Understand UK Policies and Regulations
Environmental Defense Fund
Net zero policy in the UK has undergone recent changes post-Brexit. Learn how these regulations have evolved and their corresponding impact on companies with a presence in the United Kingdom.
In recent years, the UK has replaced EU regulation with its own climate policy. This includes the UK Emissions Trading Scheme (UK ETS), which closely mirrors the EU Emissions Trading System (EU ETS), and the UK’s Mandatory Climate-Related Financial Disclosure Requirements. Both requirements impact companies with a presence in the UK, setting standards for reporting greenhouse gas emissions and using emission allowances under cap-and-trade programs.
The UK Emissions Trading Scheme (UK ETS)
The UK Emissions Trading Scheme (UK ETS), which has replaced the UK’s participation in the EU Emissions Trading System (EU ETS), came into effect in 2021. The UK ETS is designed to mirror the EU ETS as a cap-and-trade system that sets limits on the amount of greenhouse gases allowed by industry. Under this scheme, companies are given emission allowances that can be freely traded among market participants. This includes companies with operations in the UK, as well as companies that engage in emission trading with allowances within the UK ETS.
It is important for companies with operations in the UK to stay informed of the requirements of the UK ETS. In particular, U.S. companies that have operations in both the UK and the EU should consult with policymakers and legal experts to understand how the different schemes impact their business and make sure they are prepared to properly comply.
UK’s Mandatory Climate-Related Financial Disclosure Requirements
In 2022, the UK made it mandatory for publicly traded companies with >500 employees to disclose their climate risks to enhance transparency and promote a better understanding of climate-related risks and opportunities. This reporting is in line with the Task Force on Climate-related Financial Disclosures (TCFD).
Key requirements under this new disclosure framework are:
- Companies Act 2006 Regulations: Companies that meet certain criteria are required to include climate risks in their annual reporting.
- Streamlined Energy and Carbon Reporting (SECR): Requires UK-incorporated companies to disclose use of energy, as well as greenhouse emissions, to help identify energy saving opportunities.
Though these requirements primarily apply to UK-incorporated companies, other companies with operations or subsidiaries in the UK may also be subject to these requirements. Companies should stay informed about obligations and consult legal experts to understand the latest requirements.