From Greenwashing to Green Standards: UK’s ESG Overhaul
The UK is stepping up its sustainability game with a trio of regulatory frameworks that aim to bring clarity, consistency, and credibility to ESG disclosures. These aren’t just compliance checkboxes—they’re reshaping how SMEs communicate their sustainability journey, how advisors validate ESG claims, and how finance teams integrate ESG into decision-making.
1. Sustainability Disclosure Requirements (SDR) – FCA’s Anti-Greenwashing Framework
The Financial Conduct Authority (FCA) has introduced the SDR to tackle misleading ESG claims and bring transparency to sustainable investment products. It’s a direct response to growing concerns about greenwashing.
Key features:
Fund labelling system: Products must align with one of three categories
Sustainable Focus: Investments in assets already aligned with sustainability goals.
Sustainable Improvers: Assets on a credible path to becoming sustainable.
Sustainable Impact: Investments that actively contribute to positive environmental or social outcomes.
Disclosure obligations: Firms must publish detailed sustainability objectives, investment strategies, and measurable KPIs.
Marketing rules: ESG-related claims must be substantiated and consistent across all communications.
Why it matters: For SMEs and advisors, this regulation sets a new benchmark for transparency. It encourages clearer articulation of ESG goals and discourages vague or aspirational language.
The policy came into effect on 31 May 2024, requiring all FCA-authorised firms to ensure sustainability-related claims are fair, clear, and not misleading.
You can access the policy on FCA website PS23/16: Sustainability Disclosure Requirements (SDR) and investment labels
2. UK Sustainability Reporting Standards – ISSB-Aligned, Locally Grounded
The UK is adopting sustainability reporting standards that closely follow the ISSB (International Sustainability Standards Board) framework, but with UK-specific nuances.
The UK SRS are currently in the consultation phase, not yet in force. As of September 2025, the UK government has published exposure drafts for UK SRS S1 and S2, which are aligned with the ISSB’s global standards (IFRS S1 and S2) but tailored to the UK context. The consultation was launched in June 2025 and was set to close on 17 September 2025. So far, there haven’t been any formal updates or extensions announced beyond the original timeline.
Key features:
Climate-first focus: Initial standards prioritize climate-related disclosures, including governance, strategy, risk management, and metrics.
Materiality lens: Companies must report on sustainability issues that are financially material to their operations.
Scope: Applies to listed companies and large private firms, with phased implementation for SMEs.
Why it matters: This is a shift from voluntary to mandatory reporting. For finance leaders, it means ESG data must be embedded into core financial processes—not just parked in sustainability reports.
3. UK Green Taxonomy – Defining What “Sustainable” Really Means
Still in development, the UK Green Taxonomy will provide a formal classification system for environmentally sustainable economic activities.
Key features:
Alignment with net-zero goals: Activities must contribute to climate mitigation, adaptation, or other environmental objectives.
Science-based thresholds: Criteria will be grounded in measurable environmental outcomes.
Investor guidance: Helps financial institutions and advisors assess whether investments meet sustainability standards.
Why it matters: Once finalized, this taxonomy will influence capital allocation, product design, and ESG reporting. It’s a tool for consistency—and a filter for credibility.
