Part of the ESG reporting, the finance cut series.
Under the FCA's final rules in PS26/19, published 30 September 2026, every UK Sustainability Reporting Standards disclosure for UK-listed issuers is comply-or-explain - including climate disclosures under UK SRS S2. Many briefings still describe S2 as mandatory because the consultation, CP26/5, had proposed it on that basis. That position is now wrong. The question for UK group CFOs is not whether they must disclose, but what it costs, in governance terms, to explain instead.
What did PS26/19 change from CP26/5?
The FCA's final rules stepped back from the CP26/5 proposal to apply UK SRS S2 (climate) on a mandatory basis while leaving UK SRS S1 (general sustainability) as comply-or-explain. PS26/19 aligned the two standards: both are now comply-or-explain. The FCA also confirmed it is consulting on Technical Note 803.1, which sets out how it will interpret the comply-or-explain mechanism in practice; responses are due by 28 October 2026. Finance teams should read TN 803.1 carefully once finalised, because it will shape how the FCA assesses the quality of explanations.
What must an explanation actually contain?
An explanation under UKLR 6.6.6R(7A)-(7B) is a specific, structured statement - it is not a blanket reservation of the right to say nothing. The rules require three things: the requirements not met (or, for S1, the sustainability-related risks and opportunities not disclosed); the reasons for not making those disclosures; and any steps the issuer is taking or plans to take to enable it to make those disclosures in the future. All three must appear in the annual financial report for the relevant period. That framing matters. A two-line statement citing cost or system immaturity without a credible forward path will not satisfy the third limb, and it will sit permanently on the face of a document that the audit committee signs off alongside the accounts.
Why is this a finance decision, not a sustainability team decision?
The boundary for UK SRS disclosures is the same consolidation perimeter as the IFRS financial statements - UK SRS S1 is explicit that the reporting entity is the one that prepares the accounts. That makes the scope question identical to the one the group financial controller resolves every close: which entities are in, which are out, and on what basis. Cross-referencing of disclosures across the annual financial report is permitted under UK SRS S1 paragraphs B45-B47, but the disclosure or explanation still lands in the annual financial report and is therefore within the scope of the auditor's reading of the document, even where assurance on the sustainability content itself is not required. The CFO and audit committee are the signatories. They own the judgement on whether the issuer complies or explains, disclosure by disclosure, and they own the quality of any explanation given. Finance teams already navigating the consolidation boundary question in an ESG context will find the analysis in CSRD: A Consolidation Problem for Finance directly relevant; the UK SRS perimeter follows the same logic.
What are the reliefs, and what does the timeline look like for a calendar-year group?
The rules apply to accounting periods beginning on or after 1 January 2027, so first reporting falls in 2028. For a calendar-year group, the first data collection year runs from January 2027. Two specific transitional reliefs apply: a one-year transitional relief for Scope 3 greenhouse gas emissions disclosures, and a two-year transitional relief for certain S1 disclosures. These reliefs do not eliminate the obligation; they defer it. A group using the Scope 3 relief in year one still needs a data architecture in place to report Scope 3 in year two. The same logic applies to S1: the two-year window is time to build capability, not time to decide whether capability is needed. Groups that are also caught by the EU's Corporate Sustainability Reporting Directive route - through EU-listed subsidiaries or turnover thresholds - face an earlier timetable on the EU side; the interaction is set out in CSRD: UK Groups and the EU Turnover Test.
How should a group decide comply or explain, disclosure by disclosure?
The decision is not binary at the standards level - it is granular. A group may comply with the majority of UK SRS S2 disclosures and explain against a narrow set, such as physical risk quantification in the short term while data is gathered. The explanation for those specific disclosures must still satisfy the three-limb test above: what is missing, why, and when it will be remedied. A credible plan to comply is one that names the gap, the system or data dependency that creates it, a realistic timeline, and the governance owner. Vague statements of intent will draw scrutiny from both the audit committee and, over time, from the FCA. Groups for whom the question of who owns the sustainability reporting boundary is still live should read Who Owns the CSRD Reporting Boundary, which addresses the same governance question in the EU context but with analysis that transfers directly to UK SRS.
Is third-party assurance required?
Assurance on UK SRS disclosures is not required under PS26/19. Issuers must state in the annual financial report whether they obtained third-party assurance and, if so, at what level - but obtaining that assurance is a choice, not an obligation. The FCA has reserved the right to introduce mandatory assurance requirements in future. Finance teams should treat the assurance question as a governance decision: an explanation accompanied by assured data is a materially stronger position than one that is not, particularly where the audit committee is signing off on the statement.
What should a calendar-year group do before January 2027?
The first data year begins in January 2027. Before that date, the group needs four things settled. First, confirm the reporting entity boundary - the consolidation perimeter for UK SRS purposes matches the financial statements perimeter, so this is a finance task, not a sustainability team task. Second, map each UK SRS disclosure requirement against current data availability and decide, at that granular level, whether the group will comply or explain in 2028. Third, for any disclosure where the decision is to explain, draft the explanation now: it must satisfy all three limbs of UKLR 6.6.6R(7A)-(7B), and a first draft written under time pressure in Q1 2028 will be weaker than one tested with the audit committee in advance. Fourth, assign governance ownership - the audit committee needs to understand that its sign-off on the 2027 annual report extends to these disclosures or their explanations, and it should see the comply-or-explain analysis before that report is in production.
Common questions
Is UK SRS S2 (climate) mandatory for UK-listed issuers?
No. Under the FCA's final rules in PS26/19, published 30 September 2026, UK SRS S2 is comply-or-explain, the same as UK SRS S1. The consultation CP26/5 had proposed making S2 mandatory, but the final rules did not adopt that approach. Briefings that still describe S2 as mandatory are relying on the consultation position, which has been superseded.
What must a UK SRS explanation contain?
Under UKLR 6.6.6R(7A)-(7B), an explanation must set out the requirements not met (or for S1 the risks and opportunities not disclosed), the reasons for not making those disclosures, and any steps the issuer is taking or plans to take to enable it to make those disclosures in the future. All three limbs are required. A statement that addresses only one or two of them does not satisfy the rule.
When do UK SRS disclosures first apply for a calendar-year group?
The FCA's rules apply to accounting periods beginning on or after 1 January 2027, with first reporting in 2028. For a calendar-year group, data collection for the first reporting period begins in January 2027. A one-year transitional relief applies to Scope 3 disclosures and a two-year transitional relief applies to certain S1 disclosures, both attributed to the FCA's PS26/19.
Is third-party assurance required under PS26/19?
No. PS26/19 does not require issuers to obtain third-party assurance on their UK SRS disclosures. Issuers must state whether they obtained assurance and at what level, but the decision to seek assurance is voluntary. The FCA has indicated it may revisit mandatory assurance requirements in future.
What is the reporting boundary for UK SRS disclosures?
The reporting entity for UK SRS purposes is the same entity that prepares the IFRS financial statements, so the consolidation perimeter for sustainability disclosures matches the financial statements perimeter. This makes the boundary question a finance and financial controller task, governed by the same group structure analysis used for the accounts.