On 30 September, the Financial Conduct Authority published its final rules on sustainability reporting for listed companies. Every disclosure under the new UK Sustainability Reporting Standards will be made on a comply or explain basis and, while companies will have to say whether they have a transition plan, there is no requirement to have one. On the same day, the Prudential Regulation Authority wrote to the chief financial officers of selected UK banks. In that letter the PRA asked for climate risk assessments across more sub-portfolios, more attention to whether climate risk could affect a borrower's ability to refinance at maturity, and clearer evidence of how scenario analysis feeds into expected credit loss judgements. 

A sustainability lead reading both that evening could be forgiven for wondering where the UK is headed. The broader context adds further confusion. Three weeks earlier, the UK Government had proposed removing prescriptive environmental and social reporting from company law where the firm has determined it is not material. In December 2025, the PRA significantly raised the bar on climate risk through its Supervisory Statement 5/25, a tougher and more detailed set of expectations. The Government has yet to publish its response to a June 2025 consultation on mandating transition plans for UK-regulated financial institutions and FTSE 100 companies. 

Taken as they come, it is hard to decipher the direction of travel. Separating expectations into what firms say versus what they do, a more coherent pattern emerges. The requirements on what companies must publicly disclose are softening, trusting firms to report based on what’s material rather than making all firms report everything. The expectations, particularly on how financial firms identify, measure and manage climate risk in their portfolios are tightening and getting more specific. 

Exhibit: Fifteen months of UK climate policy, sorted by doing versus saying

Governs Date Who What happened Direction 
Doing 25 Jun 2025 DESNZ Consultation on delivering the manifesto commitment to mandate 1.5°C-aligned transition plans for UK-regulated financial institutions and the FTSE 100. Response still pending. Pending 
Doing 3 Dec 2025 PRA SS5/25 replaces SS3/19 with enhanced expectations for banks and insurers on climate risk governance, risk management, scenario analysis and data. Tighter 
Doing 30 Sep 2026 PRA Dear CFO letter to Bank CFOs on IFRS 9 ECL: more granular climate assessments, near-term refinancing risk, scenario results translated into ECL judgements. Tighter 
Saying 25 Feb 2026 Government UK SRS S1 and S2 published. S2 requires description of any transition plan but does not itself mandate a plan. Neutral 
Saying Sep 2026 Government Modernising corporate reporting consultation proposes environmental and social reporting only where material. Climate-related financial disclosures stay, pending review.  Looser 
Saying 30 Sep 2026 FCA PS26/19 locks in UK SRS for listed firms but on a comply or explain basis from 1 Jan 2027. Firms must state whether they have a transition plan but there is no requirement to have one. Looser 

Five years of navigating moving signals 

Sustainability leaders will be used to this. For five years or more they have worked on “wicked problems” in a field that has moved from voluntary pledges to supervisory statements at relative speed. The messaging has been mixed and increasingly political. Litigation risk has run both ways, with greenwashing claims on one side and anti-ESG challenges on the other. Disclosure regimes ramped up across the EU, the UK, Hong Kong, Singapore and the US, then reversed in the US and were cut back by the EU's Omnibus. Anyone who built a CSRD readiness programme in 2023 will know the feeling. 

Through all of it, the underlying transition has kept moving. We have written about the hype cycle the transition has been through, and our Low-Carbon Transition Index tracks the real-economy indicators beneath the newsflow. Global emissions are still rising, but the leading indicators have improved steadily since the 2015 Paris Agreement. That gives leaders a sound basis for long-term planning. What policymakers and regulators expect of them in the meantime is less clear. The UK appears to have been steadier than the US or the EU, but trying to satisfy two pressures at once (maintain a climate leadership position, and lighten the load on companies in the name of competitiveness) has made the landscape difficult to navigate. A challenge when companies need clear and stable policy signals to give the confidence to make the nearer-term decisions and investments that long-term low-carbon transition requires. 

Reading between the lines 

Comply or explain may appear to be a lighter obligation than a mandate but taken in context with the legal duties that apply to UK directors (including personal liability), it pushes a Board to be closer to the details so it can document defensible judgements. Explaining in its annual report why a firm has no transition plan, despite the UK’s Net Zero target and Government manifesto commitment, requires a robust assessment of how the firm will be immune to transition-related impacts to hold up under public scrutiny.  

For banks, the prudential direction has been largely one-way (tightening) since 2019. This is not just a signal for lenders. Any company in any sector that takes out a loan, mortgage, or finance for vehicles or equipment will need to provide credible data and plans to satisfy increasing climate-related questions and expectations from its bank. 

The decision to act and the decision to disclose need to be held separate. Whatever the disclosure rules end up saying, supervisors, lenders and investors expect the first to be under way now: climate risk assessments that inform real decisions, and transition plans consistent with the UK's net zero target. These require a commitment of resources now, even though disclosure rules appear on the surface to be softening and transition plan mandates remain undecided.  

A pragmatic path 

Read the expectation as well as the rule. Supervisors, lenders, investors and acquirers each hold a view of what good looks like, and it is usually ahead of the rulebook which has to make concessions. Know where your peers are. For UK banks, our ESG Banking Barometer tracks how the sector's reporting is moving year on year. 

Separate acting from disclosing. Decide what the business needs to do about climate risk and the transition on commercial and risk grounds. Then decide, separately, what to say and when. 

Risk assess properly. Assessing the materiality of climate and broader sustainability impacts on a firm is an increasingly robust, data-driven and commercial process when done right. A good materiality assessment informs risk approach, strategy, investment decisions, metrics, and accountabilities and often supports a firm to be more focused and streamlined in its actions and communications.  

Pull everything together in a proportionate transition plan . A plan grounded in the company's purpose and strategy, proportionate to its size and its impacts, connects the risk work to commercial decisions and to what customers, lenders, investors and employees expect. 

A business that has done this work can respond to changing disclosure requirements, in either direction, with minimal cost and disruption.  

Questions to ask 

  • If the Government mandated transition plans next year, would we be ready? 
  • Which of this year's strategic or investment decisions used our climate risk assessment? 
  • Is what we disclose on climate shaping what we do, or the other way round? 

Sources