Smarter regulation non-financial reporting review

Delivering a credible non-financial reporting regulatory framework will be essential if the UK is to become a world-leading Net Zero Aligned Financial Centre and remain an attractive place to invest. There is strong support for high-quality non-financial reporting by leading UK Investors and Businesses. E3G supports the roll out, as soon as possible, of the UK’s Sustainability Disclosure Requirements (SDR) reporting framework. This framework should be science-based, adopt ISSB standards and ensure interoperability with other key international standards, and include clear requirements for all large companies and financial institutions to disclose their transition plans, underpinned by gold-standard Transition Plan Taskforce guidance.

E3G is pleased to provide feedback to the Department of Business and Trade’s ‘Call for Evidence Smarter Regulation: Non-Financial Reporting Review’. The consultation closed on the 16^th of Non-financial disclosures benefit a wide range of actors including policymakers, businesses, investors and CSOs. Non-financial reports enable the management of climate risk and identification of opportunities, which maintains international competitiveness and attracts investment. This in turn provides the aggregate data required to inform policymaking to inform any course corrections, and further incentivise private investment towards net zero. August 2023 and is the first step of a review of the costs and benefits of non-financial reporting requirements for UK companies.  

To maximise the benefits of non-financial reporting and minimise reporting burden, any changes to the UK’s current reporting framework must address the following three challenges: 

• Fragmentation of guidance, overlap in reporting requirements (FCA guidance, TPT guidance, TCFD) and the lack of a central UK definition on what is green, or is ‘transition’ finance’ risks greenwash and increases reporting burden. This also limits the applicability of techniques to reduce reporting burden such as machine readability and AI technology. 
• A lack of a level playing field across the economy, with not all large private companies required to disclose transition plans, risks failing to support the wider economy in its transition pathway. 
• UK multinationals are already implicitly exposed to disclosure requirements from other markets in which they operate, most notably the EU. Because of this the UK Government must ensure that UK disclosure requirements adopt ISSB standards and are interoperable with other key international norms. 

E3G’s response to the call for evidence recommends that Government adopt the following changes to the UK’s non-financial reporting framework: 

1. Non-financial reporting requirements should be mandatory for all large companies as part of the UK’s Sustainability Disclosure Requirements, using the ISSB standard as a baseline.  
2. To minimise fragmentation of standards, and reduce reporting burden, UK non-financial reporting requirements must adopt the International Sustainability Standard Board (ISSB) standards and promote interoperability with EU CSRD.  
3. To further promote interoperability with ISSB, the UK should make mandatory the disclosure of all material Scope 3 emissions as currently defined by the GHG Protocol.  
4. The UK should embed transition plan requirements, underpinned by TPT guidance, within Sustainability Disclosure Requirements (SDR), and require all large private companies and listed companies to disclose their transition plans.  
5. A UK science-based UK green taxonomy should be published as soon as possible, and companies and investors should be encouraged to report against this as soon as possible, with a longer-term view to making this mandatory. 
6. To provide further clarity to the market and tackle greenwash, the Transition Finance Market review should be encouraged to develop clear guardrails around what can credibly be called a transition investment.  
7. UK regulators should conduct a mapping exercise of existing and planned UK reporting requirements to prevent domestic fragmentation and overlap of reporting requirements. Disclosures should be accessible online, consistently formatted and clearly labelled to make comparison and analysis easier and more valuable. 
8. To address the disparities between financial and non-financial reporting, company financial statements should be consistent with non-financial disclosures made in annual reporting. 
9. Although mandatory requirements for non-financial reporting should be rolled out to all large companies eligible for TCFD reporting, HMG should consider evaluating eligibility on a risk basis, as well as size. Over time, a clear timeline should be set out for the introduction of SME reporting requirements, with simplified reporting guidance developed. 

Read the full response here.