ESG Reporting Requirements for Businesses in the UK
In simple terms, ESG reporting is a form of risk management that helps businesses address environmental, social, and governance challenges. Socially responsible investing paved the way for integrating ESG concerns into business dynamics. However, according to recent reports, 48% of SMEs don’t know where or how to comply with the ESG reporting requirements in the UK and the EU.
Table of Contents
- Overview of Frameworks in ESG Reporting
- The Four Essential ESG Framework Categories for UK and EU Businesses
- How to Use ESG Reporting to Devise an Effective ESG Strategy
- Steps to Ensure Successful Reporting on ESG Performance
- Recent ESG Reporting Requirements, Updates and Tips
Overview of Frameworks in ESG Reporting
ESG reporting contains a lot of complicated terminology and factors, supported by an array of standards and frameworks. Each framework and its respective set of standards are based on monitoring and improving the overall performance of an ESG strategy. Despite having resources, businesses need to understand these frameworks, which can be intimidating but are crucial as a starting point in the ESG journey. ESG reporting has shifted from being optional to a compulsory requirement.
To help you navigate the complex process of ESG reporting, we have curated this detailed guide with the essential information required to build a solid ESG reporting strategy.
- Voluntary frameworks apply to all, while other frameworks are applicable based on specific criteria.
- If the company is based in the UK or operates in the UK, it is important to consider UK mandatory frameworks.
- If the company is based or operates in the EU, then EU mandatory standards and frameworks should be considered.
- If the company reports to investors, then investor-specific requirements must be adhered to.
- If there are certifications, companies need to consider certification and ratings frameworks.
The Four Essential ESG Framework Categories for UK and EU Businesses
1. Mandatory Frameworks for Compliance
In the UK:
- Streamlined Energy and Carbon Reporting (SECR)
- Task Force on Climate-Related Financial Disclosures (TCFD)
- Sustainability Disclosure Requirements (SDR)
In the EU:
- Sustainable Finance Disclosure Regulation (SFDR)
- Corporate Sustainability Reporting Directive (CSRD)
- EU Green Taxonomy
- EU Social Taxonomy
- EU Sustainable Corporate Governance
The scope of these categories is rapidly expanding. With new regulations, even non-listed companies are included alongside listed ones if they meet any of the requirements mentioned. Listed SMEs are required to comply with ESG reporting from January 2026.
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2. Voluntary Frameworks
- Global Reporting Initiative (GRI)
- Sustainability Accounting Standards Board (SASB)
- International Integrated Reporting Council (IIRC)
- International Organisation for Standardisation (ISO)
- United Nations Global Compact (UNGC)
- Climate Disclosure Standards Board (CDSB)
- World Economic Forum’s International Business Council (WEF IBC) Common Metrics
- United Nations Sustainable Development Goals (UN SDGs)
There is no obligation for businesses to adhere to these frameworks. This allows companies to use them as a guide for their ESG strategies, selecting the most relevant factors and applying them to their business model.
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3. Voluntary Frameworks for Certifications and Ratings
These frameworks help businesses secure sustainability scores, providing certification that builds confidence and trustworthiness among stakeholders. Certification involves strict verification processes, with companies required to periodically revisit standards to maintain their certification or ratings.
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4. Investor Frameworks
- United Nations Principles for Responsible Investment (UN PRI)
- Institutional Limited Partners Association (ILPA) ESG Data Convergence Project
- European Data Cooperative
- Workforce Disclosure Initiative (WDI)
These frameworks meet the ever-changing requirements of investors who want to verify the ESG performance of companies. They are particularly relevant to portfolio and equity managers, helping companies recognise the ESG information investors are seeking.
How to Use ESG Reporting to Devise an Effective ESG Strategy
The primary goal of any company should be to set clear objectives for addressing ESG challenges and mitigating related risks. The process of measurement and reporting must be streamlined. Embedding sustainability into core business activities has become a necessity for stakeholders and the government.
This helps businesses secure strong ESG scores, especially if ESG values are integrated into most business activities. Organisations are expected to:
- Use ESG reporting to demonstrate transparency and accountability, set targets for internal and external ESG management, and track their ESG performance.
- ESG reporting also helps businesses devise actionable initiatives to improve ESG performance and meet stakeholder expectations regarding ESG compliance.
Steps to Ensure Successful Reporting on ESG Performance
To ensure a business creates an effective ESG report that meets standards and is relevant for both internal and external purposes, key steps should be followed:
- Understand the Scope of the Report: The company needs to narrow down the ESG concerns most relevant to itself, its stakeholders, and mandatory requirements. At this stage, conducting a materiality assessment can be helpful. Additionally, industry performance benchmarks can help identify key reporting areas.
- Align Targets with Reporting Standards: The general reporting framework establishes a base to ensure accurate and relevant information during preparation. These standards require businesses to follow robust disclosure processes, ensuring accountability and transparency for all relevant parties.
- Create a Comprehensive Guideline: Develop reporting guidelines and structure that provide a sequential overview of the report to be submitted.
- Collect and Evaluate Data: Gather and organize data related to identified ESG concerns. Internal teams and third-party audit groups work together to ensure the data’s relevance and quality.
- Prepare the Report: Present the data, communicating the organization’s approach to ESG strategies, policies, management, and performance. Pay attention to the tone, content, and language of the report.
- Publish the Report: The final report should be published through various communication channels and be easily accessible to all stakeholders. An effective report should communicate progress on initiatives, and their effectiveness, and provide relevant data for decision-making.
Recent ESG Reporting Requirements, Updates and Tips
According to some reports, only 12% of SMEs implement relevant ESG practices and provide proper ESG reporting. The International Sustainability Standards Board’s (ISSB) S1 and S2 standards will be applicable from 2025, and it is expected to improve the consistency and quality of ESG reporting. It is advisable to consider the impact of ISSB standards on an individual company’s performance, position, and reporting. The UK government may introduce new standards by 2025 following a consultation process.
FAQs
What is ESG Reporting?
ESG Reporting refers to the disclosure of a company’s environmental, social, and governance practices to demonstrate transparency, sustainability, and responsibility.
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Why is ESG Reporting important for businesses in the UK?
ESG Reporting is important for UK businesses to meet regulatory requirements, attract investors, enhance reputation, and manage sustainability risks.
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What are the UK requirements for ESG Reporting?
UK businesses must follow frameworks like the TCFD (Task Force on Climate-related Financial Disclosures) and SECR (Streamlined Energy and Carbon Reporting).
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How can a business implement ESG Reporting?
Businesses can implement ESG Reporting by setting measurable ESG goals, tracking performance, and using standards such as GRI (Global Reporting Initiative) or SASB (Sustainability Accounting Standards Board).
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What are the benefits of ESG Reporting for UK companies?
ESG Reporting helps companies improve risk management, attract investors, comply with regulations, and enhance their sustainability impact.
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Who needs to comply with ESG Reporting in the UK?
Large UK companies, public-interest entities, and businesses with significant market presence are often required to comply with ESG reporting regulations.
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How does ESG Reporting impact investor decisions?
ESG Reporting provides investors with transparency on a company’s sustainability practices, influencing investment decisions based on ESG performance.
