UK Sustainability Reporting relevant to companies of all sizes

Companies of all sizes must consider sustainability requirements in their financial reports even if they haven’t yet been mandated to do so. There is an assumption that sustainability reporting only affects larger entities because of the way the requirements have been graded in the UK. This has led to smaller businesses asking why they need to include it when they may not be affected for many years.

However, those smaller businesses run the risk of falling behind competitors and facing extra costs by delaying, Mercia’s Ask the Experts webinar on The UK Sustainability Reporting Landscape webinar was told.

Down the line

Whilst timelines for the introduction of new UK sustainability reporting standards are uncertain, more detail is expected later this year. However, companies are already having to consider sustainability matters in their corporate reporting.

Gemma Archer, A&A and Compliance Senior Manager at Mercia, said: ‘It is important because we know that there are more sustainability requirements coming down the line. It is important to recognise that we actually do have a sustainability reporting landscape and sustainability reporting requirements being company law and corporate reporting right now.

‘For the smallest companies and the micro entities, there are not specific requirements. However, when companies are applying the accounting standards they do need to consider, and this is included in FRS 102, whether there are any climate-related matters that might affect the amount they recorded in their financial statements as a whole.’

Current UK sustainability reporting landscape

Non-small companies must include principal risks and uncertainties in their strategic reports. These may well include sustainability matters that need to be disclosed as either risks or uncertainties.

For large companies there is section 172 of the Companies Act, which is all about directors promoting the success of the company. The bit that is often missed out from that sort of requirement is in doing that they need to have regard of the impact of the company’s operations on the community and the environment, amongst other matters.

Larger companies, larger quoted companies, large LLPs we also have the streamlined energy and carbon reporting requirements and disclosures around them. That needs to sit within the directors’ report for companies or the energy and carbon report for LLPs.

The largest companies and largest LLPs must include climate-related financial disclosures as part of what they need to put in their non-financial and sustainability information statement (NFSI) within their strategic report.

Finally, PIEs that have over 500 employees and quoted companies also need to include in their strategic reports specific reporting requirements for environmental matters. That includes details of the policies they have around environmental matters and how effective they are.

Competitive advantage

Ross Haydock, Technical Consultant at Mercia, discussed the new UK Sustainability Reporting Standards. They are due to be endorsed soon, but there is still some uncertainty about how and when they will come into effect, and whether they will affect smaller businesses in the supply chain of larger businesses.

The current sustainability reporting landscape may not require smaller businesses to engage in significant data gathering and reporting on sustainability. The forthcoming standards are not yet in force and there is a perception that preparation, both operationally and for the purposes of reporting, may add to their costs.

However, he told the webinar that they are in danger of missing out on a significant competitive advantage.

He said: ‘We keep talking about compliance but that’s only 10% of the story. Investors are going to look at your company and if you have your risk management in place and can see future opportunities, if you can report these things successfully, they are going to choose you over another company to invest in. Also, the cost of your capital will be lower if you can see things coming ahead.

‘This isn’t a sustainability thing, it is a risk management strategy, it is everything tied together. These kind of business decisions give you a competitive advantage, small gains. There are opportunities like grants, but if you just stick your head in the sand, you just won’t find them.’