Who Has to Report on ESG in the UK? A Comprehensive Guide

Environmental, Social, and Governance (ESG) reporting has become an essential aspect of the corporate landscape worldwide. In the UK, companies are increasingly facing regulatory requirements to disclose their ESG performance to stakeholders. Understanding who has to report on ESG in the UK is crucial for businesses that want to stay compliant, maintain their reputation, and attract investors.

This comprehensive guide will explore the regulatory landscape and explain which companies have to report on ESG in the UK, as well as the key requirements and best practices for ESG reporting.

The Growing Importance of ESG Reporting

ESG reporting has gained prominence in recent years due to growing concerns about climate change, social inequality, and corporate governance. Investors, regulators, and stakeholders are now more focused on businesses’ sustainability and their impact on society and the environment.

In the UK, the government has made it a priority to achieve net-zero greenhouse gas emissions by 2050. To support this goal, companies are required to disclose their ESG performance to ensure transparency and accountability. ESG reporting not only demonstrates a company\’s commitment to sustainability but also enables investors to assess the risks and opportunities associated with their ESG performance.

The Regulatory Landscape for ESG Reporting in the UK

Several regulations in the UK mandate ESG reporting, each with its own set of requirements and scope. These include:

1. The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013
2. The Non-Financial Reporting Directive (NFRD)
3. The UK Stewardship Code
4. The Task Force on Climate-related Financial Disclosures (TCFD) recommendations

The requirements for ESG reporting in the UK vary depending on the size and type of the company. Let’s explore the reporting obligations for each regulation mentioned above.

Companies Act 2006

Under the Companies Act 2006, certain companies are required to include a strategic report and a directors\’ report as part of their annual reporting. The strategic report should provide an overview of the company\’s business, its strategy, and any risks and uncertainties it faces.

The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 introduced new requirements for large and medium-sized companies to include information on environmental, employee, and social matters in their strategic report.

Large companies must include a non-financial information statement, which covers ESG matters. This requirement applies to:

• All UK public companies (PLCs)
• Large private companies with at least 250 employees and either a turnover of more than £36 million or a balance sheet total of more than £18 million

Non-Financial Reporting Directive (NFRD)

The EU\’s NFRD was transposed into UK law through The Companies, Partnerships, and Groups (Accounts and Non-Financial Reporting) Regulations 2016. The NFRD requires certain large companies to disclose non-financial information, including ESG matters.

The NFRD applies to:

• Large Public Interest Entities (PIEs) with more than 500 employees
• Listed companies, banks, and insurance companies

These companies must report on their policies, outcomes, and risks related to environmental, social, employee, human rights, and anti-corruption matters.

UK Stewardship Code

The UK Stewardship Code is a voluntary framework for institutional investors that sets out best practices for engagement with investee companies on ESG matters. Although the Code is primarily aimed at investors, it has implications for companies as well.

Companies that wish to attract investment from signatories to the Code should be prepared to engage with investors on ESG issues and provide relevant information to facilitate informed decision-making. This includes disclosing their approach to managing ESG risks and opportunities, as well as how they integrate ESG factors into their business strategy.

Task Force on Climate-related Financial Disclosures (TCFD) Recommendations

The TCFD provides a voluntary framework for companies to disclose climate-related financial information. Although the TCFD recommendations are not mandatory, the UK government has announced its intention to make climate-related disclosures aligned with the TCFD recommendations mandatory for certain companies by 2025.

The proposed scope of the mandatory TCFD-aligned disclosures includes:

• Listed companies
• Large private companies
• Banks, building societies, and insurance companies
• Pension schemes
• Occupational pension schemes with more than £5 billion in assets

Key Requirements and Best Practices for ESG Reporting

To ensure effective ESG reporting, companies should adhere to the following key requirements and best practices:

1. Materiality: Focus on the most relevant and significant ESG issues for your company and stakeholders. Conduct a materiality assessment to identify and prioritize the ESG factors that have the greatest impact on your business and stakeholders.
2. Consistency: Maintain consistency in the ESG data and information provided across different reporting channels and over time. This will enable stakeholders to compare your performance and progress more easily.
3. Transparency: Provide clear, concise, and transparent information about your ESG performance. Avoid using jargon and ensure that your disclosures are easily understandable for a wide range of stakeholders.
4. Balance: Present a balanced view of your ESG performance, including both positive achievements and areas for improvement. Be open about the challenges you face and the actions you are taking to address them.
5. Frameworks and Standards: Use established ESG reporting frameworks and standards to guide your disclosures, such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the TCFD recommendations.
6. Assurance: Consider obtaining external assurance for your ESG disclosures to enhance their credibility and reliability. This can help to build trust with your stakeholders and demonstrate your commitment to transparency and accountability.

Summary

ESG reporting has become an essential aspect of corporate responsibility in the UK, with various regulations requiring companies to disclose their ESG performance. Understanding who has to report on ESG in the UK is crucial for businesses to stay compliant, maintain their reputation, and attract investors.

By adhering to key requirements and best practices, companies can ensure effective ESG reporting and demonstrate their commitment to sustainability, ultimately contributing to a more resilient and sustainable economy.