UK SRS is Here: How the IFRS Will Change Your Sustainability Report

Following a comprehensive consultation process, the UK government has officially launched the UK Sustainability Reporting Standards (SRS), endorsing IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) as the foundation for sustainability reporting. This marks a significant step in bringing sustainability disclosures into the same framework of rigour and accountability that governs financial reporting.

The SRS is closely aligned with IFRS S1 and S2 standards, but with certain targeted adaptations designed for the UK market. The table below summarises each key difference and what it means for reporting companies.

The Financial Conduct Authority is currently consulting on amendments to the UK Listing Rules that will establish mandatory IFRS sustainability reporting requirements for listed companies. This consultation addresses implementation timelines, scope of application, assurance requirements, and proportionality provisions. While the outcome will clarify specific obligations, the direction is clear: IFRS-aligned sustainability disclosure is becoming a fundamental component of listed company reporting.

Although adoption remains voluntary initially, companies should not interpret this as permission to delay preparation. Current analysis reveals significant gaps in UK corporate disclosure when measured against IFRS requirements, which will require substantial effort to close.

These gaps manifest in three critical areas: the shift to financial materiality assessment, the structural reorganisation required by the IFRS’ four-pillar framework, and the expanded technical requirements that go beyond current TCFD practice. Each presents distinct challenges that demand time and organisational capacity to address effectively.

Financial materiality may require refining your assessment approach

The IFRS's focus on financial materiality marks a shift in how companies determine what to report. Rather than addressing all sustainability impacts, the IFRS asks a narrower question around what sustainability matters could reasonably affect enterprise value.

For companies that have undertaken double materiality assessments (DMAs) under the EU Corporate Sustainability Reporting Directive (CSRD), much of the underlying architecture remains highly relevant. The processes established to identify risks and opportunities across the value chain, engage stakeholders, and map sustainability matters to strategy and risk management provide a strong starting point. That broader perspective continues to have strategic value, even where disclosure requirements are narrower.

What changes under the SRS is the framing. Companies will need to articulate more explicitly how identified sustainability matters translate into impacts on cash flows, access to finance, cost of capital, or asset valuations. Time horizons, probability assumptions and linkages to financial planning will require greater precision. The financial materiality dimension embedded within existing DMAs can typically be recalibrated to meet this investor-focused standard rather than rebuilt from scratch.

Assurance experience under CSRD underscores the importance of process discipline. Clear documentation of methodology, transparent rationale for inclusions and exclusions, and evidence of relevant stakeholder engagement have proven critical to withstanding scrutiny. That expectation of rigour will carry across to the SRS. The shift, therefore, is best understood as a tightening of the reporting filter, not a rejection of the substantial investment companies have already made in double materiality.

Your current sustainability report structure might not fit the IFRS framework

The IFRS organises disclosure around four interconnected pillars—Governance, Strategy, Risk Management, and Metrics and Targets—with everything tied to financially material topics. This structural requirement represents a fundamental shift for most companies. Current sustainability reports rarely organise content this way, instead grouping information by ESG theme or stakeholder interest. Restructuring existing content to fit the IFRS framework will take significant time and effort.

Beyond structural reorganisation, we expect companies will face two types of gaps. Data gaps are inevitable—companies will discover they lack quantitative information required by IFRS, particularly around Scope 3 emissions, industry-specific metrics, and scenario analysis inputs. But equally challenging are narrative gaps. Companies will need to reposition sustainability content to align with IFRS language and framing. For instance, sustainability policies would be articulated not just as commitments but as risk management tools addressing specific financially material risks. This narrative reframing demands careful thought and multiple iterations to execute well.

The IFRS transition provisions, also included in the SRS, recognise this complexity, allowing companies to apply S1 requirements in year three of adoption. This timeline acknowledges that achieving full compliance requires testing, refinement, and organisational learning that cannot be compressed.

This transition also challenges how companies think about their sustainability communications more broadly. Sustainability reports have historically served multiple purposes: compliance disclosure, stakeholder engagement, community impact stories, and marketing narratives often coexist in a single document. IFRS's financial materiality focus will challenge this approach. Companies will need to balance IFRS's compliance requirements with the broader stakeholder engagement that sustainability reports have traditionally provided. We may see a shift toward differentiated communication channels, each tailored to its audience's information needs. For instance, investor-focused IFRS disclosure alongside separate sustainability communications for customers, communities, and employees.

IFRS S2 demands more than enhanced TCFD

While IFRS S2 builds on TCFD foundations, it significantly expands climate disclosure requirements in both breadth and rigour. The standard requires disclosure of the metrics companies use to assess and manage climate-related risks and opportunities and progress toward targets. Critically, it mandates industry-specific metrics, which draws directly from SASB standards. This means companies must report sector-specific indicators tailored to their industry's climate risks and opportunities, requiring specialised knowledge and measurement systems.

While TCFD encouraged scenario analysis, IFRS S2 effectively makes it mandatory. The standard emphasises how a company manages climate-related risks and opportunities and requires more detailed disclosure on value chain exposure and risk transmission mechanisms. Scenario analysis must address the company's capacity to adjust and adapt its strategy and business model over time, demonstrating resilience, not just risk identification.

Under IFRS S2, disclosure of scope 3 greenhouse gas emissions, indirect emissions from a company's value chain, is required if climate-related risks or opportunities are material. However, a one-year grace period is provided. For most organisations, Scope 3 represents 70-90% of total emissions. This is a substantial data challenge requiring value chain mapping, supplier engagement, technology infrastructure, and methodology documentation. These aren't capabilities that can be built quickly, and the grace period should be used for systematic preparation rather than delay.

The case for early preparation

The challenges outlined above—financial materiality reassessment, structural reorganisation around IFRS' four pillars, addressing data and narrative gaps, and meeting S2's expanded technical requirements—share a common characteristic, they cannot be accomplished quickly. Financial materiality assessments require genuine stakeholder engagement and thoughtful analysis, not rushed exercises under deadline pressure. Restructuring content to fit the S1 framework demands multiple iterations. Building Scope 3 measurement capabilities involves supplier relationships and technology systems that take quarters, not weeks, to establish.

The narrative repositioning challenge is particularly time intensive. Reframing sustainability policies as risk management tools, articulating strategy through a climate resilience lens, and developing scenario analysis narratives that demonstrate adaptive capacity requires careful crafting and testing. Companies benefit from producing draft disclosures internally, gathering feedback, and refining their approach across multiple reporting cycles before producing public disclosure.

Companies that prepare early will be better positioned to deliver high‑quality disclosures, while those that wait risk scrambling under tight timelines. Early preparation also creates real business value as it strengthens risk management, improves operational efficiency through better data, and boosts investor confidence. Embedding IFRS thinking now doesn’t just ready companies for reporting, it can build resilience and competitive advantage.

Market dynamics reinforce the case for early action. As of mid-2025, over 30 jurisdictions are moving toward mandatory IFRS reporting, and the International Organization of Securities Commissions, which regulates over 95% of the world's financial markets, has endorsed the standards. Adoption of IFRS S1 and S2 is growing particularly among large multinational companies facing investor pressure to align with global financial materiality standards, with early adopters beginning to report under the standards to demonstrate leadership ahead of mandatory deadlines.

A practical starting point

The path forward begins with understanding your current position. A comprehensive gap assessment should map existing disclosure against IFRS requirements across all four pillars, evaluate whether your financial materiality methodology meets IFRS standards, and identify where data simply doesn't exist yet. This assessment also needs to examine governance processes to ensure they demonstrate the integration and oversight that IFRS demands, not just the structures.

But assessment alone won't prepare you for compliance. The real learning happens when you attempt to produce actual disclosure. We recommend companies plan for at least one full dry run before mandatory deadlines. Create draft reports that force you to confront real data collection challenges, narrative development gaps, and the cross-functional coordination difficulties that planning documents never reveal. This testing phase is where companies discover what they thought they knew versus what they can actually demonstrate.

Equally critical is building internal capabilities that can sustain IFRS reporting over time. While external advisors provide valuable expertise during implementation, companies need their own teams capable of making ongoing materiality judgments, integrating sustainability into strategic planning, and managing disclosure with the same rigour applied to financial reporting.

How Sodali can help

Sodali supports companies on SRS compliance with an integrated model combining technical advisory, strategic communications, and investor intelligence. Our sustainability team performs detailed gap analyses against IFRS requirements, conducts investor-aligned financial materiality assessments, and develops pragmatic action plans covering climate risk analysis, Scope 3 measurement, and disclosure design. We apply global best practice while adapting to sector-specific dynamics and complex multinational regulatory environments, including parallel regimes such as the CSRD.

Beyond technical implementation, we address the strategic implications of the shift to IFRS-focused disclosure. This includes managing the transition from broad sustainability narratives to financially material reporting, aligning messaging to different stakeholder audiences, and reshaping disclosure structures accordingly. Our capital markets intelligence provides issuer-specific insight into investor expectations, identifying where disclosure gaps may affect valuation or stewardship outcomes. Complementing this, our corporate governance advisory strengthens board oversight and governance frameworks in line with SRS expectations.

The result is not simply regulatory compliance, but a more disciplined, investor-relevant sustainability reporting framework that reinforces credibility and supports long-term stakeholder confidence.