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UK Legislation

Sustainability Reporting & Due Diligence Legislation

The UK Climate Change Act (2008) made the UK the first country to establish a long-term legally binding framework to cut carbon emissions, requiring emissions reductions to Net Zero by 2050. The Act requires the UK Government to set legally-binding ‘carbon budgets’ to act as stepping stones towards the 2050 target. It also established the Climate Change Committee (CCC) to ensure that these emissions targets are evidence-based and independently assessed. The UK Climate Change Act has been used as the basis for creating the UK Emissions Trading Scheme and the Vehicle Emissions Trading Schemes (ZEV Mandate), and will likely be used to deliver the forthcoming UK Carbon Border Adjustment Mechanism (UK CBAM).

In this context, the following pieces of UK legislation continue to play a key role in setting a range of sustainability reporting requirements for companies:

 

  • The UK Companies Act (2006) applies to all UK-registered companies and includes duty on company directors to have regard for – among other things – the impact of the company’s operations on the community and the environment, and the interests of the company’s employers. The Companies Act already requires businesses to use either IFRS or UK GAAP accounting standards for financial reporting. Within the scope of this legislation, UK Government is currently seeking to create UK Sustainability Reporting Standards (UK SRS) through the adoption and incorporation of IFRS Sustainability Reporting Standards S1 and S2, supported by the creation of a UK Green Taxonomy.
  • The UK Streamlined Energy and Carbon Reporting (SECR) requirements were introduced for large and listed companies in 2018, requiring them to report information on greenhouse gas (GHG) emissions and the impact of their activities on the environment. The SECR was established under powers created in the Companies Act and through the implementation of Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations (2018).
  • The UK Climate-related Financial Disclosure Regulations (2022) require large and listed companies to report disclosures on climate change-related risks and opportunities, where these are material. The disclosures should cover how climate change is addressed in corporate governance; the impacts on strategy; how climate-related risks and opportunities are managed; and the performance measures and targets applied in managing these issues.