ESG · governance
ESG governance
Section 172 frames directors' duties, while the reporting framework determines which governance information is disclosed.
The law
The legal foundation: section 172 and its statement
Section 172 frames directors' duties, while the reporting framework determines which governance information is disclosed.
Module 01 / 03
Duty
Act to promote company success with the required regard.
Module 02 / 03
Oversight
Assign responsibility within the company's structure.
Module 03 / 03
Disclosure
Explain the arrangements required by the applicable framework.
Read the detailed guidance and evidence
Sustainability governance — the board’s oversight of environmental, social and governance risks — rests in the UK on three texts: the directors’ duty in section 172, the governance paragraphs of UK SRS S1, and the UK Corporate Governance Code for listed companies.
Only the first is law for every company; the second is voluntary, and comply or explain for listed companies from 2027.
Every director of a UK company must act in the way most likely to promote its success for the members as a whole, and in doing so have regard to six matters in section 172(1).
Four of the six — employees, suppliers and customers, community and environment, and business conduct — are ESG matters in all but name.
A company that is not small or medium-sized must describe in its strategic report how its directors had regard to them, in a section 172(1) statement.
Medium-sized means meeting two or more of turnover not more than £54 million, balance sheet not more than £27 million and not more than 250 employees, under section 465(3) as it has stood since 6 April 2025.
Companies making the climate-related financial disclosures also describe their governance arrangements for climate risks, the first of the eight items in section 414CB(2A).
| s.172(1) | Directors have regard to |
|---|---|
| (a) | The likely consequences of any decision in the long term |
| (b) | The interests of the company’s employees |
| (c) | Business relationships with suppliers, customers and others |
| (d) | The impact of operations on the community and the environment |
| (e) | A reputation for high standards of business conduct |
| (f) | Acting fairly as between members |
UK SRS S1
What UK SRS S1 asks a board to disclose
UK SRS S1 asks how sustainability-related risks and opportunities are overseen and managed.
Module 01 / 03
Body or person
Identify responsibility and mandate.
Module 02 / 03
Information
Explain skills, briefing and oversight processes.
Module 03 / 03
Management
Explain delegated responsibilities and controls.
Read the detailed guidance and evidence
| UK SRS S1 ¶27 | The company discloses |
|---|---|
| (a) | The governance body — board, committee or equivalent — or individual responsible for oversight of sustainability-related risks and opportunities |
| (a)(i) | How those responsibilities appear in terms of reference, mandates, role descriptions and policies |
| (a)(ii) | How it decides whether the skills and competencies to oversee the response are available or will be developed |
| (a)(iii) | How and how often it is informed |
| (a)(iv) | How it takes the risks and opportunities into account in strategy, major transactions and risk management, including trade-offs |
| (a)(v) | How it oversees targets and monitors progress, including whether and how performance metrics are in remuneration policies |
| (b) | Management’s role: whether it is delegated to a management position or committee, and the controls and procedures that support oversight |
The objective, in paragraph 26, is to let readers understand the processes, controls and procedures a company uses to monitor, manage and oversee sustainability-related risks and opportunities.
UK SRS S2 repeats the same governance questions for climate in its own paragraphs 5 to 7.
The UK Sustainability Reporting Standards are voluntary for any entity; the FCA’s final rules require listed companies in scope to make these disclosures or explain, for accounting periods beginning on or after 1 January 2027.
That is comply or explain across both standards; the consultation had proposed making UK SRS S2 mandatory, and the final rules did not.
The standard is explained on UK SRS S1 and the framework on what is UK SRS.
Oversight models
Board, committee or individual: the oversight models
UK SRS S1 permits different responsible bodies or individuals and does not prescribe an ESG committee.
Module 01 / 03
Board
Identify ultimate oversight responsibilities.
Module 02 / 03
Delegation
Identify the committee or individual and remit.
Module 03 / 03
Reporting
Show the information flow and escalation route.
Read the detailed guidance and evidence
UK SRS S1 does not prescribe an ESG committee.
UK SRS S1 paragraph 27(a) accepts a board, a committee, an equivalent body or an individual — what it requires is that the company identifies which, and explains how it works.
The choice is therefore a judgement about the company’s exposure, its board’s time and the skills around the table.
Whichever model is chosen, the disclosures a reader looks for are the same: who is informed, how often, with what skills, and with what effect on decisions and pay.
The board’s duties under UK SRS are set out further on UK SRS for boards.
| Model | Suits | Watch for |
|---|---|---|
| Full board | Companies where sustainability drives the strategy | Board time and specialist skills |
| Dedicated sustainability committee | Large or complex exposures | How it reports to the board and to audit |
| Existing committee (audit or risk) | Established structures, emerging risks | Sustainability crowded out |
| Named director or executive | Smaller boards | A single point of failure |
The Code
The UK Corporate Governance Code: what it adds, and what it does not
The UK Corporate Governance Code's application depends on the company's reporting position rather than its use of ESG language.
Module 01 / 03
Scope
Check whether the Code applies.
Module 02 / 03
Principles
Read purpose, culture, stakeholders and controls.
Module 03 / 03
Reporting
Explain application and relevant departures.
Read the detailed guidance and evidence
The UK Corporate Governance Code 2024 applies, on a comply-or-explain basis, to companies in the commercial companies and closed-ended investment funds categories, for financial years beginning on or after 1 January 2025.
Its principles ask the board to pursue long-term sustainable success and to engage with stakeholders — the language of sustainability governance, without a disclosure list.
The FRC chose not to add a sustainability reporting requirement, on the ground that the listing rules and the Companies Act already cover climate disclosure and a new one risked duplication.
What it did add is Provision 29: from financial years beginning on or after 1 January 2026, the board declares whether its material controls are effective, including controls over narrative and ESG reporting.
The 2018 edition, still widely cited, is superseded; the FRC keeps the July 2018 text online for reference.
A large private company with no Code to follow must still say which governance code it applied, if any, when it has more than 2,000 employees or turnover over £200 million and a balance sheet over £2 billion, under Schedule 7 Part 8.
Anti-bribery sits alongside: section 7 of the Bribery Act 2010 makes failure to prevent bribery a corporate offence, with a defence of adequate procedures.
A. The board promotes “the long-term sustainable success of the company, generating value for shareholders and contributing to wider society”.
B. It establishes purpose, values and strategy, and satisfies itself they align with culture.
D. It ensures effective engagement with shareholders and stakeholders.
E. Workforce policies and practices support long-term sustainable success.
UK Corporate Governance Code 2024, Section 1.
Assurance
Assurance: a board decision, not a legal duty
Governance responsibility, internal controls and external assurance are different parts of the reporting process.
Module 01 / 03
Preparation
Identify owners of records and calculations.
Module 02 / 03
Review
Identify challenge, controls and approval.
Module 03 / 03
Assurance
Identify the engagement scope where assurance is obtained.
Read the detailed guidance and evidence
UK SRS and the FCA’s final listed-company application rules do not impose a general requirement to obtain third-party assurance over these disclosures.
Under the FCA’s made rules, a listed company states whether it obtained third-party assurance and, if so, names the provider, the disclosures assured, the level and the standards used.
Where a company commissions assurance, ISSA (UK) 5000 governs the engagement, for periods beginning on or after 15 December 2026.
Deciding whether to obtain it, over what and at what level, is therefore a governance decision, and many boards give it to the audit committee.
The detail is on UK SRS assurance.
Worked answer
What does a useful sustainability risk escalation record show?
A named committee is only the start: a reader should be able to follow what management learned, how it reached the oversight body and what decision followed.
| Fictional stage | Evidence reaching the next person | Decision or responsibility |
|---|---|---|
| Operating team | A site identifies a water-supply dependency with supporting operating records. | Assign responsibility for checking the exposure and its business effect. |
| Management | The responsible executive reviews the evidence, uncertainty and response options. | Escalate the issue through the established reporting route. |
| Oversight body | The board or designated committee receives the issue and relevant trade-offs. | Consider the strategic response, monitoring and how the role is described in the disclosure. |
This fictional record does not prescribe an ESG committee, meeting frequency or governance model; the company describes the arrangements it actually has.
Module 01 / 03
Evidence
Module 02 / 03
Escalation
Module 03 / 03
Decision
Getting it in place
Putting sustainability governance in place: an order of work
An editorial governance workflow connects responsibility with the information that reaches the board.
Module 01 / 03
Source
Assign owners for risks, metrics and assumptions.
Module 02 / 03
Review
Record checks, challenges and decisions.
Module 03 / 03
Approval
Record the reporting decision and sign-off.
Read the detailed guidance and evidence
Name the body or person responsible, and write the responsibility into its terms of reference, because that is the first thing UK SRS S1 asks about.
Set how and how often the board is informed, and record it.
Check the skills on the board against the risks it oversees, and plan how gaps will be filled.
Decide whether sustainability targets feed into remuneration, and say so either way.
Map the controls over the data, since for listed companies they now fall under the Provision 29 declaration.
Where this fits in the wider list of duties is on ESG reporting requirements UK, and the board-level UK SRS view on UK SRS for boards.
A free 15-minute call can walk through your current board structure against UK SRS S1 ¶27 and the Code.
Frequently asked
Sustainability governance: frequently asked
What is sustainability governance?
Sustainability governance is how a company's board and management oversee sustainability-related risks and opportunities: who is responsible, how they are informed, how they build the skills to judge the issues, how targets are set and linked to pay, and which controls support it.
UK SRS S1 paragraph 27 is the most detailed UK statement of what a company should disclose about it.
What does ESG governance mean?
It means two things that are often mixed up: governance as one of the three ESG topics (board structure, ethics, anti-bribery, pay), and the governance of ESG — the arrangements a board uses to oversee environmental and social risks.
This page is about the second, which is what UK SRS and the TCFD call governance.
Does a company need an ESG committee?
UK SRS S1 does not prescribe an ESG committee.
UK SRS S1 asks a company to identify the governance body or individual responsible for oversight, which can be the full board, a committee or an individual.
Some boards use a dedicated sustainability committee, others give the work to an existing committee such as audit or risk.
How does section 172 relate to ESG governance?
Section 172(1) of the Companies Act requires directors, in promoting the success of the company, to have regard to the long term, employees, suppliers and customers, the community and the environment, high standards of business conduct and fairness between members.
Companies above the medium-sized limits explain how they did so in a section 172(1) statement in the strategic report.
Does the UK Corporate Governance Code require sustainability reporting?
No. The FRC chose not to add a sustainability reporting requirement to the 2024 Code, because listed companies already make climate-related disclosures under the listing rules and the Companies Act.
The Code asks boards to consider long-term sustainable success, and from financial years beginning on or after 1 January 2026 Provision 29 asks the board to declare the effectiveness of its material controls, including controls over narrative and ESG reporting.
Are UK SRS governance disclosures mandatory?
Not as such.
UK SRS S1 and S2 are voluntary for any entity.
Under the FCA's final rules, listed companies in UKLR 6, 14, 15, 16 and 22 report against them on a comply-or-explain basis for accounting periods beginning on or after 1 January 2027, so a company either makes the governance disclosures or explains what is missing and why.
Who oversees sustainability assurance on the board?
UK SRS S1 does not prescribe which board committee oversees an assurance engagement.
The FCA’s final UK SRS rules do not impose a general requirement to obtain third-party assurance; under the FCA's final rules a listed company states whether it obtained assurance and, if so, the provider, scope, level and standards.
Many boards give oversight of any assurance engagement to the audit committee, which already oversees the external audit.
Editorial preparation
One responsibility map
An editorial responsibility map shows who supplies, reviews and approves information without requiring readers to click through role buttons.
- 1
Supply
Business and data owners provide records.
- 2
Challenge
Finance, risk and relevant specialists review.
- 3
Approve
The designated governance body makes the decision.
Read the detailed guidance and evidence
An editorial responsibility map shows who supplies, reviews and approves information without requiring readers to click through role buttons.
Prepare the evidence
ESG governance: from a requirement to a reporting pack
Use this preparation sequence alongside the detailed requirements on this page.
An editorial workflow, not a statutory schedule.
- Stage 0101
Duty map
List the legal, contractual and voluntary requirements that actually apply.
- Stage 0202
Reporting lens
Distinguish financial exposure from impacts and wider stakeholder questions.
- Stage 0303
Accountability
Give each disclosure a responsible owner and a review path.
- Stage 0404
Evidence record
Retain data boundaries, methods and source documents.
- Stage 0505
Framework connections
Reuse evidence where the underlying definitions and boundaries agree.
- Stage 0606
Publication checks
Review the report for unsupported claims, omissions and contradictory statements.
Read the applicable instrument: Companies Act 2006, section 172(1)
A practical brief
An evidence pack, with a clear review trail
Ask for a pack that lets the next reviewer retrace the scope decision, follow the evidence and understand the limitations.
This describes a useful handover; it does not certify compliance or establish that a vendor or adviser delivers it.
Module 01 / 04
Applicability record
Write down the entity, reporting route and relevant period, including why the route applies.
Module 02 / 04
Evidence register
Attach each reported figure or statement to its source, method, version and limitations.
Module 03 / 04
Review trail
Name the preparer, reviewer, open questions and decisions taken before publication.
Module 04 / 04
Usable handover
Retain the working files and unresolved actions so the next reporting cycle can reuse the evidence.
View the preparation diagram
- Prepare01
Create the traceable pack
Keep the input records, calculation files and narrative together.
- Challenge02
Resolve questions before publication
Record the assumptions challenged and any limitations still unresolved.
- Retain03
Make the next cycle reproducible
Keep the approved version and the actions carried forward.
Continue your research
Related guides, one question at a time
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)
The duty to promote the success of the company, and the six matters (a)–(f).
- legislation.gov.ukCompanies Act 2006, section 414CZA
The section 172(1) statement; not required of a medium-sized company.
- legislation.gov.ukCompanies Act 2006, section 465(3)
£54m, £27m, 250 employees since 6 April 2025.
- legislation.gov.ukCompanies Act 2006, section 414CB(2A)(a)
Governance arrangements for climate-related risks and opportunities.
- Department for Business and TradeUK SRS S1 (PDF), ¶¶25–27
The governance disclosures: the oversight body or individual, and management’s role.
- Department for Business and TradeUK SRS S2 (PDF), governance ¶¶5–7
- Department for Business and TradeUK SRS S1 and S2 — publication page
Published 25 February 2026.
- Financial Reporting CouncilUK Corporate Governance Code 2024
Applies to financial years from 1 January 2025; Provision 29 from 1 January 2026.
- Financial Reporting CouncilThe UK Corporate Governance Code, July 2018 (superseded edition, PDF)
- legislation.gov.ukSI 2008/410 Schedule 7, Part 8 ¶¶22–26
Statement of corporate governance arrangements for large private companies.
- Financial Conduct AuthorityPS26/19: Aligning listed issuers' sustainability disclosures with international standards
Comply or explain from 1 January 2027.
- Financial Conduct AuthorityPS26/19 (PDF), Appendix 1, UKLR 6.6.6R(8)(d)–(e)
The assurance and transition-plan statements.
- Financial Conduct AuthorityCP26/5 — the consultation PS26/19 finalises
- Financial Reporting CouncilISSA (UK) 5000
Periods beginning on or after 15 December 2026.
- legislation.gov.ukBribery Act 2010, section 7