The Financial Conduct Authority has dropped plans to require listed companies to tell investors about their climate risks, after firms raised concerns about costs and the UK’s competitiveness.
The City regulator had proposed in January that listed companies would have to meet a new UK climate standard. In final rules published yesterday, it said companies would instead be allowed to keep the existing “comply or explain” approach, under which they either make the disclosures or set out why they have not.
The proposed climate standard would have covered financially material climate-related risks and opportunities, climate targets and the potential impact of climate change on a company’s business.
Under the final policy statement, listed companies will report against the UK Sustainability Reporting Standards (UK SRS), the UK-endorsed version of the International Sustainability Standards Board standards, replacing the existing climate rules. The comply or explain basis now applies across the whole framework, including the climate standard, UK SRS S2.
The FCA said the rules apply to accounting periods starting on or after 1 January 2027, with first reporting in 2028. Companies can use transitional reliefs of one year for Scope 3 emissions disclosures and two years for wider sustainability disclosures under UK SRS S1.
The FCA is also consulting on a technical note to help companies apply the comply or explain approach proportionately, with feedback due by 28 October 2026. It said it would hold a webinar on the requirements on 19 October 2026 and publish details of its supervisory approach in the second half of 2027, ahead of the first reporting season.
In its response to the consultation, the FCA said some respondents had raised concerns that mandatory climate risk reporting could undermine Britain’s competitiveness. Respondents also said mandatory disclosure “could place disproportionate burdens” on small companies.
The regulator said: “Climate and sustainability risks affect firms differently and the relevance of particular disclosures will depend on an issuer’s business model, strategy and risk profile. A comply or explain approach allows issuers to reflect those differences and focus on providing high-quality, decision-useful information, rather than applying the standards mechanically in a way that could produce lengthy disclosures of limited value to investors.”
The FCA said it believes investor and market demands will drive companies to produce climate-related disclosures where “sustainability matters are relevant to their business model and risks”.
Where businesses do not provide financially material information in line with the rules, “a proportionate explanation of their reasoning and judgment can itself provide useful information to investors”, the authority said.
It added that the existing requirements “have supported high levels of disclosure, particularly among the largest issuers and smaller companies where climate and sustainability risks are relevant to their business models”.
Alicia Kedzierski, the FCA’s head of sustainable finance and defence, security and resilience, said: “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.”
Luke Hildyard, head of UK policy at the responsible investment charity ShareAction, said in comments reported by ESG Today that the FCA’s alignment with international standards was welcome, but warned that “comply-or-explain risks leaving stakeholders, including investors safeguarding more than £3trn of UK pension savings, without complete, reliable and comparable data if some complacent boards choose not to comply.”
The FCA first introduced rules in 2020 asking premium-listed companies to disclose climate-related risks to investors in line with the global Task Force on Climate-related Financial Disclosures framework, or explain why they had not done so. The framework was created in 2015 by the Financial Stability Board.
The regulator’s review of FTSE 350 companies’ 2025 annual reports found that 92 per cent complied with the framework.
The decision follows moves by the European Union to scale back its corporate climate disclosure regime, and comes after the Trump administration dropped plans for rules in the United States. UK regulators have been under pressure from the government to prioritise growth and reduce red tape.
