Navigating ESG Reporting Standards in 2026 for UK Businesses

What’s changing in ESG reporting standards in 2026

This guide explains the 2026 ESG reporting requirements for UK businesses, including CSRD, ESRS, and UK Sustainability Reporting Standards.

The EU and the UK are now taking noticeably different approaches to sustainability reporting, even though both claim to be reducing unnecessary regulatory burden.

In the EU, policymakers agreed a package of reforms in December 2025 that significantly scale back the scope and pace of the Corporate Sustainability Reporting Directive (CSRD) and related rules.

One of the biggest changes is who has to report. Employee and turnover thresholds for mandatory CSRD reporting have increased sharply. For many medium-sized groups, this removes them from scope entirely, at least for now.

Reporting timelines have also been delayed. Companies that were preparing to report sooner now have an extra year or more to get ready. EU institutions have framed this as simplification rather than a retreat from sustainability disclosure.

The reporting standards themselves have been revised. In December 2025, the European Financial Reporting Advisory Group published updated drafts of the European Sustainability Reporting Standards (ESRS). These are shorter, less prescriptive, and reduce the number of mandatory data points.

Sector-specific standards, which many businesses feared would add significant complexity, will now be optional rather than compulsory.

Corporate Sustainability Due Diligence Directive in 2026

Alongside this, the Corporate Sustainability Due Diligence Directive has been narrowed. The scope of due diligence obligations has been reduced, and certain products have been excluded from related environmental checks. The European Commission must review the impact and administrative burden of these rules by April 2026.

For non-EU groups, reporting obligations still apply where EU turnover exceeds thresholds. In practice, this obligation usually sits with the EU subsidiary, even if the parent company is outside the EU.

UK Sustainability Reporting Standards (IFRS S1 and IFRS S2

The UK is not following the EU model. Instead, it is consolidating around global standards developed by the International Sustainability Standards Board.

The government has consulted on UK Sustainability Reporting Standards based on IFRS S1 and IFRS S2. These focus on sustainability risks and opportunities that are financially material to the business.

Finalised UK standards are expected to be published for voluntary use in early 2026. Mandatory application is likely to follow, starting with listed companies, once the Financial Conduct Authority completes further consultation.

This reflects a key philosophical difference. The EU applies double materiality, assessing both financial risk and environmental and social impact. The UK approach focuses on financial materiality, prioritising investor-relevant information.

There are also specific changes taking effect in 2026 beyond headline reporting standards. Climate disclosures are now required in prospectuses where climate is material. EU rules on packaging, recyclability, and environmental claims also come into force later in the year.

Existing UK frameworks, including Streamlined Energy and Carbon Reporting, remain in force, with clarified guidance and tighter expectations in some areas.

What 2026 ESG reporting changes mean for UK businesses

For UK businesses, the headline message is that ESG reporting is becoming more fragmented, not simpler.

UK-only businesses may benefit from closer alignment with financial reporting through international standards. Businesses operating in the EU will need to navigate two parallel systems.

EU changes reduce short-term pressure for some companies, particularly medium-sized groups preparing for CSRD. However, the delay does not remove long-term expectations.

Banks, investors, and larger customers will continue to request ESG data, even where there is no direct legal obligation. In practice, many smaller businesses will still need to measure and report.

Supply chain expectations are a growing commercial issue. Large companies within CSRD scope must collect data from suppliers, meaning UK SMEs should expect more questionnaires, data requests, and sustainability clauses in contracts.

There are cost implications. Collecting robust data on energy, emissions, and governance takes time and internal resource. Leaving this late often leads to higher consultancy costs or weaker data that increases audit risk.

Compliance risk remains. The FCA is tightening expectations around climate disclosures for listed companies and capital market activity. From January 2026, climate disclosures in prospectuses are mandatory where climate is material.

Reputational risk is also increasing. Environmental claims face closer scrutiny across the UK and EU. Businesses that cannot substantiate claims risk regulatory challenge and commercial damage.

For procurement and tenders, sustainability reporting is increasingly a pass-fail requirement. Public sector buyers and large corporates are embedding ESG criteria into supplier selection.

Even where standards differ, underlying data requirements overlap. Energy use, greenhouse gas emissions, and governance controls remain core.

The main risk for UK businesses in 2026 is assuming simplification means less work. Expectations are becoming more targeted, more assured, and more embedded in commercial decision-making.

Key facts at a glance

• EU CSRD thresholds have increased to over 1,000 employees and €450 million in net turnover for some cohorts

• EU CSRD reporting timelines have been delayed, with some companies now reporting FY2027 data in 2028

• Revised European Sustainability Reporting Standards were published in December 2025

• Sector-specific ESRS reporting will be voluntary rather than mandatory

• UK Sustainability Reporting Standards based on IFRS S1 and S2 are expected in early 2026

• The UK approach focuses on financial materiality rather than double materiality

• From January 2026, climate disclosures are required in prospectuses where climate is material

• Streamlined Energy and Carbon Reporting continues to apply to large UK companies and LLPs

• EU rules on packaging and environmental claims apply later in 2026

How UK SMEs can respond to 2026 ESG reporting changes

From our experience supporting UK SMEs, the challenge is rarely understanding individual rules in isolation. The real issue is knowing which combination applies to your business.

EU simplifications are welcome, but they should not be a reason to pause progress. Businesses using the extra time to improve data quality and governance will be better positioned when requirements take effect.

For UK-only businesses, ISSB-aligned standards offer a more strategic, financially focused approach. However, many UK companies sit within EU supply chains and may still face CSRD-driven data requests.

We are also seeing increased scrutiny from lenders and insurers. Poor-quality or inconsistent ESG data can affect access to finance and commercial terms.

The most resilient approach is to focus on a small set of robust metrics and controls that work across frameworks. Energy use, emissions, governance, and documented decision-making translate well across regimes.

At SBS, we help businesses map overlapping requirements, reduce duplication, and build proportionate reporting processes that support compliance without unnecessary cost.

The next twelve months present an opportunity to move from reactive reporting to a more stable, business-led approach.

Key ESG reporting resources for UK businesses

European Commission: Corporate Sustainability Reporting
https://commission.europa.eu/business-economy-euro/company-reporting-and-auditing/company-reporting/corporate-sustainability-reportingen

EFRAG: European Sustainability Reporting Standards
https://www.efrag.org

Financial Conduct Authority: Sustainability and climate disclosures
https://www.fca.org.uk

UK Government: Sustainability reporting guidance
https://www.gov.uk/government/collections/sustainability-reporting

SBS guide to ESG reporting for UK businesses
https://www.sbsustainability.co.uk/what-we-do/esg-reporting

Understanding carbon reporting and SECR
https://www.sbsustainability.co.uk/insights/carbon-reporting