In response to escalating climate concerns, significant regulatory changes are reshaping the landscape for environmental, social, and governance (ESG) and climate-related disclosures. The UK, European Union (EU), and United States are introducing robust frameworks aimed at addressing climate change, promoting environmental protection, and achieving net-zero targets by 2050.
This guide focuses on key UK-specific legislation, explaining what it means for businesses, who it applies to, and how to ensure compliance.
The Environment Act 2021
The Environment Act 2021 stands as a landmark in UK environmental legislation, setting ambitious new targets and policies to safeguard the environment. Central to the Act is the commitment to reduce greenhouse gas emissions to net zero by 2050, a crucial step in addressing climate change. The Act also introduces a suite of new environmental targets aimed at improving air and water quality, protecting biodiversity, and enhancing waste management.
To oversee the implementation of these policies, the Act established the Office for Environmental Protection (OEP). This independent body is empowered to investigate and enforce environmental laws, ensuring compliance and providing expert advice to the government and other stakeholders. The Environment Act 2021 thus represents a comprehensive framework for environmental protection and sustainable development in the UK.
Local Nature Recovery Strategies
Local Nature Recovery Strategies (LNRS) are a pivotal element of the Environment Act 2021, designed to foster the conservation and recovery of natural habitats and species at the local level. Developed by local authorities in collaboration with conservation organizations and local communities, these strategies aim to identify areas of high conservation value and outline plans for their protection and restoration.
LNRS provide a structured approach to enhancing biodiversity, setting out clear objectives and actions for local nature recovery. They also support the development of new conservation projects and initiatives, creating a cohesive framework for local authorities to work within. By promoting a collaborative approach to conservation, LNRS help build a robust Nature Recovery Network, ensuring that efforts to protect and restore the natural environment are coordinated and effective.
What is SECR?
Streamlined Energy and Carbon Reporting (SECR) was introduced by the UK government in April 2019 to simplify energy usage and carbon emissions disclosures for businesses. It builds on the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme and Mandatory Greenhouse Gas Reporting (MGHG) regulations. The SECR framework enhances transparency, encourages energy efficiency, and aligns UK companies with national environmental targets.
Who does SECR apply to?
SECR applies to:
- Quoted companies incorporated in the UK.
- Large UK private companies and Limited Liability Partnerships (LLPs) meeting two of the following criteria:
- Turnover of £36 million or more.
- Balance sheet total of £18 million or more.
- 250 or more employees.
Public authorities such as NHS Trusts and local authorities are exempt but may face similar obligations under other environmental laws. Companies using less than 40 MWh of energy annually are also exempt.
What are the SECR reporting obligations?
Under SECR, companies must include energy consumption, greenhouse gas (GHG) emissions, and energy efficiency measures in their annual reports.
For quoted companies, the requirements include:
- Scope 1 and Scope 2 GHG emissions globally.
- Global energy use and GHG intensity ratios.
- Energy efficiency projects undertaken.
For large unquoted companies and LLPs, the requirements focus on:
- Domestic Scope 1 and 2 emissions.
- Energy intensity metrics.
- Energy efficiency initiatives.
What’s the timeline for SECR?
SECR reporting began on April 1, 2019. Companies must report annually, aligning with their financial year. If your reporting year is April to March, your next report must cover that period.
Why is SECR important?
SECR supports the UK’s environmental targets by fostering accountability and encouraging companies to tackle climate change through energy efficiency and carbon reduction measures. Reporting also enhances corporate transparency, making businesses more attractive to investors prioritizing ESG criteria.
What is the ISSB?
The International Sustainability Standards Board (ISSB) was established to create a global baseline for sustainability reporting, harmonizing fragmented frameworks worldwide. This standardization is crucial for businesses aiming to disclose their ESG performance comprehensively.
Who does the ISSB apply to?
Currently, ISSB standards are voluntary. However, UK businesses are encouraged to adopt them, especially those with international operations. The UK government plans to integrate ISSB standards into company law and FCA regulations for listed companies.
What are the ISSB standards?
- IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information
- Requires companies to disclose material sustainability risks and opportunities affecting their financial position.
- IFRS S2: Climate-related Disclosures
- Focuses on climate risks, including mandatory reporting of Scope 1, 2, and 3 GHG emissions and transition plans.
What are the ISSB reporting obligations?
Companies adopting ISSB standards must:
- Conduct materiality assessments to identify significant sustainability issues.
- Align sustainability data with their business model and financial disclosures.
- Disclose governance frameworks overseeing sustainability efforts.
Why is the ISSB important for climate change?
Adopting ISSB standards allows businesses to improve transparency, reduce reporting complexity, and align with global best practices. This is critical for securing investor trust and addressing growing stakeholder expectations around ESG issues.
What is the SDR?
The UK’s Sustainable Disclosure Regulation (SDR) aims to enhance transparency in sustainable investments. Managed by the Financial Conduct Authority (FCA), it applies to investment managers and issuers of bonds and shares listed on UK-regulated markets.
Who does the SDR apply to?
The SDR covers:
- Firms managing retail investment products.
- UK UCITS Management Companies, UK AIFMs, and UK MiFID firms.
- Distributors like platforms and financial advisers.
What are the SDR reporting obligations?
The SDR requires:
- Entity-level disclosures for firms managing over £5 billion in assets under management (AUM).
- Sustainable investment labels indicating the environmental or social objectives of investment products.
- Product-level sustainability disclosures detailing objectives, performance, and key metrics.
Why is the SDR important?
The SDR combats greenwashing by enforcing stringent disclosure standards and clear labelling rules. For businesses, compliance demonstrates a commitment to sustainability and builds trust with investors.
What is the CSRD?
The Corporate Sustainability Reporting Directive (CSRD) is an EU regulation that mandates detailed sustainability disclosures for large and listed companies. It aims to enhance transparency, align corporate strategies with environmental principles, and drive sustainable business practices.
Who does the CSRD apply to?
The CSRD applies to:
- Large EU-based companies with over 250 employees, €50 million in turnover, or €25 million in assets.
- Non-EU companies with substantial operations in the EU.
What are the CSRD reporting obligations?
Under the CSRD, companies must:
- Conduct double materiality assessments, evaluating the impact of their operations on the natural environment and the financial implications of sustainability issues.
- Set legally binding environmental targets and report progress annually.
- Disclose governance, strategy, and risk management practices related to ESG issues.
Why is the CSRD important?
The CSRD aligns with the EU’s environmental laws and climate strategies, ensuring businesses contribute meaningfully to tackling climate change and protecting the natural environment. It also regulates oil and gas activities, emphasizing their relevance in environmental protection regulations, licensing requirements, and compliance measures to safeguard marine habitats and species.
How to Prepare for Compliance
To meet these diverse regulatory requirements, businesses should comply with pollution prevention and control measures in oil and gas production:
- Build cross-functional teams: Involve CSR leads, finance, and IT teams in developing a unified sustainability strategy.
- Invest in robust data systems: Ensure accurate, consistent, and traceable ESG data collection.
- Align with multiple frameworks: Where possible, integrate reporting obligations across SECR, ISSB, SDR, and CSRD to streamline processes.
- Engage with stakeholders: Collaborate with suppliers, investors, and public authorities to align goals and expectations.
UK Environmental Legislation – A collective effort
Environmental legislation in the UK and beyond is rapidly evolving to address climate change, promote environmental protection, and achieve sustainability goals. Businesses must proactively adapt to these changes, treating compliance not as a burden but as an opportunity to enhance transparency, build trust, and drive long-term value. By aligning with frameworks like SECR, ISSB, SDR, and CSRD, companies can ensure they meet their reporting obligations while contributing meaningfully to a more sustainable future.
