Our experts help you understand the sustainability reporting landscape and explain the benefits of going beyond compliance.
Sustainability reporting is crucial for non-financial reporting, helping business leaders demonstrate progress towards their ESG goals.
Beyond ensuring regulatory compliance, sustainability reporting is a platform for positive change in your business, opening doors for capital and talent while improving the efficiency of supply-chain management.
However, ever-changing reporting requirements and numerous acronyms can make it difficult to understand what you need to report on, and the best practices you should follow.
This can be compounded by increasing pressure from numerous stakeholders, including lenders, customers and supply-chain partners, to communicate your organisation’s sustainability efforts. According to our 2024 ESG lenders’ survey, 81% of lenders say a firm’s ESG status or ability to transition to net zero will have an increasing influence on their appetite to lend over the next five years.
Find out more about sustainability reporting and how you can use it to find and take opportunities, build your brand, and increase trust with your stakeholders.
Guidance on getting started, key regulatory requirements to consider, and what to include in your report.
A sustainability report outlines your organisation’s ESG performance. Generally, this includes information on your sustainability strategy, goals, performance indicators, and progress towards your objectives, as well as covering your impact on the environment and society, and fulfilling your governance practices. Additional content could include stakeholder engagement, sustainability initiatives, and future commitments.
Please note that if you are subject to sustainability reporting regulations, you must adhere to the disclosure requirements regarding the content and structure of your sustainability report.
In the UK, sustainability reporting is mandatory for certain companies' annual reports (see cheat sheet below), including the disclosure of non-financial information across ESG. Listed companies also have specific reporting obligations related to these factors. These requirements can change vary depending on the specific regulation, sector, and country.
The CSRD is an EU Directive which aims to enhance transparency and accountability in corporate reporting, providing stakeholders with valuable insights through analysis, benchmarking, and auditing. Companies subject to the CSRD are required to report on their material sustainability topics from a double materiality perspective. The CSRD seeks to expand the scope of sustainability management and reporting to encompass risks and opportunities, ultimately driving businesses to develop strategies for improvement. This could impact UK companies through EU operations and groups. Companies that are in scope will be required to produce a mandatory sustainability report which is subject to assurance (see question 06 below).
Double materiality refers to the consideration of both financial and non-financial impacts within sustainability reporting and decision making. Reporting on a double materiality basis means identifying and assessing how the company’s business activities impact the society and environment (impact materiality) and how sustainability issues affect the company and enterprise value (financial materiality). By addressing double materiality, you have a comprehensive view of both risks and opportunities, and can better assess and communicate overall value creation and risk management, meeting the needs of both investors and wider stakeholders.
The CSDDD is an EU regulation mandating that in-scope companies establish due diligence processes to detect and address negative human rights and environmental effects originating from their operations and throughout their supply chains.
To comply, companies should conduct a supply chain-mapping exercise, start to educate internal stakeholders, and conduct a gap analysis comparing current due diligence policies with CSDDD requirements. Reviewing supply chain contracts and creating a plan to identify adverse impacts are crucial. Engaging with key suppliers and customers about human rights and environmental expectations is essential for minimising negative impacts and ensuring collaboration.
If you're in scope for CSRD then assurance is mandatory for your sustainability report.
Even if it's not required, obtaining assurance adds credibility. It can provide important feedback on improving data management, reporting methodology and measurement, as well as increasing the board's understanding about risks and the accuracy and completeness of date. It can also be part of the terms of a sustainability-linked loan agreement. Above all it shows you are prepared to be challenged and open to doing better.
To map your value chain, identify the activities contributing to your product or service delivery, from raw material sourcing to customer distribution. Assess the inputs, outputs, and impacts of each activity, including environmental and social aspects. Engage with stakeholders to gather relevant data, then create a visual representation highlighting value creation points, risks, and improvement opportunities. This helps in understanding the full scope of operations and identifying potential sustainability initiatives. Regularly update the map to ensure accuracy and relevance, and use it to inform decision-making and strategy development.
Work with stakeholders to identify key sustainability issues for your organisation. Alongside desktop research, collect input from internal and external parties, including employees, customers, investors, and community representatives to create a preliminary list of potential material topics. Next, analyse the potential impact of these on your organisation and its stakeholders, considering both the significance of the impact and the organisation's influence on the issue. Refine the list based on this analysis to focus on the most relevant and impactful. Finally, validate and prioritise these issues through further stakeholder engagement and internal review.
Your approach will differ depending on whether compliance is voluntary or mandatory for you. If it is, there are more steps to meet the regulatory requirements.
The CBAM acts like a border tariff charged on carbon emissions. Importers of in-scope goods must calculate the embedded carbon emissions inherent in those goods and ultimately pay ‘top ups’ for those emissions. CBAM’s purpose is to dissuade the importation of lower cost goods from outside of the EU at the expense of the environment. It's already in force, but tariffs aren't payable until 2026.
The goods directly impacted by CBAM are:
SLLs offer financial incentives tied to your sustainability targets, such as reducing carbon emissions or improving social impact. Additionally, SLLs can enhance the firm's reputation, attract socially conscious investors, and contribute to its overall sustainability strategy.
A mid-market borrower’s ESG status continues to be an important part of a lender’s due diligence, our 2024 ESG lenders survey found that 71% of lenders said that, all other things being equal, they're more likely to agree a loan for a business with strong sustainability credentials. Sustainability reporting is a key element of this.
Learn how your sustainability credentials impact your access to credit
Sustainability reporting spans ESG requirements. This guide covers the most relevant recent requirements but isn’t an exhaustive list. To find out more, contact one of our experts.
| Reporting frameworks and guidance | Are you in scope? | Mandatory or voluntary, and date it becomes effective |
|---|---|---|
|
Carbon Border Adjustment Mechanism (CBAM)
|
Importers of certain carbon intensive goods, including:
|
Mandatory EU CBAM is already implemented. The Government will implement a UK CBAM by 2027. |
|
Corporate Sustainability Reporting Directive (CSRD) Article: How to meet the CSRD requirements |
The scope is subject to variation based on criteria decided as transposed into national law by EU member states. |
Mandatory Key dates:
|
|
Corporate Sustainability Due Diligence Directive (CSDDD) Article: How to meet the CSDDD requirements |
|
Mandatory. Phased implementation from 2027. |
|
EU taxonomy for sustainable activities
Article: How to meet EU Taxonomy requirements
|
Financial market participants, including occupational pension providers, that offer and distribute financial products in the EU (including those from outside the EU). |
Phased implementation started on 1 January 2021. Learn more about the EU taxonomy here. |
|
Gender pay gap reporting
|
Any employer with 250 or more employees on a specific date each year (the 'snapshot date').
|
Mandatory
|
|
International Sustainability Standards Board (ISSB)'s International Financial Reporting Standards (IFRS) - S1 General Requirements and S2 Climate-related Disclosures
|
|
Voluntary
|
|
Modern Slavery Act 2015
|
|
Mandatory
|
|
Taskforce on Nature-related Financial Disclosures (TNFD)
|
Entities within scope to be determined.
|
Voluntary
|
|
Transition Plan Taskforce (TPT) Disclosure Framework
|
Entities within scope to be determined by the UK Government and FCA.
|
Voluntary. Final Disclosure Framework and Implementation Guidance published in October 2023 |
|
UK Climate-related Financial Disclosures, aligned to Task Force on Climate-Related Financial Disclosures (TCFD)
|
|
Mandatory. Periods commencing on or after 6 April 2022 |
|
UK Corporate Governance Code (the Code)
|
The Code applies to premium listed companies on the London Stock Exchange (LSE), and is one of the corporate governance codes recommended by the LSE under AIM Rule 26. |
Applies a 'comply or explain' approach. The 2024 Code applies to companies with a year-end on or after 1 January 2025. |
|
UK Green Taxonomy
|
Entities within scope to be determined. Large and listed entities will report against the taxonomy on a voluntary basis in the first two years, after which the Government will explore whether to make it mandatory. |
Consultation timeline to be determined. Learn more about the Green Technical Advisory Group (GTAG) here. |
Given the emerging nature of the global sustainability regulatory landscape, this information is subject to change following publication. Details are correct as at [September 2024]. This document is not intended to be a complete list of sustainability regulations. You should engage with your legal counsel for such advice. For the avoidance of doubt this work does not constitute legal advice and is for information only, this should not be relied on for identifying your sustainability compliance regulations.
For Financial Services information, visit our ESG and climate change hub
The pace of change in the international sustainability reporting landscape means the EU Taxonomy regulation is often overlooked. What is the EU Taxonomy and how does it impact UK companies?
Are you covered by the EU's corporate sustainability reporting directive? Find out how you can comply with the rules.
A materiality assessment can help you deliver your sustainability reporting requirements and add value to your business.
Use these two frameworks to organise and energise your environmental, social and governance thinking.
How is ESG influencing mid-market lending in 2024? Find out with the results of our annual survey of UK-based lenders.
ESG strategy can transform UK businesses. Tax, a financial function, adds crucial value to any ESG agenda.
