A deep dive into the regulatory, market and strategic shifts shaping the year ahead
Sustainability expectations for UK businesses are maturing at speed. What began as voluntary reporting and long-term aspirational targets has evolved into a regulated, data-driven, stakeholder-scrutinised discipline that increasingly shapes competitive advantage.
In 2026, sustainability will become even more central to business resilience, investor confidence, operational efficiency and brand trust. Below we explore five major trends UK business leaders must understand – each grounded in policy developments, market signals and emerging global norms.
Each section contains:
- What’s happening & why it matters
- Key regulatory or stakeholder drivers
- Practical strategic implications
- Recommended actions for organisations
1. Mandatory ESG reporting becomes standard practice
What’s happening
The UK is aligning its sustainability reporting rules with global standards – specifically the International Sustainability Standards Board (ISSB) IFRS S1 & S2. These standards will form the basis of new UK Sustainability Reporting Standards (UK-SRS), which the government signalled it will adopt for corporate reporting.
In parallel, regulators are tightening enforcement on sustainability claims. The CMA now has powers (effective 2025) to issue fines of up to 10% of global turnover for misleading environmental claims. The FCA’s Sustainability Disclosure Requirements (SDR) and product labelling regime are also reshaping expectations for credible, evidence-based ESG communications.
Why it matters to UK businesses
Reporting quality will make or break credibility. Companies unable to produce accurate, audit-ready ESG data risk:
- regulatory penalties
- reputational damage
- loss of investor confidence
- exclusion from tenders or supply chains that require validated ESG data
Key drivers
- UK Government announcement on UK-SRS adoption (aligned to ISSB).
- Mandatory TCFD reporting for large companies.
- CMA Green Claims Code enforcement.
- Investor and asset-manager demands for high-quality ESG data.
Strategic implications
Sustainability reporting becomes continuous, not annual. It requires integrated data management, cross-functional teams, and internal controls comparable to financial reporting.
Actions to take
- Build an ISSB-aligned reporting roadmap now.
- Invest in centralised ESG data systems to reduce manual effort and error.
- Establish ESG governance, including audit and risk oversight.
- Run internal training to eliminate unsubstantiated green claims.
Useful resources:
2. Transition plans move centre-stage in the race to Net Zero
What’s happening
The UK’s legally binding climate goals – including its 78% emissions reduction target by 2035 and Net Zero by 2050 – are driving stronger expectations for corporate Net Zero Transition Plans.
The Transition Plan Taskforce (TPT) has already published a detailed disclosure framework. UK regulators have strongly signalled that large companies will be expected to publish Paris-aligned transition plans demonstrating:
- interim targets
- scenario analysis
- capital allocation alignment
- financial implications
Why it matters to UK businesses
Transition plans are no longer “nice-to-have commitments.” They are becoming:
- a signal of financial resilience
- a requirement for investor due diligence
- a differentiator in procurement decisions
- a risk shield against accusations of “false net zero promises”
Key drivers
- TPT Disclosure Framework consultation.
- UK Climate Change Act carbon budgets.
- Bank of England climate risk expectations.
- Global regulatory convergence on climate transition disclosures (ISSB, SEC, EU CSRD).
- Strategic implications
Climate strategy must merge with corporate strategy. Every major investment decision (infrastructure, fleet, sourcing, R&D) may now be evaluated through a climate-transition lens.
Actions to take
- Develop a clear 2030 pathway with annual milestones.
- Create a carbon abatement cost curve to prioritise actions by ROI.
- Model financial impacts of decarbonisation scenarios.
- Strengthen board climate competence and oversight.
- Enhance disclosure readiness for TPT and ISSB standards.
Useful resources:
3. Supply chain sustainability & Scope 3 accountability accelerate
What’s happening
Businesses are increasingly being held responsible for environmental and social impacts across their entire value chain. This includes:
- Scope 3 greenhouse gas emissions
- Ethical labour practices
- Deforestation-free sourcing
- Traceability and chain-of-custody requirements
- Social and human rights due diligence
The UK’s Environment Act 2021 introduces due diligence requirements for large companies to ensure key forest-risk commodities are not linked to illegal deforestation. Meanwhile, the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Deforestation Regulation will affect UK companies trading in Europe or selling to EU-based buyers.
Why it matters to UK businesses
Operational risk, cost volatility, reputational exposure and even litigation now increasingly originate in the supply chain.
A lack of supplier visibility can result in:
- climate-related supply disruptions
- non-compliance with emerging due-diligence rules
- exclusion from customer procurement frameworks
- exposure to human rights scandals
Key drivers
- UK Environment Act deforestation due diligence requirements
- Growing buyer mandates for supplier emissions reporting
- Investor expectations for Scope 3 transparency
- EU CSDDD and EUDR (de facto global standards)
Strategic implications
Procurement must become a sustainability engine. Supplier engagement, auditing, capability-building and ESG-based contract criteria will define competitive advantage.
Actions to take
- Conduct end-to-end ESG risk mapping of suppliers.
- Introduce supplier climate and human-rights requirements into contracts.
- Support suppliers with data collection tools and training.
- Develop traceability systems for high-risk commodities.
- Integrate ESG scoring into sourcing and tender processes.
Useful resources:
4. Biodiversity & Natural Capital Accounting step into the ESG mainstream
What’s happening
Climate action is no longer enough – biodiversity and natural capital are rising fast as core business issues. The Taskforce on Nature-related Financial Disclosures (TNFD) published a reporting framework encouraging companies to assess nature dependencies, impacts and risks.
In the UK, Biodiversity Net Gain (BNG) became mandatory for major developments in 2023 and for smaller developments in 2024, reflecting a national shift toward nature-positive policy.
Why it matters to UK businesses
Nature loss creates real business risks:
- supply shortages (due to degraded ecosystems)
- water insecurity
- operational disruptions from extreme weather
- insurance cost escalation
- reputational risks for nature-linked products
Meanwhile, investors increasingly expect integrated “climate + nature” strategies.
Key drivers
- TNFD framework adoption by financial institutions
- UK Environment Act: Biodiversity Net Gain requirements
- COP15 Kunming-Montreal Global Biodiversity Framework
- Investor coalitions such as Nature Action 100
Strategic implications
Businesses need to broaden ESG thinking beyond emissions to nature-related impacts as part of risk management and disclosure.
Actions to take
- Begin a TNFD-aligned nature risk and dependency assessment.
- Set measurable nature targets: biodiversity, water, land use.
- Incorporate nature-based solutions into climate and resilience planning.
- Disclose early on nature metrics to prepare for future regulation.
- Establish partnerships with NGOs, conservation bodies and local authorities.
Useful resources:
5. The social dimension of ESG & the UK’s Just Transition expectation
What’s happening
Social sustainability – long overshadowed by environmental issues – is becoming equally central. Themes include:
- Fair work and upskilling
- Human rights due diligence
- Workforce wellbeing
- Diversity, equity and inclusion
- Community impact
- Ethical supply chains
- The Just Transition: ensuring climate actions do not harm workers or regions
As UK industries electrify, digitise and decarbonise, the social consequences are becoming more monitored by regulators, investors and the public.
Why it matters to UK businesses
Social expectations shape brand perception, customer loyalty and employee retention. Organisations that neglect social impacts may face:
- workforce resistance to change
- reputational backlash
- regulatory scrutiny
- loss of market access
Key drivers
- Modern Slavery Act reporting expectations
- Growing interest in Just Transition frameworks
- FCA diversity disclosure rules
- EU human rights due diligence laws influencing global supply chains
- Rising employee activism and stakeholder scrutiny
Strategic implications
Sustainability strategies must now explicitly integrate people impacts – at home and in global supply chains.
Actions to take
- Integrate Just Transition principles into decarbonisation plans.
- Strengthen human rights due diligence, including grievance channels.
- Set transparent DEI goals, and report progress annually.
- Prioritise employee wellbeing as a sustainability KPI.
- Build community partnerships that deliver local economic value.
Useful resources:
Looking ahead: the strategic advantage belongs to the prepared
2026 will reward organisations that think ahead, invest early, and treat sustainability not as a compliance requirement but as a strategic driver.
Across all five trends, a pattern emerges:
- Transparency
- Credible data
- Fairness
- Nature- and climate-aligned operations
- Responsible supply chains
- Strategic foresight
Businesses that embrace this shift stand to benefit from stronger stakeholder trust, competitive differentiation, lower long-term costs, and a more resilient operating model.
If your organisation needs help designing a transition plan, improving ESG data quality, or engaging suppliers at scale, Ikano Insight is here to support you.
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Written by Innes Christison
Senior Sustainability Business Analyst
With experience as a Head of Sustainability and supply chain expert, Innes has helped brands including Tesco, KFC and Wowcher turn sustainability strategies into enablers for growth.
Expert in carbon passporting, measuring and managing carbon across the full supply chain, Innes now works with businesses across all sectors to simplify, streamline and optimise their entire ESG reporting requirements.
You can follow Innes on LinkedIn here.
