1. Who we are & why we are responding

The Society represents Members working for publicly listed companies and investor relations focused service providers, to assist them in the development of effective two-way communication with the markets. It has approaching 800 Members, drawn mainly from the UK, including the majority of the UK FTSE 100, many of the FTSE 250 constituents and some from AIM-listed companies, as well as those listed overseas.

The Society’s mission is to promote best practice in investor relations; to support the professional development of its Members; to represent their views to regulatory bodies, the investment community and Government; and to act as a forum for issuers and the investment community. 

Our response has therefore been primarily constructed through the lens of a corporate issuer, and as such reflects the views of those very much at the ‘coal face’ of investor engagement and corporate reporting – both financial and non-financial. Our response focuses on the aspects and questions in CP26/5 of most relevance to our members.
 

2. Overview

The Society supports FCA reporting alignment with the UK Sustainability Reporting Standards (UK SRS), based on the ISSB framework, to enhance the international comparability of UK listed sustainability disclosures. However, we are concerned that the pace, sequencing and design of the FCA’s proposed implementation risk moving the UK faster and harder than most peer jurisdictions, especially for small‑ and mid‑cap issuers. While global comparability is essential, it must be achieved in a way that preserves London’s competitiveness as a listing venue. Without size‑based phasing or thresholds, there is a risk the UK becomes an outlier, with adverse consequences for reporting quality and market attractiveness.

UK SRS S2 is a step up from TCFD. These concerns are particularly acute for small- and mid-cap companies if they are required to report under UK SRS S2 (climate‑related disclosures) from 2027. Although S2 builds on TCFD, it represents a material step‑up in scope, granularity and complexity, with a substantial proportion (75%) of data points either new or significantly more demanding than TCFD. For many small‑ and mid‑cap issuers, mandatory S2 reporting from 2027 would therefore require new systems, processes, controls and internal capability. The Society is concerned that the FCA’s cost‑benefit analysis under‑weights this uplift, and that the proposed ‘one-size-fits-all’ start date for S2 reporting would create higher costs as a proportion of revenue for smaller caps and result in an uneven impact across the market.

Phasing/thresholds for S2 .We therefore call for a phased approach, with 2027 implementation for large cap issuers but with mid/small cap being given longer to prepare (similar to the phased approach in Hong Kong) or even a size-based exemption (like the EU), depending on the cost-benefit analysis. We note the FCA’s current FCA Handbook £200m market‑capitalisation threshold for large cap seems to be outdated and should be raised as it dates back to the 1990s and no longer aligns with market reality, resulting in more companies being swept into “large issuer” obligations than originally intended.

Comply or explain for Scope 3. We agree that Scope 3 emissions should be disclosed on a ‘comply or explain’ basis, rather than immediate mandatory compliance, given persistent value‑chain data challenges. However, issuers have significant questions about how ‘comply or explain’ will operate in practice, and whether explanations will carry implicit stigma, so clear regulatory signalling/guidance that a well‑reasoned explanation is a legitimate outcome is needed, to avoid a de facto “comply or else” culture (similar to the FRC’s 2026 guidance on “comply or explain” in relation to governance reporting). Providing a credible explanation is also not cost‑free: issuers must identify relevant categories, articulate constraints, and set out steps/timeframes for future disclosure, with governance oversight. The FCA’s cost‑benefit analysis should be revised to reflect these ongoing costs associated with explaining, not just complying, and the FCA can then determine whether a longer runway is needed for Scope 3, and whether size-based phasing is beneficial to enable best practice to develop in the market before extending these requirements to small/mid caps, or whether they should be given ongoing exemption.  

Comply or explain for S1. Similarly, we support the proposed reporting under UK SRS S1. on a ‘comply or explain’ basis (rather than requiring mandatory compliance). However, clarification is needed on how to evidence materiality without prompting unnecessary documentation, what constitutes a credible explanation and how explanations will be interpreted by investors and assurance providers. Therefore, as with Scope 3, a revised cost‑benefit analysis is needed to determine whether a longer runway is needed for S1, and whether size-based phasing would be beneficial to enable best practice to develop, and/or whether small- and/or mid- caps should be given an ongoing exemption.  

Phasing for assurance and digital reporting. The need to consider phasing also applies to any future requirements for assurance and digital reporting. The UK sustainability assurance market and issuer readiness are still developing, and digital tagging of sustainability information remains costly and operationally challenging for many companies, particularly smaller issuers. These areas require realistic timelines, clear guidance and careful sequencing, aligned with developments at international and EU level.

Location of reporting. We welcome flexibility on location of reporting within the Annual Report, and also support cross‑referencing to avoid unnecessary length, provided all core information is still included in the annual report and disclosure remains clearly signposted and accessible.

Transition plans. In relation to transition plans, the Society questions whether an additional, stand‑alone disclosure obligation in relation to the existence of climate transition plans would add value where UK SRS S2 already requires substantive disclosure if such plans exist. There is a risk that such a duplicative requirement would create pressure to develop plans prematurely, generate boilerplate disclosure and increase reporting length without improving decision‑usefulness for investors.

FCA’s cost‑benefit analysis. This should be revised to recognise the additional complexity of S2, the ongoing cost of “explain” activity under S1 and Scope 3, and to apply size‑sensitivity for phasing and exemption scenarios, recognising that the £200m Handbook large-cap threshold is outdated,  We also note the Government’s stated commitment to reduce regulatory burden by 25%, and see an opportunity for the FCA’s implementation approach to support that objective — particularly for small- and mid‑caps.

Market implications for implementation. If the UK market seeks high‑quality, decision‑useful sustainability information while remaining competitive, phased implementation — rather than speed — will deliver high-quality, credible reporting and thus a better outcome for the London market. FCA should therefore introduce phased entry (Hong Kong model), and consider a longer runway to full S1 as ‘comply or explain’ may not necessarily deliver proportionality (the revised cost-benefit analysis can help ascertain a suitable timetable). To ensure smooth and proportionate implementation, issuers need realistic timeframes, clear guidance, alignment across FCA and DBT regimes - including all recent and future NFR and MCR reforms being reflected in the LR/DTR and alignment between FCA and DESNZ sustainability disclosure requirements - and genuine engagement, especially with small- and mid-caps that should not be treated as scaled down FTSE 100s.

The detailed responses that follow address these issues question‑by‑question, but the Society encourages the FCA to consider them holistically, as they collectively determine whether the proposed regime delivers proportionate, credible and high‑quality outcomes across the full range of UK listed issuers.

3. Answers to specific questions

Q1: Do you agree with the proposed scope for our rules? If not, what alternative scope would you suggest and why?

We recognise that investors value transparency around how financially material climate risks/opportunities impact company performance and market value. However, it is important to take account of the maturity of small- and mid-cap reporting practices (and the readiness of the market) when determining the right timescale for small- and mid-caps to be brought into the regime whilst ensuring proportionality and reporting quality. We therefore suggest (at Qs 2, 4 and 6 below) that the FCA re-considers the cost-benefit in relation to the impact of the increased complexity of S2 reporting, and for the subsequent roll out of scope 3 and S1 reporting, on small/mid-caps, to determine whether transitional reliefs (similar to the phased approach in Hong Kong) or ongoing size-based exemptions (such as in the EU) are necessary/appropriate. We also recommend the FCA considers the potential benefit of introducing temporary reliefs for newly-listed issuers for London’s competitiveness and attractiveness as a listing destination.

Q2: Mandatory reporting against UK SRS S2 (excluding Scope 3)

We support moving to UK SRS S2 as the long‑term successor to TCFD. However, the proposals (and cost-benefit analysis) understate the scale of the required uplift, particularly for small‑ and mid‑cap issuers. S2 introduces new and more granular disclosure requirements that will require investment in systems, internal controls and expertise, which large‑caps are generally better equipped to absorb.

This is illustrated in ISS’s Mapping of TCFD to IFRS S2, which shows that around half of S2 data points are additional, and a further quarter represent significant advancements on TCFD (as noted in the FCA’s Listing Authority Advisory Panel letter). This evidences a significant uplift in reporting complexity, which would fall disproportionately on smaller issuers with more limited reporting infrastructure.

It is therefore important that the FCA takes account of the maturity of small- and mid-cap reporting practices (and the readiness of the market) when determining the right timescale for small- and mid-caps to be brought into the regime, in order to preserve reporting quality without the cost falling disproportionately on them. We therefore suggest that the FCA re-considers the cost-benefit in relation to the impact of increased S2 reporting complexity on small/mid-cap, to determine whether transitional reliefs (similar to the phased approach in Hong Kong) or ongoing size-based exemptions (such as in the EU) are necessary/appropriate to allow best practice to develop, without placing disproportionate strain on smaller issuers.

We also note DESNZ will be consulting on equivalent proposals for UK SRS disclosure by economically significant entities (expected this Summer), and there is a need for consistency between disclosures required by the FCA and any DESNZ requirements. The inconsistency between the FCA’s existing ‘comply or explain’ TCFD disclosure requirements and the mandatory CFD regulations causes unnecessary additional complexity and cost for listed issuers and should be avoided when rolling out UK SRS disclosure requirements.

Q4: Scope 3 emissions on a ‘comply or explain’ basis

We support the proposal for Scope 3 emissions disclosure to be made on a ‘comply or explain’ basis, which is preferable to immediate mandatory compliance due to persistent challenges around value‑chain data availability and reliability. This is illustrated by the Society’s 2023/4 Scope 3 member poll: even where Scope 3 emissions are reported, there is heavy reliance on estimates and third‑party providers, with issuers facing data access and measurement‑confidence challenges. (See Annex A for more detail on this survey, and on relevant findings from our 2025 membership survey.)

However, issuers have significant questions about how ‘comply or explain’ will operate in practice. In particular, there is uncertainty about how much evidence will be required to demonstrate that material topics have been appropriately considered (without encouraging unnecessary documentation or disclosure), what would constitute a credible ‘explanation’ for non-compliance, and whether explanations will carry implicit stigma when scrutinised by investors, proxy advisers or assurance providers. As a result, companies must prepare to make and defend far more formalised materiality assessments, supported by governance challenge and documentation.

Importantly, this means that ‘explain’ is not cost‑free. Even where companies choose not to disclose certain Scope 3 information, they must evidence materiality assessments, governance challenge, and credible plans with timeframes to close gaps. This workload should be reflected in the cost‑benefit analysis, so this needs to be revised, and the FCA can then use that as the basis to determine whether i) a longer runway is needed for Scope 3,  ii) size-based phasing is needed for these disclosures, starting with large‑cap issuers to enable best practice to develop in the market before extending to small/mid caps and iii)  ongoing size-based thresholds. As mentioned at Q2 above, we also request that the FCA rules dovetail with DESNZ’s proposals for economically significant entities (expected this Summer), to avoid the complexity for issuers of being subject to two different disclosure regimes (like the current TCFD/CFD mismatch for listed issuers).

The FRC’s March 2026 guidance on governance ‘comply or explain’ disclosures demonstrates the importance of clear regulatory signaling to investors and others in the investment chain (eg proxy agencies): a well reasoned explanation is not a failure to comply, but a legitimate outcome of a principles based framework. A similar spirit would be essential for explanations under S1 sustainability reporting and Scope 3 ‘explain’ disclosures, to ensure that proportionate, company‑specific explanations are recognised as legitimate outcomes, rather than treated as de facto non‑compliance, and thus avoid the emergence of a ‘comply or else’ culture among the investment community (including ESG ratings agencies) that could otherwise undermine the principle of materiality, encourage unnecessary boilerplate and increase costs.

Q5: Location of UK SRS S2 climate‑related disclosures

We welcome the FCA’s flexible approach to the location of climate‑related disclosures within the Annual Report. Issuers should retain discretion to place disclosures where they best fit within the Annual Report. We also support the ability to incorporate detailed technical information by cross‑reference (for instance, to the website or sustainability report), in line with UK SRS S1, so that Annual Reports do not become unnecessarily long, provided that disclosures remain clearly signposted and accessible, and the annual report and accounts remains the single source for all key disclosures, and therefore all core S2 information should still be required to be included within the annual report to ensure it remains a cohesive and comprehensive narrative.

Q6: Wider sustainability disclosures under UK SRS S1 on a ‘comply or explain’ basis

We support the proposal to apply S1 on a ‘comply or explain’ basis, rather than requiring mandatory compliance (see Annex A for a summary of relevant findings from our 2025 membership survey). However, as we mention at Q3 above, clarity is needed around how much evidence is required to demonstrate that topics have been appropriately considered (without prompting unnecessary documentation or disclosure), what constitutes a credible explanation and how explanations will be interpreted by investors and assurance providers.

The concerns we outline as Q3 above about ‘explanations’ not being cost‑free also apply to non-disclosure of S1 topics, and the associated workload should be reflected in the cost‑benefit analysis, so that the FCA can determine whether a longer runway is needed for UK SRS S1. We also recommend that consideration be given to size-based phasing for these disclosures, starting with large‑cap issuers to enable best practice to develop in the market before extending to small/mid caps, and/or whether small- and/or mid- caps should be given an ongoing exemption.

As mentioned at Q3 above, we note the FRC’s March 2026 guidance encourages investors and advisers to recognise the value of well‑reasoned, company‑specific explanations under the UK Corporate Governance Code. A similar approach will be needed in sustainability reporting to ensure proportionate ‘explain’ outcomes are not treated as de facto non‑compliance.

Q7: Location of UK SRS S1 sustainability‑related disclosures

We take the same position as for S2 (see Q5). Issuers should retain flexibility over where S1 disclosures or explanations sit within the Annual Report, with the ability to incorporate detailed material by cross‑reference to avoid unnecessary length provided disclosures remain clearly signposted and accessible, and the annual report and accounts remains the single source for all key disclosures, and therefore all core S1 information should still be required to be included within the annual report to ensure it remains a cohesive and comprehensive narrative.

Given the breadth of S1, clear signposting within the Annual Report will also be important to ensure usability for investors.

Q8: Transition plans – whether and where published, or why not

UK SRS S2 already requires disclosure of climate‑related transition plan information where an entity has such a plan. We therefore question the value of introducing a separate obligation to affirm the existence (or absence) of a transition plan. Such a duplicative requirement creates pressure to develop plans prematurely or to give lengthy justifications for not yet having one, risking encouraging boilerplate, low-value reporting and lengthened disclosures without improving decision‑usefulness. The primary challenge in this area is the development of credible, actionable transition plans themselves, not the disclosure of whether one exists.

Q10: Transparency about third‑party assurance (where obtained voluntarily)

We agree that investors value transparency about whether sustainability information has been subject to third‑party assurance, and about the scope and nature of that assurance. We therefore support a requirement for issuers to state in their Annual Report whether third‑party sustainability assurance has been obtained over UK SRS disclosures, and to provide basic details (such as the provider, scope, level and standard applied). Issuers should also disclose whether their assurance provider has registered under the FRC's assurance provider oversight regime as this is likely to be of interest to stakeholders and would be advocating good practice for assurance providers. 

This disclosure requirement should remain proportionate and not imply a mandatory assurance requirement.

Q11: Benefits and costs of mandatory assurance

High‑quality sustainability assurance can strengthen the credibility and decision‑usefulness of reported information, support capital allocation and reinforce the UK’s position as an attractive market for investment. Clear regulatory expectations could also help build skills and capacity across the assurance market. However, significant risks arise if mandatory assurance is introduced before the market is ready. The UK sustainability assurance ecosystem is still developing, with voluntary engagements varying widely in scope, approach and cost. Issuers are at different stages of readiness, with many still building the processes, internal controls and data needed to produce assurance‑ready sustainability information. Mandating assurance too early risks increasing costs, compressing reporting timetables and reducing overall reporting quality. Any move towards mandatory assurance should be phased, proportionate, and aligned to market readiness, potentially starting with limited assurance over a narrow, high‑materiality set of disclosures.

We also note the significant cost jump between levels of assurance (limited vs reasonable), and that it is important for Scope 3 to be considered in isolation given the disproportionate amount of work required to obtain assurance for this in comparison to other disclosures. 

Q13: Implementation approach and transitional arrangements
As mentioned above, we call for:

A) mandatory S2 from 2027 to be implemented for large cap issuers, as they have the resources to cope with this timescale and investors want this data, but size-based phasing is needed for small/mid-caps, the timing of which should be subject to a revised cost-benefit analysis (given the S2 measures are 'stepped up' from TCFD), and

B). consideration of a longer runway for Scope 3/S1, with timing determined after revised cost-benefit analysis of the S1/Scope 3 disclosures or explanations, and to be phased with large cap first, to allow large cap to develop best practice.

As mentioned at Q2/Q4 above, we also note DESNZ will be consulting on equivalent proposals for UK SRS disclosure by economically significant entities (expected this Summer), and there is a need for consistency between disclosures required by the FCA and any DESNZ requirements. The inconsistency between the FCA’s existing ‘comply or explain’ TCFD disclosure requirements and the mandatory CFD regulations causes unnecessary additional complexity and cost for listed issuers and should be avoided when rolling out UK SRS disclosure requirements.

Q15: Overseas/secondary listings
We support the pragmatic approach proposed in Chapter 9 for overseas/secondary listings, as it supports London’s competitiveness while maintaining alignment with the UK SRS baseline. Where equivalence or near‑equivalence exists, flexible routes to compliance reduce friction for dual‑listed issuers without diluting investor‑useful information.

Q18: Benefits and costs of digital tagging of sustainability information

There is investor demand for machine‑readable sustainability data, and digital tagging can improve comparability and accessibility. However, mandatory tagging should be phased and aligned with the IFRS Sustainability Disclosure Taxonomy when and if adapted for UK SRS. Smaller issuers will require longer lead times, and consideration should be given to safe harbours on tagging errors in early years. The impact on filing timetables also needs careful consideration, as many issuers currently tag financial statements after Annual Report finalisation using third‑party providers.

Q19: Digital reporting readiness

Digital tagging can improve comparability and accessibility (and is the direction of travel given issuer disclosures are increasingly catering for LLM and GEO audiences), but issuer and service‑provider readiness for digital tagging of sustainability reporting remains mixed, with small‑ and mid‑cap issuers facing greater operational challenges and higher marginal costs. The EU’s decision to postpone mandatory digital tagging under CSRD highlights the need for a staged and proportionate approach. Any future UK proposals should be carefully sequenced, aligned with international taxonomy developments, and supported by practical guidance and implementation support. Smaller issuers will require longer lead times and early‑years safe harbours for tagging errors. The FCA also needs to consider interaction with filing timetables, given many issuers currently tag financials post‑finalisation via third‑party providers.

Q21: Do you have any comments on our cost‑benefit analysis?
Yes. As mentioned above, we recommend the cost‑benefit analysis is revised to: (i) explicitly model the step‑change from TCFD to S2 (including governance, controls and systems uplift), (ii) quantify the ongoing cost of “explain” activity under S1 and Scope 3 (not just “comply”), because issuers must still identify relevant sustainability‑related risks or topics considered, specify which Scope 3 disclosure requirements are not being met and why, scope and collect data to evidence any limitations, obtain board or audit committee sign‑off, and establish credible plans and timeframes to close gaps, and (iii) apply size‑sensitivity (eg costs as a % of revenue/market‑cap) and phasing scenarios (large‑cap first vs all‑at‑once), recognising that the £200m Handbook large-cap threshold is outdated,

We also note the Government’s stated commitment to reduce regulatory burden by 25%, and see an opportunity for the FCA’s implementation approach to support that objective — particularly for small- and mid‑caps.

Q22: Do you have any comments on the assumptions made in our CBA?
See above.

Q23: Do you have any comments on our assessment of the estimated costs to listed companies? (Please provide evidence.)
We recommend (and can help convene) targeted issuer roundtables and/or issuer surveys to gather views and evidence on: (i) the internal‑control uplift required for S2; (ii) recurring effort to support S1 materiality assessments and credible “explain” positions; (iii) specific Scope 3 effort - our 2023/4 Scope 3 member poll indicates estimation and supplier‑data challenges that require sustained resource to manage.

We hope you find these comments useful. Please do not hesitate to make contact if you have any questions. We would also be pleased to provide additional issuer views/evidence (for instance by polling our members) or to convene member roundtables to support future stages of this work.

Annex A – Society evidence base relevant to CP26/5

2023/24 Scope‑3 Readiness Snap Poll (Investor Relations Society; 37 IRO respondents)

• Three‑quarters report some Scope 3; 52% supported mandating in principle; well over half rely on estimates/third‑party providers; only 43% use any direct measurement.
• Top challenges: difficulty obtaining data/estimates (vast majority), low measurement confidence (≈70%).
• By size: FTSE 100 more likely to use direct measurement/SBTi; FTSE 250/smaller caps more reliant on estimates/providers.
• Timeline realism: support in principle, but need ≥ one reporting cycle after final rules to build baselines.

(More detail is Appended to our attached response on Scope 3/SECR reporting, and also available here: 2023/4 Scope 3 member poll)

A2. 2025 Membership Survey – Key qualitative findings relating to UK SRS and ESG

Quantitative findings

Awareness is improving but uneven -

• IR teams understand what’s coming, but their knowledge of non‑climate disclosures (S1) is still developing.

 Involvement is rising but maturity varies

• Some issuers are embedded in implementation; others are only beginning to map requirements.

Preparedness is mixed, with many “partially prepared”

• Full readiness remained out of reach for many companies in Autumn 2025.

Materiality assessment is a major lift

• Most issuers seek external support, validating the complexity of assessing materiality.

Costs and proportionality concerns are real

• Issuers see sustainability reporting as more burdensome than earlier governance/TCFD regimes.

Member want practical help

• examples, cases, forums, peer learning, and actionable guidance.

ESG communication pressures persist

• Sustainability reporting sits within a broader ecosystem of investor ESG engagement, governance attention, and reputational risk.

See also attached PDF document, which illustrates our quantitative findings.

Verbatim comments can be summarised as follows:

• Members report rising sustainability‑related workload, with several noting increased engagement with governance, sustainability and compliance teams and a growing need to manage expectations across these functions.
• The burden of new sustainability reporting requirements is a recurring theme, with comments highlighting the cost and proportionality challenges associated with expanding regulatory obligations.
• Respondents emphasise the need for clearer guidance, practical examples and best practice, especially around how to implement new requirements in a scalable way across different business models.
• Companies with decentralised or complex structures highlight additional challenges, particularly in gathering consistent data and coordinating group‑wide processes.
• Members ask for support through forums, peer learning and shared early‑adopter experience, indicating that sustainability reporting practices are still immature and require collective problem‑solving.
• Engagement dynamics continue to evolve, with sustainability‑focused investor teams becoming more active while some frontline PMs display reduced interest in ESG topics.
• ESG‑related communication is expected to remain a priority in 2026, with members anticipating continued scrutiny of sustainability messaging and concerns around “green‑hushing.”