ESG strategy · what the instruments ask
ESG strategy: what UK rules ask a company to show
No UK law requires an ESG strategy, but several ask a company to describe one: section 172 asks about long-term consequences, section 414CB(2A) about climate risks to strategy and its resilience, and UK SRS S2 about strategy, targets and any transition plan.
What a company must disclose is narrower than what a good strategy contains, and the difference is worth knowing before the first report.
The instruments
Where UK law touches a company’s strategy
“ESG strategy” is a management term; the instruments use narrower words, and each asks a different question.
The oldest is the directors’ duty: section 172(1)(a) requires regard to “the likely consequences of any decision in the long term”, and most companies preparing a strategic report describe how they had it.
The Companies Act climate disclosures go further for their population: the principal climate-related risks and opportunities, their actual and potential impact on the business model and strategy, and an analysis of resilience under different climate-related scenarios.
The directors may omit the impact, resilience, target and KPI limbs with a clear and reasoned explanation (s.414CB(4A)); they may not omit governance or risk management.
UK SRS S2 is the most detailed, and for listed companies it applies on a comply-or-explain basis for periods beginning on or after 1 January 2027 under the FCA’s final rules, which finalised CP26/5.
Every one of these is a disclosure duty: it asks a company to describe its strategy, and none tells it what the strategy should be.
| Instrument | What it asks about strategy | Who |
|---|---|---|
| CA 2006 s.172(1)(a); s.414CZA | Regard to the long-term consequences of decisions, and how that regard was had | Most companies preparing a strategic report |
| CA 2006 s.414CB(2A)(d)–(f) | Principal climate risks, their impact on business model and strategy, resilience under scenarios | s.414CA population, over 500 employees |
| CA 2006 s.414CB(2A)(g)–(h) | Targets and performance; KPIs and their calculation | As above |
| UK SRS S2 ¶¶13–23, 33–37 | Business model, strategy, transition plan, financial effects, resilience, targets | Listed, comply or explain from 2027; anyone voluntarily |
| UKLR 6.6.6R(8)(e) | Whether a transition plan has been published, where, or why not | UKLR 6, 16 and 22 |
UK SRS S2 ¶¶13–23
What the climate standard asks about strategy
UK SRS S2 asks where climate-related risks and opportunities are concentrated in the business model and value chain — “for example, geographical areas, facilities and types of assets” (¶13(b)).
It asks how the company is responding in its strategy and decision-making, including “any climate-related transition plan the entity has”, with its key assumptions and dependencies, and “how the entity plans to achieve any climate-related targets” (¶14(a)(iv)–(v)).
It asks for progress against plans disclosed in earlier periods (¶14(c)), which is where a strategy that is announced and then forgotten shows.
It asks for the current and anticipated financial effects of climate risks and opportunities, and lets a company give a single amount or a range (¶17).
Where effects are not separately identifiable, or measurement uncertainty is so high the figure would not be useful, the company need not quantify them, but must explain why and give qualitative information instead (¶¶19–21).
And it asks for climate resilience, assessed with scenario analysis “using an approach that is commensurate with the entity’s circumstances” (¶22).
The general standard frames all of this: UK SRS S1 sets no materiality thresholds (¶B19), lets immaterial information be left out even where listed (¶B25), and requires materiality judgements to be reassessed at each reporting date (¶B28).
The standards and how they apply together are on UK SRS S1 and S2, published by the Department for Business and Trade as voluntary standards.
Transition plans
No duty to have a plan; a duty to say whether you do
No UK entity is under a legal duty to have, implement or publish a climate transition plan.
The FCA says so directly in PS26/19: “UK SRS S2 does not require entities to have a climate-related transition plan.
However, if a company has one, it must disclose certain information about it.”
What the listing rules add, for companies in UKLR 6, 16 and 22, is a statement in the annual financial report: whether the company has published a climate-related transition plan, in that report or elsewhere, where it is, or why it has not.
Companies with a secondary listing or depositary receipts (UKLR 14 and 15) do not make that statement.
The government consulted on transition plan requirements in 2025, choosing between requiring an explanation of why no plan was disclosed and requiring plans to be developed and disclosed; no requirement has been made.
The Transition Plan Taskforce disclosure framework, now held by the IFRS Foundation, is voluntary guidance on what a plan disclosure contains.
The drafter on the panel produces a starting draft of the listing-rule statement for each category, in plain words; the subject in full is on UK SRS transition plans.
Listing rules · transition-plan statement · draft builder
A starting draft
The Company has published a climate-related transition plan. It is available at [web address or document].
The rule asks whether a plan is published and where, or why not.
It does not require you to have a plan, and it does not prescribe where one is published.
Rule: UKLR 6.6.6R(8)(e) and its equivalents for UKLR 16 and 22, made by the FCA on 24 September 2026 (PS26/19) and in force from 1 January 2027.
A drafting aid in plain words, not FCA model wording.
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Targets
Targets: what UK SRS asks, and what the SBTi requires
Targets are where a strategy becomes checkable, and where disclosure rules and voluntary criteria are most often confused.
UK SRS S2 ¶¶33–36 asks for each climate target its objective, whether a third party validated it, performance against it, and for an emissions target the gases and scopes covered, whether it is gross or net, whether a sectoral decarbonisation approach was used, and the planned use of carbon credits.
A net target always carries its gross target, and the credits behind it are described: how far the target relies on them, which scheme verifies them and what type they are.
Nothing in UK SRS requires a target to be set, or validated by the Science Based Targets initiative.
A company that chooses SBTi validation follows the SBTi’s own criteria, set out on how to set science-based targets.
Target boundaries follow the emissions inventory, which follows the consolidation approach the GHG Protocol Corporate Standard asks a company to choose: equity share, or operational or financial control.
Social and governance targets have fewer reference points; the clearest is the board diversity statement in UKLR 6.6.6R(9), alongside the voluntary FTSE Women Leaders Review and Parker Review, which set their own targets.
| UK SRS S2 | SBTi near-term criteria | |
|---|---|---|
| Status | Disclosure standard; comply or explain for listed companies from 2027 | Voluntary validation |
| Validation | Say whether a third party validated the target (¶34(a)) | Validated by the SBTi |
| Scope 3 | Say which scopes a target covers (¶36(b)) | Required where relevant Scope 3 is 40% or more of total |
| Coverage | — | At least 95% of Scope 1+2; 67% of Scope 3 |
| Net targets | Disclose the gross target too (¶36(c)) | Credits never count as reductions |
| Horizon | — | 5 to 10 years from submission; base year no earlier than 2015 |
Resilience
Scenario analysis: proportionate, but annual
Resilience is the one strategy question both the Companies Act and UK SRS ask in terms.
Section 414CB(2A)(f) asks for an analysis of the resilience of the business model and strategy, taking into consideration different climate-related scenarios; it is one of the limbs that may be omitted with an explanation.
UK SRS S2 ¶22 requires scenario analysis on an approach commensurate with the company’s circumstances, and ¶B17 requires a company that is highly exposed and has the resources to use a more advanced, quantitative approach.
The analysis can follow the strategic planning cycle, but the resilience assessment is made every reporting period (¶B18).
That combination — proportionate method, annual conclusion — is the closest thing UK rules contain to a strategy refresh cycle.
Building one
An order of work the instruments imply
1. Materiality. Decide which sustainability-related risks and opportunities could affect cash flows, access to finance or cost of capital, and record the judgement; UK SRS S1 asks for it to be reassessed each reporting date.
2. Governance. Name the body that oversees those risks and how it is informed, because every later disclosure refers back to it; see ESG governance.
3. Data. Build the emissions inventory and the other metrics on a boundary consistent with the financial statements; see ESG data management.
4. Targets. Set targets only on material topics, with base year, scopes and gross-or-net stated, and decide whether to seek validation.
5. Plan and resilience. Decide whether to publish a transition plan, and run scenario analysis proportionate to exposure.
6. Disclose. Describe it through the instruments that reach the company, and explain what is not yet there.
A structured gap test before the first UK SRS report is the UK SRS readiness assessment; the frameworks that can inform the strategy are on ESG frameworks in the UK.
No UK body publishes an ESG strategy method or timetable.
This sequence is our reading of which disclosure needs which input first.
Who owns it
The board approves; management delivers
Responsibility for strategy rests with the board, which approves the strategic report; for listed companies the FRC says the UK Corporate Governance Code “already asks companies to consider long-term sustainability”.
UK SRS S1 ¶27 asks how the governance body takes sustainability-related risks and opportunities into account when overseeing strategy, major transactions and risk management, including any trade-offs it considered.
Delivery usually sits with a sustainability lead working with finance; the role is described on chief sustainability officer.
Before you brief anyone on the strategy, read the guide to what an ESG consulting engagement covers sets out the options.
The metrics a strategy tracks — and what raters measure — are on ESG criteria, and the software that collects them on the ESG software comparison.
For the vocabulary itself, start at what ESG means; for the reporting cycle, how ESG reporting works.
Test yourself
Six strategy claims, true or false
Each statement is one we see in strategy decks and supplier questionnaires.
The false ones turn a voluntary framework into a legal requirement, or a disclosure into a duty to act.
The true ones are the disclosure rules that shape how a strategy has to be described.
ESG strategy: true or false?
UK SRS S2 requires a listed company to have a transition plan.
A UK SRS S2 target must be validated by the SBTi.
A company disclosing a net emissions target under UK SRS S2 must also disclose its gross target.
Scenario analysis under UK SRS S2 must always be quantitative.
Under the SBTi’s near-term criteria, carbon credits can count towards emission reductions.
The strategy, scenario, target and KPI limbs of the Companies Act climate disclosures can be omitted with a reasoned explanation.
0 of 6 answered.
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Frequently asked
ESG strategy, answered
What is an ESG strategy?
A company’s own plan for the environmental, social and governance risks and opportunities that matter to its business: which topics are material, what targets it sets, who oversees them and how they shape capital and operations.
No UK law requires a document called an ESG strategy, but several instruments ask a company to describe parts of one.
Does UK law require an ESG strategy?
No. It requires disclosures about strategy from particular companies: the section 172(1) statement on long-term consequences; for the section 414CA population, the impact of climate risks on business model and strategy and its resilience under scenarios; and for listed companies from 2027, UK SRS disclosures or an explanation.
Do UK companies have to have a transition plan?
No. The FCA says in PS26/19 that UK SRS S2 does not require a climate-related transition plan.
A company listed in UKLR 6, 16 or 22 states whether it has published one, where, or why not.
The government consulted on transition plan requirements in 2025 and has made no requirement.
What does UK SRS S2 ask about strategy?
Where climate risks and opportunities are concentrated in the business model and value chain; how they affect strategy and decisions, including any transition plan the company has and how it plans to meet its targets; their current and anticipated financial effects; and the resilience of the strategy, assessed with scenario analysis on an approach commensurate with the company’s circumstances.
Are science-based targets required in the UK?
No. The SBTi’s criteria are voluntary, and UK SRS S2 asks only whether a target and its methodology were validated by a third party.
A company that chooses SBTi validation follows the SBTi’s own criteria, such as including Scope 3 in near-term targets where relevant Scope 3 is 40% or more of total emissions.
How often should an ESG strategy be refreshed?
No UK rule fixes a cycle.
UK SRS S1 requires materiality judgements to be reassessed at each reporting date, and UK SRS S2 requires scenario analysis to be updated at least in line with the strategic planning cycle, with the resilience assessment made each reporting period.
Who is responsible for ESG strategy?
The board.
Directors owe the section 172 duty, approve the strategic report and, under UK SRS S1 ¶27, describe how the governance body takes sustainability-related risks and opportunities into account when overseeing strategy and major transactions.
How does an ESG strategy connect to UK SRS?
UK SRS is a disclosure standard: it describes what a company is doing about climate and sustainability risks, not what it should do.
The strategy supplies the substance; the governance, strategy, risk management and metrics and targets disclosures describe it.
Can carbon credits be part of an ESG strategy?
Yes, but they must be disclosed carefully.
UK SRS S2 asks, for any net target, the associated gross target and the planned use of carbon credits, including which scheme verifies them.
Under the SBTi’s criteria, credits never count as emission reductions towards a science-based target.
Sources
Primary sources
Every figure, date and status on this page traces to the instrument’s owner.
Secondary commentary is never the source for a number.
- legislation.gov.ukCompanies Act 2006, section 172(1)(a)
Regard to the likely consequences of any decision in the long term.
- legislation.gov.ukCompanies Act 2006, section 414CB(2A)(d)–(h) and (4A)
Principal climate risks, their impact on strategy, resilience, targets and KPIs; the omission relief.
- Department for Business and TradeUK SRS S2 (PDF), ¶¶13–23, 33–37, B17–B18
Strategy, transition plans, scenario analysis and targets.
- Department for Business and TradeUK SRS S1 (PDF), ¶¶B19, B25, B28
No materiality thresholds; reassessment at each reporting date.
- Department for Business and TradeUK Sustainability Reporting Standards — guidance
Available for voluntary use by any entity.
- Financial Conduct AuthorityPS26/19: Aligning listed issuers’ sustainability disclosures with international standards
Comply or explain from 2027; reliefs.
- Financial Conduct AuthorityPS26/19 (PDF), ¶2.36 and Appendix 1 — UKLR 6.6.6R(8)(e)
“UK SRS S2 does not require entities to have a climate-related transition plan”; the published-plan statement.
- Financial Conduct AuthorityFCA Handbook, UKLR 6.6.6R(9)
The three board diversity targets.
- Department for Energy Security and Net ZeroClimate-related transition plan requirements — consultation
Two options consulted on in 2025; no requirement made.
- IFRS FoundationTransition Plan Taskforce Disclosure Framework (October 2023)
Voluntary guidance on what a transition plan disclosure contains.
- Science Based Targets initiativeScience Based Targets initiative
The owner of its own voluntary target criteria.
- GHG ProtocolCorporate Standard (Revised Edition)
Consolidation approaches and the five principles that set a target’s boundary.
- Financial Reporting CouncilUK Corporate Governance Code 2024
Board responsibility for long-term success; Provision 29.
Related questions
Follow the question to its dedicated guide
For the company-policy question, read the sustainability policy guide alongside the reporting framework.