FCA) announced on 30 September 2026 that it will abandon a mandatory climate‑reporting regime for listed companies and instead adopt a “comply‑or‑explain” approach for all UK Sustainability Reporting Standards (UK SRS) disclosures.

The decision follows a consultation launched by the FCA in early 2026 on a proposal to overhaul sustainability reporting for listed firms. The original proposal would have required mandatory climate‑related disclosures in line with UK SRS S2, while general sustainability reporting under UK SRS S1 would have been introduced on a comply‑or‑explain basis after two years. Scope 3 emissions reporting would have been given a one‑year relief and also introduced on a comply‑or‑explain basis.

The FCA now extends the comply‑or‑explain framework to all reporting requirements, while keeping the reliefs for UK SRS S1 and Scope 3 reporting.

The FCA said it chose the comply‑or‑explain model after receiving feedback that a mandatory approach could impose disproportionate burdens on smaller companies. The regulator also noted that disclosures from smaller firms whose business models are not materially affected by climate or sustainability matters are often of limited use to investors.

“Following extensive market engagement, including our consultation earlier this year, we have decided to apply the rules on a comply‑or‑explain basis across the full UK SRS. We believe this will support the consistent disclosure of financially material, decision‑useful information while retaining flexibility for issuers, particularly those at an earlier stage of their lifecycle,” the FCA said.

The new policy aligns UK listed companies with the International Sustainability Standards Board’s (ISSB) IFRS sustainability (IFRS S1) and climate‑related (IFRS S2) reporting standards. The UK released its own UK SRS S1 and UK SRS S2 earlier in 2026, which correspond to the ISSB’s standards. By adopting the IFRS‑based framework, the FCA aims to increase international alignment and provide investors with comparable data across jurisdictions.

Sustainable‑investing groups welcomed the move to IFRS reporting but expressed concern about the FCA’s shift away from mandatory climate disclosure. Luke Hildyard, Head of UK Policy at responsible‑investing NGO ShareAction, said: “This summer’s heatwaves show that climate change is already reshaping our economy. Few companies will escape material climate risk, and they must report on it.

The FCA’s alignment with international standards is welcome, but comply‑or‑explain risks leaving stakeholders, including investors safeguarding more than £3 trn of UK pension savings, without complete, reliable and comparable data if some complacent boards choose not to comply.”

The FCA’s new reporting requirements will apply to accounting periods starting from 1 January 2027, with initial reporting to begin in 2028. The regulator’s decision reflects a balance between encouraging robust climate and sustainability disclosures and avoiding undue regulatory burden on smaller issuers.

The shift to a comply‑or‑explain model means that companies will still need to disclose material climate and sustainability information, but they will have the option to explain why they have not complied with specific disclosure requirements, rather than being forced to meet every standard.

Related: Financial Conduct Authority · UK