Legal development

Government consults on modernising corporate and sustainability reporting

September 16, 2026

What you need to know

On 7 September 2026, the UK Government published its long-anticipated consultation on modernising the UK’s corporate reporting framework, including non-financial narrative reporting. The Modernising Corporate Reporting (MCR) review aims to address the existing complex and duplicative requirements that obscure the purpose of corporate reporting so that future requirements are simpler, more proportionate and focus on providing financially material information for investors and creditors.
On financial reporting, the consultation seeks views on proposals to move all detailed financial reporting content requirements from the Companies Act 2006 (2006 Act) and supporting regulations to the accounting standards and to streamline the number of those standards whilst redrawing company size classifications.
The government proposes to replace most existing strategic reporting requirements with a core set of baseline narrative disclosures and move towards a principles-based framework. The baseline narrative disclosures will replace the disclosures relating to environmental matters, employees, social and community matters, human rights and anti-corruption and anti-bribery as well as the Section 172(1) statement.
Climate-related financial disclosure (CFD) requirements will be retained but are subject to a separate post-implementation review (PIR). Decisions on mandating use of the UK Sustainability Reporting Standards (UK SRS) and transition plan (TP) reporting are deferred pending further consultations.
The consultation seeks views on whether the annual advisory shareholder vote on directors' remuneration reports (DRRs) should be removed.
The consultation also covers digital communications, the clarification of the law relating to virtual AGMs and digital tagging of reports. The government also proposes the simplification of corporate governance reporting, seeking views on moving such reporting from company to group level.

What you need to do

Review the proposed baseline disclosure requirements and assess how they would apply to your current reporting practices.
Consider whether to respond to the consultation by the deadline of 30 November 2026.
Monitor the separate PIR of CFD requirements and the government’s ongoing consideration of UK SRS and TP requirements.

Background on the MCR review and consultation

The MCR consultation follows the 2023 Non-financial Reporting Review¹, which focused on reducing regulation of small and medium-sized companies (SMEs) to ensure that reporting requirements are proportionate.

In October 2025, the government updated its Regulation Action Plan² by committing to:

Exempt most medium-sized private companies from producing a strategic report.
Exempt wholly-owned subsidiaries from producing a strategic report if they are included in a UK parent company report.
Remove the requirement to produce a directors' report, with some provisions being removed entirely, and others relocated elsewhere in the annual report.

In December 2024, the Companies (Accounts & Reports) (Amendment & Transitional Provision) Regulations 2024 (SI 2024/1303) removed various requirements for directors' reports of large and medium-sized companies which were considered to duplicate, or which had been superseded by other reporting requirements (see Ashurst Governance & Compliance Update – Issue 60). The Regulations also increased by approximated 50% the turnover and balance sheet thresholds for determining a company's size for reporting purposes.

In March 2025, the Companies (Directors' Remuneration & Audit) (Amendment) Regulations 2025 (SI 2025/ 439) were published seeking to streamline directors' remuneration reporting and related requirements (see Ashurst Governance & Compliance Update – Issue 63).

Background on the UK SRS, the Streamlined Energy and Carbon Reporting (SECR) regime and Transition Plans

In June 2025, the UK Government consulted on adopting the UK SRS, introducing climate-related TP requirements and developing an oversight regime for the assurance of sustainability-related financial disclosures (see UK Government consults on adopting ISSB sustainability reporting standards and mandating Transition Plans to develop a sustainability reporting framework).

The UK SRS were endorsed by the Secretary of State for Business and Trade in February 2026 and are now available for voluntary use (see Government endorses ISSB sustainability reporting standards to create UK SRS). For their use to become mandatory, the climate-related financial disclosures in the UK Listing Rules (UKLR) and section 4141CA-CB of the 2006 Act would need to be amended.

In January 2026, the Financial Conduct Authority (FCA) consulted on amending the UKLR to align listed issuers’ sustainability disclosures with the UK SRS (see FCA consults on aligning listed issuers sustainability disclosures with UK SRS).

The UK government conducted a post-implementation review (PIR) of the SECR regime, which was published in May 2026 and recommended retention of the regime as well as proposals to simplify it. The PIR stated that improvements to the scheme would be explored in the MCR consultation (see Ashurst Governance & Compliance Update – Issue 83).

Overview of MCR consultation

On 7 September 2026, the UK government published a consultation on proposals to modernise and simplify the UK’s corporate reporting framework including in relation to non-financial narrative reporting.

The consultation states that the government is undertaking a 'once in a generation' review of corporate reporting to address the complex and overlapping existing requirements that have been added over the last 20 years. These requirements now obscure the purpose of corporate reporting, which is to provide material information on the company's performance, strategy and approach to risk to its investors and creditors.

The government's proposals are guided by five principles:

Clarity of purpose: Annual Reports should provide financially material and decision-useful information to existing and potential investors and creditors.
Flexibility and trust: Companies should be trusted to tailor their disclosures to provide only the financially material information needed by their particular investors and creditors.
Simplicity and coherence: Reporting requirements should not be duplicated across law, accounting standards and regulatory rules; they should be clear and easy to interpret.
Proportionality: Reporting requirements should reflect company size, ownership structure and economic impact.
Fit for the future: The UK's reporting framework should be capable of adapting to take advantage of digital reporting and emerging technologies.

The consultation is focused on the annual reporting requirements for companies but the government will also consider changes to the regimes applying to other types of entity, such as limited liability partnerships, in due course.

To future-proof reporting requirements, the government has introduced a reporting gateway function within the Department for Business, Innovation, Science and Trade (DBIST) to ensure that any new or revised reporting requirements align with the reporting principles outlined above. The Gateway will also assess and advise on economy-wide reporting requirements beyond the annual report based on the strategic fit of proposals with existing policies and commitments, a cost-benefit analysis, alignment to comparable international standards (if appropriate), complexity of the proposals and how the disclosures would be used by investors and creditors.

Proposals on simplifying company categories, thresholds and exemptions

The existing 2006 Act requirements make it difficult to determine which entities are required to make specific disclosures owing to multiple definitions, thresholds, ineligibility criteria and exclusions. To improve the simplicity and coherence of the reporting framework and to lighten the regulatory burden for companies, the consultation makes proposals, and seeks further information, in the following areas:

Expanded SME regime: As regards the current distinction between small and medium-sized companies, the consultation asks whether medium-sized companies should be able to access the same accounting and reporting regime available to small companies. It also asks whether medium-sized companies should benefit from the same audit exemption and if there are downsides to this, such as regarding access to credit.
Group companies: The consultation seeks views on whether micro, small and medium-sized companies should be able to use relevant accounting and audit exemptions even if they are part of an 'ineligible group' - for example, one which includes a regulated financial services provider. The consultation notes that the government will work with the FCA to discuss the potential risks attendant to taking this proposal forward.
Definition of employees for the employees threshold test: The consultation asks for views on whether there is a better way to define the current employee threshold test, which uses a headcount calculation of the average number of employees.

The consultation acknowledges that the current test may be simpler for small businesses but asks for views on how to improve the test to obtain a clearer reflection of the size of some larger businesses (e.g. by focusing on full-time equivalent employees) and to recognise the different employment models which now exist, such as contractors, agency workers and others.
Very large company threshold: In respect of non-financial reporting, the consultation seeks views on whether the current tests for a 'very large' company should be combined into a single test, how the threshold should be defined and which reporting obligations should apply to such companies.

Proposals for a new financial reporting framework

As regards financial reporting, the consultation includes proposals and questions on several topics including payments out of distributable profits and the relationship between company law and accounting standards.

Distributable profits and reserves: The consultation considers whether there should be a move from the current dividend regime based on distributable profits and reserves to a solvency-based regime which would involve companies stating that the payment of a dividend would not affect their ability to continue as a going concern. It seeks views on the key features that should be included in a solvency regime.
The 2006 Act and accounting standards: To reduce complexity and duplication, the consultation proposes to:
- remove all detailed financial reporting content requirements from the 2006 Act and supporting regulations and move it into accounting standards so that they become the sole source of information on the content of accounts; and
- streamline the number of accounting standards to four main standards including a simplified SME reporting standard.
The 2006 Act would then become the framework supporting accounting standards, dealing with matters including scope, overarching legal principles, administrative disclosure requirements and which reporting standard applies to a particular company. As the regulator responsible for accounting standards, the Financial Reporting Council (FRC) will publish a consultation to this end in due course.

Other proposals: Other proposals include whether reporting and audit requirements for subsidiaries can be simplified and whether the requirements regarding 'true and fair' can be simplified and even removed for small and micro companies.

Proposed reforms to narrative reporting

Overview of the consultation proposals

The government is consulting on ways to ensure that only financially material non-financial information is disclosed in Annual Reports. The proposals aim to transform non-financial reporting from a rules-based to a principles-based framework. Key proposals and areas where further information is sought are summarised below.

Audience of Annual Reports: It is proposed that the strategic report will be refocused on the needs of current and future investors and creditors to help directors make decisions on financial materiality.
Core baseline disclosures: It is proposed that most existing strategic reporting requirements be removed and replaced with a core set of baseline narrative disclosures covering a company’s business model, performance, resources and relationships, strategy, and principal risk exposures. The detail included under these baseline disclosures would be consistent with the size and complexity of the business.
Enhanced reporting: The government is seeking views on requiring enhanced reporting of cyber risk management over the baseline disclosures by 'very large' companies.
Assurance transparency: The government is seeking views on whether greater transparency is required regarding assurance of strategic reporting including sustainability reporting. It has no plans to mandate such assurance.

Core baseline disclosures

The proposed baseline disclosures on performance, strategy and risks would replace the disclosures listed in ss. 414C(7)(b) (policies on environmental, employee and social, community and human rights matters and their effectiveness) and 414CB(2)(b) - (d) (policies and risks relating to environmental matters, employees, social matter and human rights and anti-corruption and anti-bribery). This proposal would not impact existing climate-related financial disclosures (CFD) in ss. 414CB(A1), (2B) and (4B), on which more below.

Aside from the CFD disclosures, s. 414CB currently requires information on environmental matters, employees, social matters, human rights, anti-corruption and anti-bribery, relating to:

the company's business model, relevant policies, their outcomes and due diligence processes implemented in pursuance of them;
principal risks arising in connection with the company's operations and, where relevant and proportionate, a description of its business relationships, products and services likely to cause adverse impacts in those areas of risk and how such risks are managed; and
the non-financial key performance indicators relevant to the company’s business.

The proposed baseline disclosures on 'resources and relationships' important for the long-term success of the company would replace the reporting currently required by s. 172(1) statements.

It is proposed that certain requirements would no longer be explicitly required as it is anticipated that this information would be disclosed as part of the baseline requirements:

Key performance indicators (KPIs): Medium-sized companies would no longer be explicitly required to analyse financial KPIs as is currently the case under s. 414C(4)(a). Large companies and PIEs would no longer be explicitly required to provide analysis using other KPIs including information relating to environmental matters and employee matters as is currently required under s. 414C(4)(b) and 414CB(2)(e) (respectively).
Main trends and factors: Quoted companies would no longer be explicitly required to include the main trends and factors likely to affect the future development, performance and position of the business (s. 414C(7)(a)).

The consultation notes that, while explicit disclosures relating to environmental matters, employees, social and community matters, human rights and anti-corruption and anti-bribery will be removed from the legislative framework, companies should still report on these issues against each of the proposed baseline requirements where they are financially material to their performance or operations. Companies could choose to use recognised reporting standards or frameworks such as the UK SRS and the Taskforce on Nature-related Financial Disclosures (TNFD) to report such matters.

It is also proposed to remove the disclosure of the sex breakdown of senior personnel under section 414C(8)(c).

Which companies are in-scope of the baseline strategic reporting?

Reporting entities have expressed concerns about the complexity of scoping current non-financial reporting obligations, which are based on multiple thresholds (e.g. company size - medium or large, ownership type, listing status - quoted vs private, and employee counts). The government proposes to set a single threshold for baseline strategic report requirements but is seeking feedback on the investors and creditors that most need the information in the baseline disclosures.

The consultation states that legislation to exempt UK subsidiaries with a UK parent from the requirement to produce a strategic report where they are included in the parent's group strategic report is due to be laid before Parliament 'in due course'. Traded companies, banking companies, authorised insurance companies, companies carrying on insurance market activity; and companies with securities on the Alternative Investment Market (AIM companies) will not be able to benefit from the exemption although views are sought on this.

CFD, SECR, mandating the use of the UK SRS and TPs

As noted above, it is proposed to retain the requirements in ss. 414CB(A1), (2B) and (4B) to make CFD in the strategic report.

The consultation provides that the government is conducting a PIR of the regulations which introduced the existing CFD requirements to understand how companies and LLPs are reporting CFD and how these disclosures are being used by investors and other users. The PIR is due to be completed in spring 2027 meaning that no proposals on the future of the CFD requirements are included in the current consultation.

The consultation does provide that, as directors' reports will no longer be required, SECR disclosures will need to move but the government does not propose to prescribe a specific location.

Building on the review of SECR published in January 2006 and the evaluation of the Energy Savings Opportunity Scheme (ESOS) that is currently underway, the government plans to consult on reform of SECR and ESOS later in 2026.

The consultation states that the government will consider how UK SRS should be reflected in the 2006 Act, taking into account the consultation feedback, the CFD PIR and related processes.

Companies in-scope of the UKLR changes proposed by the FCA regarding use of the UK SRS by listed issuers (see the 'Background' section above) will be able to choose to use their UK SRS S2 disclosures to meet their CFD obligations as permitted under s. 414CB(6). To facilitate this, the government will make it clear that the UK SRS are a national reporting framework for the purposes of s. 414CB(6).

Responding to questions about the applicability of the safe harbours regime in s.463 of the 2006 Act to UK SRS disclosures made outside the strategic report and the need to expand the safe harbour provisions, the consultation states that the s.463 tests are appropriate for UK SRS disclosures in the same way they apply to any forward-looking or estimated data disclosed in the strategic report. The consultation provides that, should sustainability-related financial disclosures be located outside the strategic report, the government would seek to expand the legal protections for directors under s. 463 to cover those disclosures.

The government is still considering the responses it received on the June 2025 consultation on TPs and future decisions will take into account the wider review of corporate reporting under the MCR (for background, see UK Government consults on adopting ISSB sustainability reporting standards and mandating Transition Plans to develop a sustainability reporting framework).

Location of sustainability-related financial disclosures

The government proposes that companies have the flexibility to report climate and other sustainability-related information anywhere in the strategic report, including either integrated in the strategic report alongside or as part of the proposed baseline strategic report requirements or in a separate section of the strategic report, which refers to this information. As CFD are being reviewed through a separate PIR process, those disclosures will be considered separately.

Decisions on the location of TP reporting will be subject to separate processes and will take into consideration the outcomes of the TP consultation.

Enhanced risk reporting

The government is seeking views on whether 'very large' companies should be required to report on how directors are managing cyber security risks and whether the existing risk reporting requirements and provisions of the UK Corporate Governance Code and the Wates Principles are generating sufficiently useful information on cyber risk and management for investors and creditors.

Assurance of strategic and sustainability reporting

Responding to the consultation on a sustainability assurance regime, the government does not plan to introduce requirements for companies to obtain assurance of future UK SRS reporting at this stage, or for other strategic reporting topics such as cyber risk (for background, see UK Government consults on adopting ISSB sustainability reporting standards and mandating Transition Plans to develop a sustainability reporting framework and FCA consults on aligning listed issuers sustainability disclosures with UK SRS).

Noting that the FCA consulted on a proposal to require listed companies to disclose information about the scope and level of assurance they have obtained over the information reported in accordance with UK SRS, the government is seeking views on whether companies should be required to provide transparency on any assurance that is obtained and the standard of that assurance (i.e. 'reasonable' or 'limited').

Proposals to simplify corporate governance reporting

The consultation considers how corporate governance reporting can be made simpler and more decision-useful for investors and creditors. Issues covered include:

Increasing flexibility: To address concerns from some stakeholders that the UK Corporate Governance Code does not provide the level of flexibility required in practice, the consultation asks what would help companies make better use of the Code's flexibility to explain non-compliance with it.
Moving corporate governance reporting from company to group level: Reflecting the fact that strategy and risk management is usually set at group level and investors and creditors want to understand the group approach to these matters, the consultation seeks views on moving corporate governance reporting to group level.
Corporate governance for private companies: Linking back to proposals on thresholds for corporate reporting, the consultation seeks to understand whether there is sufficient value in retaining corporate governance reporting by private companies and, if so, what the appropriate threshold is.
Statement of corporate governance arrangements: The consultation seeks views on whether some or all governance information could be published only on the company's website and not in the annual report.
Corporate governance landscape in general: Noting the interconnected web of governance reporting requirements in the 2006 Act, the UK SRS, the UK Corporate Governance Code and the FCA Handbook, the consultation seeks views on the corporate governance landscape in general and how corporate governance reporting can be streamlined further.

Proposals to simplify remuneration reporting

The consultation notes that DRRs are regarded by companies and investors as being too long and complex. Proposals include:

Scope: The consultation asks whether the current scope of remuneration reporting for quoted companies remains appropriate.
DRRs: The consultation seeks views on retaining only certain information regarded as key investor-critical information; streamlining some requirements (e.g. the methodology for calculating the total single figure for director remuneration); and removing various other reporting requirements.
Advisory vote on DRRs: The consultation asks for views on removing the annual advisory shareholder vote on the DRR, a proposal which is already attracting a certain amount of negative comment.

Proposals on digital communications, virtual AGMs and digital tagging

The consultation proposes replacing existing 2006 Act requirements to post hardcopies of annual reports and other company information to shareholders (in the absence of prior shareholder approval of electronic communication/ publication on the website) with a presumption in favour of electronic distribution of annual reports. However, the government agrees with the recommendation of the Digitisation Taskforce that individual shareholders should be able to opt in to receiving hard copy communications (see Ashurst Governance & Compliance Update – Issue 69). Companies will still be required to contact shareholders individually by electronic means (usually by email) to alert them to any new documents being available on the company website.

As announced in October 2024, the government will clarify the law in relation to fully virtual meetings by making it clear that 'place' of a meeting can include virtual locations, 'where there is shareholder consent'. The consultation seeks views on issues such as any shareholder safeguards that are needed when making this clarification including supermajority consents, reapproval by shareholders after a set period and best practice guidance for virtual AGMs.

The government plans to undertake a review of how corporate reporting can embrace both current and emerging technologies including the use of advanced analytical tools and AI, central reporting portals and digital formatting of information beyond financial statements.

The government also proposes to give the FRC statutory powers to set the technical standards for electronic formatting, currently in the form of ‘taxonomies’ on the digital tagging to be applied to reports and accounts. It also proposes to require directors to approve that formatting at an earlier stage than just before filing and to require auditors, where no exemption applies, to report on whether the reports and accounts have been properly formatted.

Other proposals

Auditor information: The government proposes to require companies to notify Companies House of the appointment of an auditor. It will also introduce a new obligation for auditors to include their registration number(s) on the audit report and for companies to include it in statements of the auditor’s appointment or departure. All auditor reporting at Companies House would be tied to the auditor’s registration, which would identify both the audit firm and relevant individual auditor.
Payments to Governments Regulations: The government proposes to revoke the Reports on Payments to Governments Regulations as a PIR has found that they are not achieving their intended objective of increasing transparency in the extractives sector.

Timeline and next steps

Feedback on the consultation should be submitted on or before 30 November 2026. The government aims to publish either a consultation outcome within six months or an explanation if that is not possible.

In undertaking next steps, the government will work closely with the FCA given the overlap between its proposals and the expectations of the FCA Handbook both now and once the requirements for listed issuers' sustainability disclosures under the UK SRS come into force.

Comment

Companies had been expecting detailed recommendations on how Annual Reports will change to address the reporting challenges they face and to align the 2006 Act CFD requirements with the UK SRS to mirror what the FCA is doing in its own rules. The MCR consultation operates at a much higher level and will require further consultations on several topics before draft legislation can be forthcoming. Significant change is further down the road than had previously been anticipated, particularly when it comes to sustainability reporting.

If you would like to know how we can support your reporting obligations including in relation to climate and sustainability, please get in touch with any of the contacts below.

Other author: Vanessa Marrison, Expertise Counsel

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The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.