The UK's Financial Conduct Authority has dropped its plan to make climate reporting mandatory for listed companies, finalizing rules that put the entire UK Sustainability Reporting Standards (UK SRS) framework on a comply-or-explain basis from accounting periods starting January 1, 2027, with first reports due in 2028.

The decision marks a retreat from the regulator's own consultation proposal, launched in early 2026, which would have required mandatory climate-related disclosures under UK SRS S2. General sustainability reporting under UK SRS S1 had been set to follow after two years on a comply-or-explain basis, with a one-year relief for Scope 3 emissions reporting, also on comply-or-explain terms at the outset.

The finalized policy extends the comply-or-explain approach to all reporting requirements. The reliefs for UK SRS S1 and Scope 3 reporting remain in place.

Why did the FCA reverse course?

The regulator cited consultation feedback arguing that mandatory application of the climate-related reporting standard could place disproportionate burdens on smaller companies. Respondents also flagged that disclosures by smaller companies whose business models are not materially impacted by climate or sustainability matters often provide limited use to investors.

Alicia Kedzierski, Head of Sustainable Finance and Defence, Security and Resilience at the FCA, 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."

What do the rules change for listed companies?

The new requirements shift UK listed company disclosure away from the currently mandated Task Force on Climate-related Financial Disclosures (TCFD) recommendations and toward standards based on the IFRS Foundation's International Sustainability Standards Board frameworks — IFRS S1 for general sustainability and IFRS S2 for climate-related reporting.

The UK published its corresponding national standards, UK SRS S1 and UK SRS S2, earlier this year. The alignment is designed to increase international comparability of UK-listed issuers' sustainability disclosures.

Under the finalized package:

• All UK SRS reporting, including climate disclosures under UK SRS S2, applies on a comply-or-explain basis.
• UK SRS S1 general sustainability reporting retains its relief period.
• Scope 3 value-chain emissions reporting retains a one-year relief and comply-or-explain treatment.
• Requirements cover accounting periods starting from January 1, 2027, with initial reporting in 2028.

How will comply-or-explain work in practice?

Alongside the final rules, the FCA has opened a consultation on a new technical note to help companies apply the comply-or-explain approach in a proportionate way. The outcome of that guidance consultation will shape how issuers justify non-compliance and how investors assess the quality of explanations.

For metals and recycling sector observers, the framework matters beyond listed issuers. Sustainability disclosures built on ISSB-aligned standards increasingly feed the data pipelines that downstream customers, lenders and counterparties use to verify Scope 3 inputs — including recycled content claims and emissions from secondary material streams. A comply-or-explain regime with lighter treatment of Scope 3 reporting weakens the comparability of that data in the near term.

The next milestones to track are the closure of the FCA's technical note consultation and the first reporting cycle in 2028, which will show how many listed issuers comply in full, explain deviations, or opt out of climate disclosures entirely.