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Author: Azim Khan

  • UK SRS S1 and S2: Who Has to Report, and When

    Update, 6 October 2026: the FCA published its final rules in PS26/19 on 30 September 2026. They apply comply or explain across all of UK SRS, including S2 climate disclosures, which the consultation had proposed to make mandatory. The dates below (periods from 1 January 2027, Scope 3 relief for one year, S1 relief for two years) are confirmed. Read what the final rules require and how to write a defensible explanation.

    The UK’s sustainability reporting standards have been finished for six months and almost nobody has started. That is not negligence, it is a rational response to an unfinished sentence: the standards exist, but the rule that makes them binding does not. It is expected this autumn.

    Which makes now the useful moment to understand them, rather than the moment after the announcement when every consultant in London is quoting you a readiness assessment.

    Where things actually stand

    The Department for Business and Trade published the final UK SRS S1 and UK SRS S2 on 25 February 2026. They are available for voluntary use by any entity today, and a handful of companies have already adopted them early.

    The binding step sits with the Financial Conduct Authority. Its consultation, CP26/5, ran from 30 January to 20 March 2026 and proposed replacing the current TCFD-aligned listing rules with UK SRS. The FCA has said it aims to publish the final Policy Statement in autumn 2026. As of today it has not.

    Everything below the standards themselves is therefore still a proposal. It is a well-signalled proposal that has already been through consultation, which is not the same thing as a rule.

    The distinction that matters most: this is ISSB, not ESRS

    If your team spent 2024 and 2025 building for CSRD, the single most important thing to understand about UK SRS is that it did not come from the same place.

    UK SRS S1 and S2 are endorsed versions of IFRS S1 and IFRS S2, the ISSB standards, with only limited UK amendments. They are not derived from the ESRS. The practical consequences are real:

    • Materiality is single, not double. ISSB asks what could reasonably be expected to affect an entity’s prospects – cash flows, access to finance, cost of capital. It does not ask you to report impacts on people and planet that are not financially material. Your CSRD double materiality assessment is useful input, but it is not the same assessment.
    • The audience is investors, explicitly and narrowly. That changes the register of the disclosure and often the level of aggregation.
    • There is no ESRS datapoint list to work through. ISSB is principles-based with industry-specific metrics drawn from SASB. Teams used to filling in a defined set of datapoints find this harder, not easier, because judgement is now load-bearing.

    The overlap is nonetheless substantial at the data layer. Emissions are emissions; governance narrative is largely reusable; scenario analysis carries over. It is the framing, materiality boundary and reporting location that differ. We covered the mechanics of that mapping in more detail in our piece on how TCFD and CSRD requirements line up for UK companies.

    Who is in scope

    The FCA’s proposals apply to listed issuers in five UK Listing Rules categories: commercial companies (UKLR 6), secondary listings (UKLR 14), depositary receipts (UKLR 15), non-equity and non-voting equity shares (UKLR 16), and the transition category (UKLR 22).

    That is roughly 515 companies. For context, post-Omnibus CSRD now catches around 5,000 companies across the entire EU, so neither regime is the mass-market obligation the 2023 architecture implied.

    If you are a private UK company, you are not in the FCA’s population. You may still receive UK SRS-shaped questions from listed customers and from lenders, which is a different problem with the same answer.

    The timetable, as proposed

    • UK SRS S2 (climate): accounting periods beginning on or after 1 January 2027. For a December year end, that means the report published in 2028.
    • Scope 3 emissions: a one-year transitional relief, applying on a comply-or-explain basis for periods beginning on or after 1 January 2028.
    • UK SRS S1 (wider sustainability): a two-year relief, comply-or-explain for periods beginning on or after 1 January 2029.

    Read that phasing carefully, because it is the opposite of how most companies sequence their work. Climate lands first and hardest. Scope 3, the hardest data problem in the standard, gets one extra year and then arrives on comply-or-explain, which in practice means “report it or write a paragraph explaining a gap to your investors”. Neither is a reason to defer the work; both are a reason to sequence it properly.

    What happens to your TCFD disclosures

    If you have been reporting under the FCA’s TCFD-aligned rules, you are not starting from zero. IFRS S2 was built on the TCFD’s four pillars, and governance, strategy, risk management, and metrics and targets survive intact as the structure of the disclosure.

    What is genuinely new is the level of specificity:

    • Industry-based metrics. S2 points to SASB-derived metrics for your sector. TCFD left this open; S2 does not.
    • Scope 3 across all fifteen categories, with the measurement approach and inputs disclosed, rather than a partial inventory with a footnote.
    • Connectivity with the financial statements. The assumptions behind your climate disclosure are expected to be consistent with the ones behind your accounts. Asset lives are the classic exposure.
    • Transition plans. The FCA is not proposing to mandate one. It is proposing that you disclose whether you have published one and where it can be found, or why you have not – which is a harder question to answer blandly than it looks.

    The assurance line most readers skipped

    CP26/5 does not mandate third-party assurance. It proposes something quieter: that in-scope companies state in the annual financial report whether they obtained assurance, from whom, over which disclosures, to what level, against which standard, and where the report sits.

    A visible blank is a disclosure in itself. Once one FTSE 250 peer names a provider and a standard, the field fills in fast. Anyone who watched limited assurance arrive in Europe will recognise the shape of it – and the preparation it demands is the same as we set out in our guide to what limited assurance actually tests: documentation, traceability and controls, not recalculated totals.

    SECR has not gone anywhere

    Worth saying plainly, because the UK SRS coverage tends to imply otherwise. Streamlined Energy and Carbon Reporting still applies to all UK quoted companies and to large unquoted companies and LLPs meeting the familiar size test. That population is an order of magnitude larger than the FCA’s 515, and nothing in UK SRS removes the obligation. If you are a large private company, SECR remains your binding UK requirement and UK SRS is, for now, context.

    What to do before the Policy Statement lands

    • Establish whether you are in one of the five UKLR categories. Ten minutes, and it determines everything else.
    • Re-run materiality on a single-materiality basis if your existing assessment was built for CSRD. Do not assume the answer transfers.
    • Baseline Scope 3 now, not in 2028. The relief is on the reporting date, not on the data collection, and purchased goods and services cannot be built in a quarter.
    • Check connectivity between your climate assumptions and the assumptions in your financial statements. Fix the inconsistencies while nobody is examining them.
    • Decide your assurance position early. If you intend to say “assured”, the provider needs to see your controls well before the reporting period, not after it.
    • Read the Policy Statement when it appears and re-check the dates. Consultation feedback moves timetables, and these are still proposals.

    The companies that will find UK SRS straightforward are not the ones with the most disclosure experience – they are the ones that can show where each number came from. Horizon ESG helps UK reporting teams collect data once and keep source, method, factor version and owner attached to every figure, so the same evidence base serves UK SRS, SECR, ISSB and customer data requests without a rebuild each cycle. If you are still choosing a platform, our comparison of eight ESG reporting platforms sets out which ones cover ISSB properly rather than treating it as a CSRD add-on. See how it works for UK reporting, or book a free demo.

  • IFRS’s New Chairs Are Supervisors, Not Accountants

    On 11 August the IFRS Foundation named the two people who will run global corporate reporting for the rest of the decade. Almost nobody in the sustainability press covered it, because governance announcements do not read like news. They are, however, one of the more reliable predictors available: personnel is policy, and the Foundation has just told you a great deal about how IFRS S1 and S2 will be interpreted, pushed and enforced.

    The short version is that the Foundation skipped the accounting bench. Neither appointee comes from technical financial reporting. Both come from financial supervision, which is a different profession with different instincts about what a disclosure is for.

    What was announced

    Steven Maijoor becomes Chair of the IFRS Foundation Trustees from 1 January 2027 on an initial three-year term, succeeding Erkki Liikanen, who has held the role since 2018. Maijoor is currently an Executive Board member and Chair of Supervision at De Nederlandsche Bank and sits on the ECB Supervisory Board. Before that he was Chair of ESMA through the period in which SFDR and the EU Taxonomy were designed.

    Sam Woods becomes Chair of the IASB from 1 October 2026 on a five-year term, succeeding Andreas Barckow, whose term ended in June. Woods was Deputy Governor of the Bank of England and Chief Executive of the Prudential Regulation Authority.

    The two appointments complete the Foundation’s senior slate alongside Emmanuel Faber, who remains ISSB Chair to 31 December 2027, and Laura Forzani, who becomes Managing Director on 1 September 2026.

    Why a supervisor reads a disclosure differently

    A standard-setter’s core question is whether a requirement is conceptually sound and faithfully represents the underlying economics. A supervisor’s core question is narrower and more awkward: can I compare this across forty firms, and does it hold up when I ask the firm to show me where the number came from?

    That difference has consequences. Supervisors are institutionally impatient with disclosures that are technically compliant but not usable. They tend to favour prescription over judgement where judgement produces incomparable results. They ask for the underlying data, not the narrative around it. And they have spent their careers in regimes where the answer “that is our best estimate” is only acceptable if it is accompanied by a documented method, a stated limitation and a trail back to source.

    Put a former ESMA Chair over the Trustees and a former PRA chief executive over the IASB, and the reasonable expectation is that this register becomes the house style of global reporting.

    Four things this makes more likely

    1. Harder pressure on connectivity

    Connectivity, the requirement that sustainability information hangs together with the financial statements rather than sitting beside them, is already in IFRS S1. It has been unevenly applied because it is easy to satisfy in form. Supervisors are unusually good at spotting the gap between a transition plan that assumes an asset is retired in 2030 and a balance sheet that depreciates it to 2045. Expect that inconsistency to be treated as a finding rather than a presentational quirk.

    2. Assurance expectations move ahead of assurance mandates

    In most jurisdictions sustainability assurance is either limited-scope or not yet required. That will not stop the direction of travel. Supervisors do not wait for an assurance mandate to ask evidential questions; they ask them through their existing supervisory relationship, and preparers answer. If your organisation is already working through what limited assurance actually requires, that work now has a second audience beyond the auditor.

    3. Adoption gets negotiated with supervisors, not accounting bodies

    Jurisdictional adoption of ISSB standards has largely been driven through securities regulators and central banks already: the FCA in the UK, the FSA in Japan, ASIC and the AASB in Australia. Two supervisors at the top of the Foundation makes that channel the default rather than the exception. For preparers the practical read is that local implementation detail will increasingly be set by your market regulator, and that is where to watch for the rules that actually bind you.

    4. The evidence bar rises while the scope bar falls

    This is the tension worth internalising. Europe has spent eighteen months narrowing who has to report: the Omnibus cut the CSRD population, the revised ESRS reduced datapoints, and the Taxonomy is being simplified again for FY2027. It is tempting to read that as a general softening. It is not. Fewer companies are being asked to report, and those that do are being asked to prove more. Scope and rigour are moving in opposite directions, and the Foundation just staffed for rigour.

    What this does not change

    Two clarifications, because governance news invites over-reading.

    First, the technical programme is unaffected. Faber remains ISSB Chair through 2027, so the work in flight proceeds on its existing timetable: the targeted IFRS S2 amendments on greenhouse gas measurement are effective for annual periods beginning on or after 1 January 2027 with early application permitted, and the nature-related work continues as a non-mandatory IFRS Practice Statement, with an exposure draft targeted for October 2026. If you are already preparing for nature disclosure, nothing in this announcement moves that date.

    Second, neither appointment changes a single current obligation. Nobody’s filing deadline moved on 11 August. This is a signal about the next three to five years, not a compliance event.

    What a reporting team should actually do about it

    Very little that is new, and quite a lot that is usually deferred. The useful response to a rising evidence bar is not more disclosure. It is better provenance behind the disclosure you already make.

    • Attach evidence at the point of collection, not at audit. Every figure should carry its source document, method, preparer and date without anyone having to reconstruct it in February. Reconstruction is where first assurance cycles overrun.
    • Write down your estimation methods before you need to defend them. Estimates are acceptable; undocumented estimates are not. A supervisor’s objection is almost never to the estimate itself.
    • Reconcile your sustainability assumptions to your financial ones. Asset lives, impairment triggers, provisions, capex commitments. Do the comparison internally before somebody external does it for you.
    • Read your market regulator, not just the standard. If adoption is supervisor-led, the binding detail arrives in a policy statement or a consultation from the FCA, FSA, ASIC or SEC, not from the IFRS Foundation.
    • Stop treating scope relief as workload relief. If simplification has taken pressure off your reporting population, redirect that capacity into data quality rather than banking it.

    The signal underneath the announcement

    For four years the central question in sustainability reporting has been who has to report. Politically that question is closing, and the answer is fewer companies than the 2023 architecture envisaged. The question replacing it is how well, and that is a supervisory question rather than a legislative one. It gets answered slowly, through examinations and findings and comparability reviews, and it does not respond to lobbying in the way scope thresholds do.

    The teams that will find the next few years comfortable are not the ones with the most disclosure. They are the ones that can answer “where did this number come from” in minutes rather than weeks.

    If your emissions and ESRS data live across spreadsheets, inboxes and a consultant’s model, the evidence trail is the thing you do not have. Horizon ESG helps reporting teams collect data once, keep source, method and owner attached to every figure, and report it against CSRD, ISSB and California requirements without rebuilding the inventory each cycle. Book a free demo.

  • SB 253 Deadline: Three Reliefs Buried in CARB’s Redline

    The nearest binding climate-reporting deadline anywhere in the world is not in Brussels. It is 10 November 2026, when the first Scope 1 and Scope 2 disclosures under California’s SB 253 fall due — around fourteen weeks from now. And the document that decides how hard that filing will actually be was published on 27 July, arrived as a redline, and has been read by almost nobody outside the law firms.

    On that date the California Air Resources Board published its modified initial regulation implementing SB 253 and SB 261, and opened a 15-day public comment period closing 11 August 2026. Most coverage led with the deadline deferral — from 10 August to 10 November — already known since June. Further down the text sit three first-year concessions that materially change what an in-scope company has to produce this year, each the kind of provision that vanishes in a press-release summary.

    First, what this document is — and isn’t

    It is a modified text out for comment, not a final rule: it still has to clear the comment period and review by the Office of Administrative Law before it binds. Treat what follows as a strong signal of CARB’s intent rather than settled law — while not planning a fourth-quarter data sprint as though none of it exists.

    The scope test is unchanged: companies with total annual revenue above $1 billion that do business in California. The first report covers FY2025 Scope 1 and Scope 2 emissions, due 10 November 2026.

    Relief one: the 5 December 2024 data cut-off

    For initial reporting only, a company may rely on information it possessed, or was already in the process of collecting, as of 5 December 2024.

    Read that slowly, because it inverts the instinct most teams are acting on. The benchmark for your first California filing is not the best inventory you could assemble by November — it is the inventory your systems were already producing more than eighteen months ago. If utility data for a set of leased sites was never metered separately in 2024, CARB’s text does not require you to reconstruct it now.

    The practical effect is that the sensible first-year project is narrower than most teams have scoped it. Rather than retro-instrumenting every site, the work is to establish what you genuinely held at that date, report on that basis, and document the boundary clearly enough that it survives a later question. That is a governance and evidence exercise more than a measurement one — the same discipline that applies whenever estimated data is good enough to report: state the method, state the limitation, keep the trail.

    What it does not do

    It is explicitly a first-year provision. It does not waive the obligation to file, and it does not carry into the 2027 cycle — by which point the expectation is a properly built inventory. Nor is it self-executing: relying on it means being able to evidence what you held and when. A company that quietly uses the relief without recording why has taken the risk without the protection.

    Relief two: intercompany revenue is out of the $1 billion test

    The modified text clarifies that revenue transmitted between a parent and a subsidiary, or between different parts of the same company, is not counted as revenue when applying the $1 billion threshold.

    This matters more than it sounds. Groups running captive distribution entities, internal manufacturing transfers or centralised procurement can show gross figures well above the threshold that are substantially internal turnover. An entity that looked comfortably in scope may not be in scope at all once genuine third-party revenue is isolated.

    If your scoping decision was made in 2025 on a quick read of group revenue, re-run it before you commit a reporting budget. Threshold questions are cheap to answer now and expensive to answer in November.

    Relief three: one consolidated report for the group

    The modified regulation permits a parent company to submit a consolidated report covering its in-scope subsidiaries, rather than requiring each entity to file separately. Fees are still assessed on a per-company basis, so this is an administrative simplification rather than a financial one.

    The value is in coherence. One filing means one organisational boundary, one consolidation approach, one set of emission factors and one assurance conversation — instead of several subsidiary submissions that anyone can lay side by side and find inconsistent.

    One caveat: the consolidated boundary you use for California should reconcile to the consolidation approach in your GHG inventory and to whatever you publish elsewhere. A boundary chosen for administrative convenience creates a discrepancy you will spend years explaining.

    What the reliefs don’t touch

    Scope 3 arrives in 2027 — but only five categories

    CARB has signalled a phased approach for the 2027 cycle, with initial Scope 3 reporting focused on five commonly reported categories rather than all fifteen: purchased goods and services, fuel- and energy-related activities, waste generated in operations, business travel, and employee commuting, with flexibility around de minimis categories.

    That is a genuine sequencing instruction, and it is unusual to be handed one. Four of the five can be built largely from data your finance and HR systems already hold. The fifth — purchased goods and services — takes a year, because it depends on spend categorisation and supplier engagement rather than a single system. That is your critical path.

    Assurance is coming, on a proposed schedule

    CARB’s proposals introduce limited assurance over Scope 1 and Scope 2 from qualified independent providers, recognising several standards families — AICPA, IAASB and ISO-based frameworks among them — with a move toward reasonable assurance signalled around 2030. The detail is still in play; the direction is not. If you have been through limited assurance under CSRD, you know the real cost is not the auditor’s fee. It is having evidence attached to every number.

    SB 261 is still enjoined — SB 253 is not

    These two laws are routinely discussed together but sit in very different positions. The Ninth Circuit enjoined enforcement of SB 261, the climate-risk reporting law for companies above $500 million in revenue, on 18 November 2025 pending appeal; oral argument was heard on 9 January 2026 and, at the time of writing, no merits decision has been published. SB 253 was not enjoined. Its deadline is live. Anyone who paused California work on the strength of “the courts blocked it” has confused the two.

    Fourteen weeks: a working sequence

    • Re-run the threshold test on third-party revenue only, excluding intercompany turnover, and write down the answer with its basis.
    • Establish your 5 December 2024 position. What Scope 1 and Scope 2 data did you hold, or have in collection, at that date? That list defines the scope of your first report.
    • Decide the filing structure — consolidated at parent level or entity by entity — and check the boundary reconciles to your existing inventory.
    • Comment by 11 August if any of the three provisions is ambiguous for your structure — the last low-cost way to influence the text.
    • Separate the FY2025 filing from the 2027 build. Different projects, different standards of rigour; merging them is how first-year filings become nine-month programmes.
    • Start purchased goods and services now, not in 2027. It is the only one of the five categories that cannot be delivered in a quarter.

    The pattern is familiar. As we argued when the SEC’s climate rollback failed to free US multinationals, federal deregulation has not reduced disclosure obligation — it has moved it to states and to Europe, where the timetables are statutory and the reliefs are technical rather than political.

    If 10 November is on your calendar, the question is not how much data you can gather — it is how much you can evidence. Horizon ESG helps teams collect emissions data once, keep the audit trail attached, and report it against SB 253, CSRD and ISSB without rebuilding the inventory each time. Book a free demo.

  • ESRS-40a: CSRD Is Back for Non-EU Parent Companies

    For eighteen months, the message reaching boardrooms in New York, London, Zurich and Singapore has been reassuringly simple: the Omnibus package gutted CSRD, our European subsidiaries fell out of scope, file closed. For the EU entities, broadly true. What it missed is that the obligation did not disappear — it moved up the corporate structure, to the non-EU parent.

    On 23 July 2026, EFRAG published the Exposure Draft of ESRS-40a — the sustainability reporting standard for certain non-EU undertakings — and opened a 100-day consultation running to 31 October 2026. It implements Article 40a of the Accounting Directive, and applies a test with nothing to do with how many people you employ in Europe. If your group sells enough into the EU, you report.

    What ESRS-40a actually is

    Articles 19a and 29a of the Accounting Directive catch EU companies and EU-parented groups. Article 40a is the extraterritorial arm: it catches groups headquartered outside the EU that do significant business inside it. ESRS-40a is the standard telling them what to disclose, and the logic is a level playing field — a US or Japanese group booking hundreds of millions in EU revenue competes with EU companies carrying a full ESRS burden.

    The scope test: run it before you do anything else

    The threshold is two-part, and both parts must be met. A third-country undertaking not listed on an EU regulated market is in scope if it meets:

    • Turnover test. Net turnover in the Union above €450 million in each of the last two consecutive financial years; and
    • Presence test. Either an EU branch with net turnover above €200 million in the preceding financial year, or it is the ultimate parent of EU subsidiaries with net turnover above €200 million in the preceding financial year.

    These behave differently from the tests your European finance team has been applying: no employee headcount criterion, no balance-sheet criterion. It is a revenue test measured at group level on turnover booked in the Union — so a group with modest European operations and a lean legal footprint can still clear the bar on distribution revenue alone.

    Who actually publishes the report

    The parent is the reporting undertaking, but it does not file. The report is published on the parent’s behalf by an EU subsidiary that would itself fall within CSRD scope, or by a large EU branch. That puts a European entity — often one with no sustainability function of its own — on the hook for making a group-level disclosure public. Flag it early to your European legal and finance leads: the people who sign and file are rarely the people who produce the data.

    What you report — and, importantly, what you don’t

    ESRS-40a is deliberately lighter than a full ESRS sustainability statement. The Article 40a report focuses on impacts — the effects of the group’s activities on people and the environment. It generally excludes the risk-and-opportunity architecture Articles 19a and 29a demand: resilience analysis, dependencies, and the financial-materiality half of double materiality sit outside its content.

    For teams that have watched EU peers build scenario analysis and transition plans, that is good news. But narrower is not easier — the hard part of ESRS-40a is not the disclosure list. It is the boundary.

    The “mixed approach” is the fight that decides your cost

    This is the detail that deserves attention during the consultation window. The draft requires a blend of EU-scoped and global-scoped information — some disclosures drawn from the group’s European activities, others from the group as a whole.

    EFRAG’s own Sustainability Reporting Board did not approve this comfortably. It released the Exposure Draft while recording reservations about the mixed approach, and Chair Kerstin Lopatta published a letter setting out those concerns before launch, noting the approach reflects a request from the European Commission. The objection is practical as much as legal: separating EU-related impacts from global ones is difficult, and in places arbitrary.

    For a reporting team, that is not standard-setting politics — it is the single biggest driver of your data-collection cost. A global-scope disclosure can usually be sourced from systems you already run. An EU-scope disclosure means carving European activity out of consolidated data — by site, by entity, by supplier — for metrics your systems were never designed to slice that way. Every requirement landing on the EU-scoped side adds a pipeline you do not have.

    Which is why the consultation matters. Feedback closes 31 October 2026 and EFRAG’s technical advice goes to the Commission in January 2027. After that, the boundary question is settled and you are implementing someone else’s answer.

    The timeline looks distant. It isn’t.

    Reporting becomes mandatory for financial years beginning on or after 1 January 2028, with first reports published in 2029. Three years is comfortable — right up until you work backwards.

    • 2029 — first report published.
    • FY2028 — the reporting year. Data must be complete, consistent and evidenced across twelve months, from day one.
    • FY2027 — the dry run: find the gaps in EU-scoped data and fix them. Anyone through a first ESRS cycle knows this year is not optional.
    • 2026–2027 — scoping, system selection, and getting European entities collecting data in a form that consolidates.

    That leaves roughly eighteen months of genuine slack, not three years — landing on organisations that spent the last year actively de-resourcing European sustainability compliance.

    Why the scope cut makes this more exposing, not less

    EFRAG has estimated that the Omnibus changes cut the number of non-EU companies in scope from roughly 10,000 to around 1,200 — a 90% reduction, reported as relief. Consider it from the other direction: the remaining population is small, large and identifiable. Any regulator, NGO or journalist can assemble a credible list of who should be reporting and check whether they did. In a group of 10,000, a thin disclosure is noise. In a group of 1,200, it is a story.

    This is the same pattern we described when the SEC’s climate rollback failed to free US multinationals: deregulation in one jurisdiction rarely reduces total disclosure obligation for a global group. It relocates it.

    What to do before 31 October

    • Run the test properly. Get an accurate group-level figure for net turnover in the Union for the last two financial years. Not EU-entity revenue — turnover generated in the Union, which can include sales routed through non-EU entities.
    • Identify the filer. Determine which EU subsidiary or branch would carry the publication obligation, and tell them now.
    • Respond to the consultation. If you are in scope, the mixed approach will shape your cost base for a decade. This is the last practical window to influence it.
    • Map EU-scoped data. Take a first pass at which impact metrics you could already report at EU boundary and which need new collection. That gap list is your 2027 project plan.
    • Do not rebuild in a silo. Much of what ESRS-40a asks for overlaps with what you already produce for CDP, ISSB-aligned reporting, or an EU subsidiary’s own CSRD timeline. One data layer with multiple outputs beats a separate European reporting exercise.

    One honest caveat: ESRS-40a is a draft, its content will change before the Commission’s delegated act, and the mixed approach may not survive in its current form. What will not change is the scope test and the FY2028 start date — those sit in the Directive, not the standard. You can wait on the detail. You cannot wait on knowing whether you are in.

    If your group clears the €450 million test, the work starts with knowing what you can already produce at EU boundary. Horizon ESG helps multinational teams collect sustainability data once and report it against multiple frameworks — so a new obligation becomes a mapping exercise, not a new programme. Book a free demo.

  • Data Centres Just Became an ESG Disclosure Risk

    On 14 July 2026, New York became the first US state to slam the brakes on data centre construction. Governor Kathy Hochul signed an executive order barring the Department of Environmental Conservation from issuing discretionary permits for new data centres above 50 MW of power demand for up to a year, while regulators write comprehensive standards from scratch. The trade press read it as an energy-and-AI story. For sustainability teams, it is something else entirely: the moment data centre energy stopped being a line in your Scope 2 footnote and became a strategic disclosure risk your climate reporting has to describe.

    If your business runs a material digital estate — and in 2026 most do — this is the clearest signal yet that compute energy is moving from an efficiency talking point to a permitting, siting, and transition-risk question. The reporting frameworks you already comply with anticipated this. Most disclosures have not caught up.

    What New York actually did

    The order does not ban data centres. It pauses discretionary environmental permitting for the largest facilities — those drawing more than 50 MW, roughly the scale of a hyperscale or large colocation site — for up to twelve months while the state builds a standing regulatory regime. The stated concern is straightforward: surging AI and cloud demand is loading the grid faster than New York can plan for, and the existing permitting process was never designed to weigh that.

    The specifics matter less than the precedent. A US state has now formally treated large-scale compute as an environmental externality worth constraining. That is exactly the kind of policy shift that climate-risk frameworks classify as a transition risk — a change in the regulatory environment that alters the cost, feasibility, or location of your operations. And New York is unlikely to be the last mover; when one jurisdiction sets a template, disclosure-conscious investors start asking every data-centre-intensive issuer the same questions.

    Why this is a disclosure problem, not just an energy one

    Here is the disconnect. Most companies account for data centre electricity as a Scope 2 emissions figure — a number to be measured, reduced, and reported. That framing is correct but incomplete. It captures what your compute emitted last year. It says nothing about whether you can build, power, or expand that compute next year.

    From Scope 2 line item to transition risk

    A permitting moratorium changes the calculus. If a company’s growth assumes new data centre capacity in a jurisdiction that has just paused approvals, that assumption now carries policy risk — potential delay, higher cost, or forced relocation. Under a climate-risk lens, that is a material forward-looking exposure, not a historical emissions total. The same logic extends to grid connection queues, rising industrial power prices, and local opposition, all of which are tightening in the markets where compute demand is highest.

    The physical-risk angle teams forget

    Transition risk is only half the picture. Large data centres are also water-intensive — cooling can consume millions of litres a year — and they concentrate that demand in specific locations. That exposes them to physical climate risk: drought, heat stress, and water-access restrictions that can throttle operations regardless of how clean the power is. A disclosure that reports Scope 2 emissions but ignores where the facilities sit and what they depend on is telling investors half a story.

    What ISSB S2 and ESRS E1 already require

    None of this requires a new rule. The two frameworks most reporters are already inside — IFRS S2 from the ISSB, and ESRS E1 under the CSRD — both demand exactly the forward-looking narrative that data centre exposure calls for.

    • IFRS S2 requires disclosure of the climate-related risks and opportunities that could reasonably affect your prospects, split into transition and physical risk, plus how they feed strategy, financial planning, and resilience under different scenarios. A permitting-constrained compute footprint is a textbook example of what S2 expects you to surface.
    • ESRS E1 requires a transition plan, disclosure of material physical and transition risks, and reporting of energy consumption and mix alongside gross Scopes 1, 2, and 3. The connective tissue between your energy dependency and your strategic resilience is precisely what E1’s risk disclosures are for.

    In other words, the standards already ask the question. New York just made it concrete. For teams still treating climate risk and carbon accounting as separate exercises, this is the argument for joining them up — a theme we explored in our look at how TCFD and CSRD climate disclosure align.

    What a defensible disclosure looks like

    Most current data centre disclosure is boilerplate: an efficiency metric, a PUE figure, maybe a renewable-energy commitment. That is not what a climate-risk framework is asking for. A disclosure that would survive scrutiny does four things:

    • Locates the exposure. Identify where your material compute capacity sits — owned, colocated, or cloud — and flag jurisdictions where permitting, grid access, or water stress is tightening. Generic group-level statements are not enough.
    • Connects energy to strategy. Explain how future capacity needs interact with transition risk. If growth depends on new facilities, say what a permitting delay would mean for the plan.
    • Treats water as a risk, not a footnote. Disclose cooling water dependency in high-stress locations as a physical risk with operational consequences, not just a sustainability metric.
    • Quantifies where it can. Move from “we are committed to efficiency” to ranges, timelines, and scenario-tested impacts. Frameworks reward specificity and penalise vagueness.

    The reporting teams that get ahead of this will not be the ones with the lowest emissions. They will be the ones who can show investors they understand where their digital infrastructure is exposed — and have a credible plan for it. Reliable, location-aware energy and emissions data is the foundation for that; measuring your Scope 1, 2 and 3 footprint accurately is the first step, but connecting it to forward-looking risk is what turns a number into a disclosure.

    Turning compute energy into an audit-ready climate disclosure starts with data you can trust. Horizon ESG helps reporting teams link emissions, energy, and transition-risk narrative in one place — so when the next New York arrives, your disclosure is already ready. Book a free demo to see how.

  • CSRD Value-Chain Cap: What You Can Still Ask Suppliers

    Update, 30 September 2026: Both delegated acts have now been published in the Official Journal (21 September 2026). The Voluntary Standard is Commission Delegated Regulation (EU) 2026/1560, in force since 24 September 2026, and the cap applies to financial years beginning on or after 1 January 2027. The scrutiny caveats below are resolved. For the supplier side, read the value chain cap is now law: what customers can require.

    Most of the coverage of the European Commission’s 3 July package led with the same number: a 60% cut in mandatory ESRS datapoints. That is the headline, and it is real. But buried in the second delegated act is a change that will reshape more programmes than the datapoint cut ever will - and almost nobody is briefing their procurement team on it.

    It is called the value-chain cap. In short: from financial year 2027, a CSRD-scope company will no longer be able to require its smaller suppliers to hand over sustainability data beyond a defined ceiling. If your supplier-engagement programme is built on a 200-question ESG questionnaire pushed down the chain, that programme now has a legal boundary running through the middle of it.

    What the Commission adopted on 3 July 2026

    The Commission adopted two delegated acts. The first is the revised set of European Sustainability Reporting Standards - the concrete landing of the Omnibus I simplification agenda. It cuts mandatory datapoints by over 60%, total datapoints by over 70%, and is expected to reduce reporting costs by more than 30% per company.

    The second is the one to read carefully: a Voluntary Sustainability Reporting Standard, built on the VSME, giving companies outside CSRD scope a single proportionate framework to report against. It is voluntary in the sense that no smaller company is obliged to use it. It is emphatically not voluntary in its effect on the companies above them in the chain - because it sets the ceiling.

    Both acts are now in a two-month scrutiny period before the European Parliament and Council, extendable by a further two months. If neither institution objects, they are published in the Official Journal and enter into force. That caveat matters, and we return to it at the end.

    The value-chain cap, precisely

    The cap protects companies with 1,000 employees or fewer that sit in the value chain of a CSRD reporter. Under the Omnibus I Directive, those companies are entitled to decline requests for sustainability information that go beyond what the Voluntary Standard covers. Micro-enterprises of ten employees or fewer get further relief on top. For CSRD-scope companies, the cap bites from financial year 2027.

    Read plainly, that inverts a decade of supplier-engagement practice. The implicit deal until now was that a large buyer could ask its suppliers for whatever its own reporting obligations demanded, and commercial leverage did the rest. From FY2027, the supplier has a statutory answer: no, and here is the standard that says so.

    Three things the cap does not do

    This is where the early commentary is getting it wrong, so it is worth being exact.

    • It caps what you can require, not what you can ask. The Commission has confirmed that a CSRD reporter may still request information beyond the cap - provided it clearly identifies which parts of the request exceed the cap and informs the supplier of their right to refuse. The cap creates a duty of transparency in the ask, not a prohibition on asking.
    • It applies only to CSRD reporting. The cap operates when fulfilling CSRD reporting obligations. It does not govern information you request for other purposes - commercial qualification, contractual assurance, product compliance, or your own risk management.
    • It does not stop a supplier volunteering more. Plenty of smaller suppliers will keep sharing data, because being easy to buy from is a competitive advantage. The cap removes the obligation, not the incentive.

    Together those three points reframe the cap. It is not a wall. It is a consent boundary - and crossing it now requires you to say out loud that you are crossing it.

    Where the cap collides with CSDDD

    Here is the tension nobody has resolved. The Corporate Sustainability Due Diligence Directive still requires in-scope companies to conduct risk-based human rights and environmental due diligence across their chain of activities - an approach Omnibus I preserved rather than narrowing to tier one. You cannot discharge a risk-based due-diligence obligation without information from the chain. Yet the ESRS package has just capped what you may require from a large part of that same chain.

    The reconciliation is in the scoping: the cap is tied to CSRD reporting obligations, and CSDDD due diligence is a separate legal duty. In principle, a due-diligence request is not a CSRD reporting request, and the cap does not extinguish it.

    In practice, that distinction is going to be tested hard - because it is usually the same supplier, receiving the same questionnaire, from the same buyer, in a single email. If your data requests do not distinguish their legal basis, you invite a supplier to refuse the whole thing on cap grounds, including the parts you are entitled to insist on. The operational bar for all of this is still being written: the Commission’s consultation on CSDDD implementation guidelines closes on 24 July 2026, with the guidelines expected in principle by July 2027. If your supplier programme is material to your business, that consultation is a genuine, closing opportunity to shape it.

    What to do in the next 90 days

    FY2027 sounds distant. It is not - supplier programmes have long lead times, and the contracts you sign this year will still be running when the cap bites.

    1. Re-baseline your supplier questionnaire against the Voluntary Standard. Every question you currently push down the chain now sorts into one of two buckets: inside the cap, or outside it. You cannot manage the boundary until you can see it.
    2. Get headcount into your supplier master data. The 1,000-employee line is now a legal boundary, and most procurement systems do not hold supplier headcount at all. This is the least glamorous item on the list and probably the one with the longest lead time.
    3. Redesign the ask, not just the question set. Beyond-cap requests need to be explicitly flagged as such, with the right to refuse stated. Build that into the template now rather than retrofitting it under deadline.
    4. Separate your legal bases. Split CSRD-reporting requests from due-diligence and commercial requests, and label them. This is the single change that most protects your CSDDD position.
    5. Plan for refusal. Assume a meaningful share of smaller suppliers will exercise the cap. That means leaning harder on estimation, sector averages and spend-based proxies for value-chain data - and being able to document why an estimate was used and how it was derived.

    Prepare - but do not decommission

    One final discipline. Both delegated acts are still in scrutiny, and the revised ESRS are set to apply to financial years beginning on or after 1 January 2027, with early application permitted. Nothing is in the Official Journal yet.

    So the correct posture is prepare, don’t freeze - and above all, don’t switch anything off. The most expensive mistake available right now is to read “60% fewer datapoints” as permission to dismantle data pipelines that a scrutiny objection, an early-adoption decision, or an investor’s own SFDR-driven data request could make you rebuild in eighteen months. Simplification is not the same as less work. A 70% datapoint cut creates a migration project before it creates a saving.

    The companies that will handle this well are the ones that can see, in one place, which datapoints they collect, which regime each one serves, and where in the value chain it came from. That is a data-architecture question long before it is a compliance one - and it is exactly what our CSRD readiness checklist is built to help you work through. If you would like to see how Horizon ESG maps a single data foundation across CSRD, CSDDD and the voluntary standard, book a short demo - we will walk your own supplier data through it.

  • Nature Disclosure Is Coming: Get TNFD-Ready by October

    Climate has dominated sustainability disclosure for a decade. Nature is next, and the timetable is now firm. During its June 2026 conference, the IFRS Foundation confirmed that the International Sustainability Standards Board (ISSB) will publish its nature-related disclosure proposals as an exposure draft in October 2026, timed to land ahead of the year’s biodiversity COP. For reporting teams that have spent two years building climate data pipelines, this is the signal to start scoping the next frontier before it becomes mandatory.

    The proposals will take the form of an IFRS Practice Statement rather than a new standalone standard, a route the ISSB agreed in April 2026. That structural choice matters, and it draws heavily on a framework many sustainability teams already recognise: the Taskforce on Nature-related Financial Disclosures (TNFD). Here is what is coming, why it consolidates TNFD as the global baseline, and the practical groundwork worth doing now.

    What the ISSB actually announced

    The October exposure draft will not be a tenth topical standard sitting alongside IFRS S1 and S2. Instead, it will be an IFRS Practice Statement — guidance that helps companies apply the existing ISSB standards, together with the SASB Standards, to nature-related topics. In plain terms, it explains how to surface material nature information using the machinery investors already understand, rather than asking preparers to learn an entirely separate rulebook.

    The scope spans the nature topics that most often drive financial risk: land use, water, pollution, resource use, and biodiversity. These are the areas where dependencies on natural systems — reliable water, healthy soil, stable ecosystems — and impacts on them can translate into cost, disruption, or lost access to markets and finance. And crucially, the ISSB has confirmed the proposals will draw directly on the TNFD framework, giving early TNFD adopters a genuine head start.

    One point deserves emphasis: an exposure draft is a consultation, not a final requirement. The October text will open a comment window before anything is finalised. That is time to prepare, not a reason to wait.

    Why TNFD is becoming the baseline

    TNFD published its final recommendations in September 2023, deliberately mirroring the four-pillar structure — Governance, Strategy, Risk and Impact Management, and Metrics and Targets — that the market already knew from the Task Force on Climate-related Financial Disclosures. That familiarity was the point. Anyone who has produced climate disclosure recognises the shape of a TNFD report immediately.

    The ISSB’s decision to build its nature guidance on TNFD follows the same path climate took. The TCFD recommendations were absorbed into IFRS S2 and the TCFD itself wound down, with its monitoring role passing to the IFRS Foundation. Nature is now travelling that route: a voluntary framework maturing into the reference point for a global, investor-focused standard. For preparers, that convergence is good news — it means the effort you put into TNFD-aligned work is unlikely to be wasted when the ISSB text lands.

    It also connects to obligations some companies already face. Under the CSRD, ESRS E4 requires disclosure on biodiversity and ecosystems where material, so EU-scope reporters are not starting from zero. If you are still mapping what “material” means across environmental and social topics, our guide to double materiality under CSRD is a useful companion, because nature dependencies and impacts sit squarely inside that assessment.

    What nature disclosure asks of you

    Nature reporting differs from climate reporting in one important respect. Greenhouse gases are broadly comparable wherever they are emitted, so a tonne of CO2e is a tonne of CO2e. Nature is local: the same activity can be immaterial at one site and severe at another, depending on the ecosystem around it. That is why TNFD frames the work through its LEAP approach — Locate, Evaluate, Assess, Prepare — which pushes teams to start from where they operate and interface with nature.

    • Locate your interface with nature — the sites, assets, and supply-chain nodes that sit in or near sensitive ecosystems and water-stressed areas.
    • Evaluate your dependencies and impacts at those locations, from water abstraction to land-use change.
    • Assess the resulting risks and opportunities in financial terms your board and investors can act on.
    • Prepare to respond and report, aligning the output with the four disclosure pillars.

    The practical implication is that location-level data — not just enterprise totals — becomes the raw material of a credible nature disclosure. Teams used to reporting a single group emissions figure will need to think at the level of individual sites and suppliers.

    How to get TNFD-ready before October

    You do not need to wait for the exposure draft to make progress. A focused scoping exercise now will make the eventual reporting far less painful:

    • Run a first-pass location screen. Map your operational sites and material suppliers against water stress and biodiversity-sensitivity data to see where nature risk concentrates.
    • Reuse your climate governance. The board oversight and risk processes you built for climate extend naturally to nature; you are adding a topic, not rebuilding the structure.
    • Fold nature into your materiality assessment. Treat dependencies and impacts on nature as candidate material topics in your next review rather than a separate, bolt-on exercise.
    • Audit your data foundations. Location-level, supplier-level detail is harder to assemble than a single carbon figure. Knowing where those gaps are now is worth more than a polished narrative later.
    • Track the convergence. Watch how the ISSB draft aligns with TNFD and ESRS E4 so you build once and disclose against several frameworks.

    Because the ISSB is building on structures the market already uses, the teams that stay closest to their climate disciplines will adapt fastest. If your climate reporting still leans on TCFD-era foundations, our explainer on how TCFD and CSRD align is a helpful reference point for understanding how these frameworks fit together.

    The bottom line

    Nature disclosure is following the same trajectory climate did: a voluntary framework, growing adoption, then absorption into the ISSB baseline. The October exposure draft is the moment that trajectory becomes concrete. Companies that begin locating their nature interface and tightening their data now will meet it as a manageable extension of existing work — not a standing start.

    Horizon ESG is an audit-ready ESG reporting platform that helps reporting teams manage climate, CSRD, and emerging nature requirements in one place, so location-level and supplier data feed straight into disclosure rather than living in scattered spreadsheets. Book a short demo to see how we can help you get ahead of the ISSB timeline with clarity.

  • TCFD vs CSRD: What UK Companies Need to Know About Climate Disclosure Alignment

    By Sai Shankar, Guest Author

    For UK companies, climate disclosure now sits at the intersection of two frameworks. TCFD-aligned reporting has been mandatory for large UK companies since April 2022. CSRD, with its European Sustainability Reporting Standards, applies to UK subsidiaries of EU-headquartered groups and to UK-listed companies within the FCA’s aligned disclosure requirements.

    The two frameworks are related, but they are not the same. Treating them interchangeably creates gaps that surface during assurance. Understanding where they align and where they diverge is the starting point for a disclosure programme that satisfies both without duplicating work.

    What TCFD Actually Is

    The Task Force on Climate-related Financial Disclosures published its final recommendations in 2017, structured around four thematic pillars:

    • Governance: the board’s oversight of climate-related risks and opportunities, and management’s role in assessing and managing them
    • Strategy: the actual and potential impact of climate-related risks and opportunities on the business, strategy, and financial planning
    • Risk Management: the processes for identifying, assessing, and managing climate-related risks
    • Metrics and Targets: the metrics and targets used to assess and manage relevant climate-related risks and opportunities, including Scope 1, 2, and where relevant Scope 3 emissions

    The TCFD itself was dissolved in 2023, with its monitoring role transferred to the IFRS Foundation. TCFD’s four-pillar structure was carried directly into IFRS S2 Climate-related Disclosures, which now serves as the international successor standard.

    In the UK, TCFD-aligned reporting has been mandatory since 6 April 2022 for certain categories of large companies, including UK-listed companies, large private companies, and large limited liability partnerships. The requirement sits within the Companies Act framework and forms part of the Strategic Report.

    What CSRD Requires on Climate

    CSRD requires reporting against the European Sustainability Reporting Standards. The climate-related requirements are concentrated in ESRS E1, which is one of the ten topical ESRS and one of the most detailed.

    ESRS E1 covers disclosures across:

    • Transition plan for climate change mitigation
    • Material impacts, risks, and opportunities and their interaction with strategy and business model
    • Policies related to climate change mitigation and adaptation
    • Actions and resources in relation to climate policies
    • Targets related to climate change mitigation and adaptation
    • Energy consumption and mix
    • Gross Scope 1, 2, and 3 emissions and total GHG emissions
    • GHG removals and mitigation projects financed through carbon credits
    • Internal carbon pricing
    • Anticipated financial effects from material physical and transition risks and potential climate-related opportunities

    The structural similarity to TCFD is intentional. The four TCFD pillars are recognisable throughout ESRS E1, and the European Commission has confirmed that CSRD reporting is designed to satisfy TCFD-aligned expectations.

    Where the Two Frameworks Overlap

    The overlap between TCFD and ESRS E1 is substantial. Both require:

    • Board and management oversight of climate matters
    • Description of climate-related risks and opportunities
    • Scenario analysis to assess resilience
    • Metrics and targets, including Scope 1, 2, and material Scope 3 emissions
    • Transition plan disclosure

    For a UK company already producing a TCFD-aligned disclosure, the underlying data and analysis will feed directly into most of the ESRS E1 requirements. The governance narrative, risk identification process, scenario assumptions, and emissions figures are all reusable.

    Where They Diverge

    The differences matter and are the source of most reporting gaps. Four are particularly worth understanding:

    1. Materiality Approach

    TCFD is grounded in financial materiality. It asks how climate-related risks and opportunities affect the business.

    CSRD requires double materiality, which combines financial materiality with impact materiality. The company must disclose not only how climate change affects it, but also how it affects climate change and the wider environment. This significantly expands the scope of what must be reported.

    2. Level of Prescription

    TCFD provides principles-based recommendations. Companies have flexibility in how they interpret and structure their disclosures.

    ESRS E1 is prescriptive. It sets specific datapoints, defined disclosure requirements, and mandatory structures. A TCFD-aligned narrative is a starting point but rarely sufficient to satisfy ESRS E1 datapoint requirements without supplementation.

    3. Assurance

    TCFD disclosures are not subject to a specific assurance requirement in the UK, although they sit within the Strategic Report and are subject to normal audit expectations.

    CSRD requires limited assurance from the outset, moving to reasonable assurance over time. This changes the standard of evidence, documentation, and control that must sit behind the reported numbers.

    4. Scope 3 Treatment

    TCFD recommends Scope 3 disclosure where material. In practice, many UK TCFD disclosures have deferred detailed Scope 3 reporting or have limited it to a small number of categories.

    ESRS E1 requires disclosure of gross Scope 3 emissions across the relevant GHG Protocol categories, with a clear explanation of any category excluded on materiality grounds. The bar for Scope 3 completeness is meaningfully higher.

    The Practical Implication for UK Companies

    For UK companies within scope of both frameworks, the practical question is how to structure the reporting programme to satisfy both without duplication.

    Three principles are useful:

    • Build the data once: structure the underlying data collection to satisfy the more demanding framework (ESRS E1), and derive the TCFD-aligned narrative from the same source
    • Design for assurance from the start: the CSRD assurance requirement effectively sets a documentation standard that TCFD did not require, but that will improve the quality of the TCFD disclosure as a by-product
    • Treat double materiality as the anchoring assessment: conducting the double materiality exercise properly generates the strategic input needed for both frameworks

    A well-designed CSRD programme will produce a defensible TCFD disclosure with limited additional effort. The reverse is rarely true.

    What About IFRS S2?

    IFRS S2, published by the ISSB in 2023, is the international successor to TCFD and forms the basis of the UK’s proposed Sustainability Reporting Standards. The UK Government is expected to endorse UK versions of IFRS S1 and S2, which would in due course replace the current TCFD-aligned disclosure regime.

    For companies currently reporting under TCFD, the transition to UK-endorsed IFRS S2 will be an incremental change rather than a wholesale one. For companies also within CSRD scope, the picture is that both frameworks will continue to apply in parallel, with different materiality approaches and different levels of prescription.

    How Horizon ESG Supports Dual-Track Climate Reporting

    Horizon ESG is ISSB reporting software that lets organisations manage climate disclosure across TCFD, ESRS E1, and IFRS S2 from a single underlying dataset. Teams can:

    • Capture Scope 1, 2, and 3 emissions once and map them to each framework’s specific structure
    • Document governance, strategy, risk management, and metrics narratives with framework tagging
    • Run and store scenario analyses that satisfy both TCFD and ESRS E1 requirements
    • Maintain the double materiality assessment as a live document rather than an annual exercise
    • Generate framework-specific outputs from the same underlying source

    The result is a climate disclosure process that reuses data rather than duplicating it, and that is designed for the assurance standard CSRD demands.

    Getting Started

    If your organisation is producing TCFD disclosures today and preparing for CSRD, this is the right moment to review whether the current data foundation will scale. The answer is often that the underlying methodology is sound but that the documentation and control environment needs strengthening before it will satisfy assurance requirements.

    Book a free ESG reporting software demo to see how Horizon ESG helps teams manage TCFD and CSRD climate disclosure from a single, audit-ready platform.

  • Setting Science-Based Targets: What SBTi Validation Actually Requires

    By Sai Shankar, Guest Author

    Announcing a Net Zero commitment is now commonplace. Getting that commitment validated as a science-based target is a considerably more involved exercise, and it is where many organisations discover that their emissions data, methodology, and internal alignment are less complete than they had assumed.

    The Science Based Targets initiative provides the most widely recognised framework for setting corporate climate targets that are consistent with the goals of the Paris Agreement. Its validation process serves as an independent check on whether a target is credible, whether the underlying inventory is fit for purpose, and whether the commitment is anchored in a defensible pathway.

    What SBTi Is and Why It Matters

    The Science Based Targets initiative is a partnership between CDP, the United Nations Global Compact, the World Resources Institute, and the World Wide Fund for Nature. It sets criteria for corporate emissions reduction targets, validates targets submitted by companies, and publishes those validations for public reference.

    A validated SBTi target is increasingly a market expectation rather than a differentiator. It is referenced by:

    • Investor stewardship teams assessing portfolio company climate credibility
    • Customers embedding supplier decarbonisation requirements into procurement decisions
    • Ratings agencies and ESG data providers
    • Regulators and policymakers evaluating corporate transition claims

    An announcement of intent, without SBTi validation, no longer carries the same weight it did a few years ago.

    The Overall Structure of an SBTi Target

    Under the SBTi framework, a company committing to science-based targets is required to set:

    • Near-term targets: covering a period of typically 5 to 10 years from the base year, addressing Scope 1 and 2, and Scope 3 where it is material
    • Long-term targets: setting the level of decarbonisation required to reach Net Zero, typically by 2050 or earlier depending on the sector and the standard applied
    • Net Zero commitment: a formal statement of the year in which the company will reach Net Zero across the required scopes

    The near-term and long-term targets are not alternatives. Both are required under the Corporate Net-Zero Standard, and the near-term target is the immediate accountability mechanism.

    Scope 3: The Requirement Most Companies Underestimate

    SBTi requires the setting of a Scope 3 target where Scope 3 emissions represent 40 per cent or more of the company’s total emissions. In practice, this threshold captures the majority of companies in almost every sector outside heavy industry.

    The Scope 3 target must cover at least two-thirds of total Scope 3 emissions in the near term. This is where the operational challenge sits. For many companies, Scope 3 accounts for 80 to 95 per cent of the total inventory, and the largest categories are often supply chain (Category 1) and use of sold products (Category 11).

    Setting a defensible Scope 3 target therefore requires:

    • A reasonably complete Scope 3 inventory across the material categories
    • Sufficient data quality to establish a credible base year
    • A pathway that reflects real levers, not aspirational reduction assumed to occur in the future
    • Clarity on which categories are included and excluded, with reasoning

    Companies that submit an SBTi validation with a weak Scope 3 foundation frequently need to withdraw and resubmit. Getting the inventory right before targeting is faster than the reverse.

    The Validation Process

    The SBTi validation process moves through five broad stages:

    • Commit: the company signs a commitment letter, publicly declaring intent to set a science-based target
    • Develop: the company develops emissions reduction targets consistent with the SBTi criteria
    • Submit: the company submits its targets to SBTi for formal validation, along with the required supporting information
    • Communicate: once validated, the company communicates its targets publicly and inputs them into the SBTi target dashboard
    • Disclose: the company reports progress against its targets annually and provides an updated GHG inventory

    Validation is a paid service, with the fee tied to company size. It is not a rubber stamp. Validators assess the target ambition, the inventory boundary, the methodology, and the internal consistency of the submission. Rejections and requests for resubmission are common.

    What SBTi Actually Reviews

    The specifics of the review vary by company and target type, but common areas of focus include:

    1. Base Year Selection

    The base year must be recent and representative. Choosing a base year in which emissions were unusually high, for example due to a one-off event, is likely to be challenged. The base year inventory must be complete, calculated to a consistent methodology, and recalculable if the company boundary changes.

    2. Target Ambition

    Near-term Scope 1 and 2 targets must be consistent with limiting warming to 1.5 degrees Celsius, which for most sectors means a minimum linear annual reduction of 4.2 per cent from the base year. Scope 3 targets may be aligned with either 1.5 degrees or well below 2 degrees, depending on the target type and sector.

    3. Boundary and Coverage

    The target must cover at least 95 per cent of Scope 1 and 2 emissions across the corporate boundary. Any exclusions must be justified. For Scope 3, the two-thirds coverage requirement applies as noted above.

    4. Methodological Consistency

    Emissions must be calculated using recognised methodologies, typically the GHG Protocol Corporate Standard and Corporate Value Chain Standard. Inconsistent application, undocumented emission factors, or unclear boundary decisions are common reasons for rework.

    5. Sector-Specific Guidance

    Certain sectors, including power, financial institutions, forest, land and agriculture, and others, have specific SBTi guidance and methodologies. A submission that does not follow the applicable sector guidance will not be validated.

    Recent Evolution: The Corporate Net-Zero Standard

    SBTi’s Corporate Net-Zero Standard sets the requirements for corporate Net Zero targets. A revised version of the standard has been under consultation, with proposed changes including clearer treatment of Scope 3, changes to the role of carbon removals and offsets, and refined requirements for hard-to-abate sectors. Version 2.0 was published on 11 June 2026 and takes effect on 31 January 2027. Our guide to what SBTi Net-Zero Standard V2 changes covers the new company categories and the mandatory assurance that comes with them. The Scope 3 coverage figures in this article follow V1.3.1.

    Companies currently developing or refining SBTi targets should track the standard’s evolution closely. Targets validated under one version of the standard may need to be revisited when a subsequent version becomes effective, particularly where the treatment of Scope 3 or carbon removals changes materially.

    Where Companies Get Stuck

    The most common failure modes we see in SBTi target-setting programmes:

    • Incomplete Scope 3 inventory: committing to a target before the underlying Scope 3 data foundation is in place, leading to rework and delays
    • Base year issues: selecting a base year without documenting why it is representative, or without a clear restatement policy for subsequent boundary changes
    • Overreliance on offsets in the pathway: assuming that offsets or removals will close the gap, when SBTi requires reductions to come primarily from operational and value chain decarbonisation
    • Sector guidance overlooked: submitting targets without applying the applicable sector-specific methodology
    • No internal governance: targets set by the sustainability team without formal approval by finance, operations, and executive committees, leading to weak accountability and slow progress
    • Progress reporting deferred: committing to annual disclosure but not building the underlying system to produce it, so that year-on-year reporting becomes a fire drill

    How Horizon ESG Supports SBTi Target-Setting and Tracking

    Horizon ESG’s Targets and Baselines module and Emissions Pathway module are designed to support the full lifecycle of a science-based target. Teams can:

    • Establish a base year inventory with structured methodology documentation
    • Model reduction pathways aligned with 1.5 degree and well below 2 degree scenarios
    • Structure Scope 3 targets with defined category coverage and inclusion rules
    • Track annual performance against near-term and long-term targets in a single view
    • Manage restatement of base year figures where boundary changes occur
    • Generate progress disclosures consistent with SBTi reporting expectations

    The result is a target-setting and progress-tracking process that is defensible during validation and sustainable over the ten-year performance horizon that SBTi requires.

    A Practical Starting Point

    If SBTi validation is on the roadmap but the Scope 3 inventory is not yet complete, sequence the work. Building the inventory first, and using it to inform the target, produces a stronger submission than the reverse.

    Book a free demo of our ESG reporting software to see how Horizon ESG supports the full path from inventory to target-setting to annual progress reporting.

  • ESRS S1: Reporting on Your Own Workforce Under CSRD

    By Sai Shankar, Guest Author

    The environmental standards under CSRD have attracted the majority of attention so far, and understandably. Carbon accounting is where most organisations start, and ESRS E1 is where most of the technical complexity lives. But for many companies preparing their first sustainability statement, the social standards will be the harder ones to close out.

    ESRS S1, covering own workforce, is the largest and most involved of the four social standards. It touches employment data that sits in HR systems, payroll processes, health and safety records, and diversity monitoring. For companies that have never brought these datasets together for reporting purposes, S1 can be the standard that consumes the most cross-functional time.

    What ESRS S1 Actually Covers

    ESRS S1 addresses the impacts, risks, and opportunities relating to a company’s own workforce. It is structured around four main topics:

    • Working conditions: including secure employment, working time, adequate wages, social dialogue, freedom of association, collective bargaining, work-life balance, and health and safety
    • Equal treatment and opportunities for all: including gender equality and equal pay, training and skills development, employment and inclusion of persons with disabilities, measures against violence and harassment in the workplace, and diversity
    • Other work-related rights: including child labour, forced labour, adequate housing, and privacy
    • Characteristics of the workforce: the demographic breakdown of employees and non-employees, contract types, and geographic distribution

    Crucially, the standard covers not only direct employees but also non-employees in the company’s own workforce. This includes self-employed contractors and workers provided by third-party agencies. The boundary of who counts as own workforce is broader than many organisations initially assume.

    Who ESRS S1 Applies To

    ESRS S1 applies to companies within the scope of CSRD where own workforce topics have been assessed as material through the double materiality assessment. In practice, own workforce impacts and risks are material for almost every company, because employment relationships inherently create actual or potential impacts on workers.

    Materiality determines the specific disclosure requirements that apply, not whether the standard applies at all. Companies concluding that no aspect of ESRS S1 is material should expect that conclusion to face scrutiny during assurance, and they will need to disclose their reasoning.

    The Main Disclosure Requirements

    ESRS S1 includes disclosure requirements covering strategy, policies, actions, targets, and metrics. Some of the most demanding include:

    • Description of the material impacts, risks, and opportunities relating to own workforce and their interaction with strategy and business model
    • Policies related to own workforce, including how the company respects human rights
    • Processes for engaging with own workforce and their representatives
    • Channels for own workforce to raise concerns
    • Actions and resources dedicated to addressing material impacts, risks, and opportunities
    • Targets related to managing material impacts, risks, and opportunities
    • A defined set of workforce characteristics, remuneration, and health and safety metrics

    The metric requirements are where the operational challenge concentrates. They require quantitative data at a level of granularity that many organisations do not currently produce for internal reporting, let alone external disclosure.

    The Quantitative Metrics: Where the Work Sits

    A non-exhaustive summary of the quantitative metrics required under ESRS S1 includes:

    • Workforce characteristics: total number of employees broken down by gender, country, contract type (permanent, temporary), and full-time or part-time status
    • Non-employee workers: the number of non-employees in the company’s own workforce, with a description of the most common types
    • Collective bargaining coverage and social dialogue: the percentage of employees covered by collective bargaining agreements
    • Training and skills development: average training hours per employee, broken down by gender
    • Health and safety: the percentage of workforce covered by the health and safety management system, number of fatalities, recordable work-related accidents and ill health, and days lost
    • Remuneration: the gender pay gap and the ratio of annual total compensation for the highest-paid individual to the median annual total compensation for all other employees
    • Diversity: gender distribution at top management level and age distribution across the workforce
    • Adequate wages: confirmation that all employees are paid at least an adequate wage, benchmarked against applicable reference wages
    • Incidents of discrimination and harassment: including complaints filed, fines, and remediation actions

    Where Organisations Get Stuck

    The most common operational challenges we see with ESRS S1:

    1. Data Ownership Is Fragmented

    Workforce data sits across HR systems, payroll platforms, health and safety records, learning management systems, and diversity monitoring processes. Bringing these together at the level of granularity ESRS S1 requires is a cross-functional exercise that no single team owns by default.

    2. Non-Employees Are Not Systematically Tracked

    Most HR systems are configured for employees. Contractors, agency workers, and self-employed individuals working for the company are often invisible to the core HR data model, yet ESRS S1 requires them to be counted, characterised, and in some cases assessed for exposure to material risks.

    3. Definitions Do Not Match Internal Reporting

    The ESRS definitions of full-time, temporary, and non-employee do not always match how the organisation classifies workers internally. A person recorded as a fixed-term employee for payroll purposes may need to be classified differently under ESRS S1. Building a mapping between internal categories and ESRS categories is a step organisations frequently overlook until data collection is well underway.

    4. Pay Gap Calculations Are Not Straightforward

    Calculating the gender pay gap and the CEO-to-median compensation ratio requires clean, consistent compensation data across the workforce, including bonuses and equity awards where applicable. Many organisations have this data but not in a form that produces a clean, disclosable figure without significant manual reconciliation.

    5. Human Rights Due Diligence Documentation Is Thin

    ESRS S1 assumes that the company has a functioning human rights due diligence process, aligned broadly with the UN Guiding Principles on Business and Human Rights. Where this process exists only informally, the documentation to support the required disclosures typically needs to be built.

    What Assurance Providers Will Look For

    Under CSRD’s limited assurance requirement, an assurance provider will focus on whether the data is complete, whether definitions have been applied consistently, and whether the narrative disclosures are supported by evidence.

    For ESRS S1 specifically, this tends to mean:

    • A clear mapping between the population reported and the underlying HR and payroll data
    • Consistent application of contract type and worker type definitions
    • Documented calculation methodology for pay gap, training hours, and health and safety metrics
    • Evidence of the processes described in the narrative, such as engagement channels and grievance mechanisms
    • A defensible position on the completeness of non-employee data

    The single most common assurance finding on ESRS S1 is inconsistency between how the workforce is defined in the narrative and how it is counted in the metrics. A clear boundary definition, applied consistently, addresses most of the risk.

    How Horizon ESG Supports ESRS S1 Reporting

    Horizon ESG structures ESRS S1 data collection to reduce the cross-functional burden and improve the audit trail. Teams can:

    • Configure ESRS S1 datapoints once and collect against the same structure each reporting cycle
    • Import HR, payroll, and health and safety data through standard file formats
    • Apply and version-control worker classification mappings, so that internal categories map cleanly to ESRS definitions
    • Calculate and store metrics with the underlying data linked, supporting audit reproducibility
    • Document policies, actions, and targets alongside the metrics they support
    • Track incidents and grievances with structured evidence retention

    The result is an ESRS S1 disclosure that is complete, consistent, and defensible under assurance, without requiring the HR and sustainability teams to rebuild the dataset each year.

    A Practical Starting Point

    If ESRS S1 has been deferred while the carbon workstream progresses, this is a good moment to begin the data mapping. The workforce data required is available in most organisations, but assembling it in the form the standard requires takes longer than the reporting timeline usually allows if left too late.

    Book a free ESG software demo to see how Horizon ESG helps teams operationalise ESRS S1 alongside the environmental standards in a single, structured platform.

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