For large UK companies, sustainability and ESG (Environmental, Social and Governance) reporting has shifted decisively from “nice to have” to “must do.”

Regulators, investors and auditors alike are treating climate-related disclosures with the same seriousness as financial statements.

As we move through 2025, carbon taxation and ESG assurance are no longer matters of corporate responsibility alone; they are becoming central to financial strategy, investor confidence and corporate reputation.

The changing reporting landscape

Over the past few years, new frameworks and regulations have redefined what companies must disclose and how they must do it. The UK’s adoption of the Task Force on Climate-related Financial Disclosures (TCFD) has already made climate reporting mandatory for large businesses, embedding environmental risk into annual reports.

Meanwhile, the European Union’s Corporate Sustainability Reporting Directive (CSRD) is coming into force, and although it is EU legislation, it will affect UK businesses with operations, subsidiaries or significant trading relationships in Europe. For those caught within its scope, the CSRD demands detailed disclosures on sustainability performance and requires that this information is subject to independent assurance.

At the same time, the International Sustainability Standards Board (ISSB) has launched global standards, IFRS S1 and S2, designed to create a consistent baseline for sustainability reporting.

The UK government has indicated its intention to align with these standards, which means businesses will increasingly face expectations of globally comparable disclosures. For finance leaders, the acronyms may feel overwhelming, but the message is straightforward: sustainability data is now expected to be reliable, decision-useful and independently verified.

Carbon taxation and the cost of emissions

Alongside new reporting obligations, carbon taxation is fast becoming a financial consideration for many sectors. The UK’s Emissions Trading Scheme (UK ETS) sets a cap on emissions for energy-intensive industries. Companies must purchase allowances for every tonne of carbon emitted, and as the cap tightens over time, the cost of these allowances is likely to rise. What began as an environmental policy is now having a direct impact on operating margins and financial planning.

Beyond the UK, the European Union has introduced its Carbon Border Adjustment Mechanism (CBAM). This policy requires importers of carbon-intensive goods, such as steel, aluminium, cement and fertilisers, to account for the embedded emissions of their products. For UK exporters, this means that carbon reporting will directly affect their competitiveness in European markets. If companies cannot demonstrate accurate emissions data, they risk higher costs at the EU border, threatening their market position.

These developments underline a critical point: carbon is no longer just an environmental issue. It is now a financial liability that must be measured, managed and disclosed with the same care as any other business cost.

ESG as strategy, not just compliance

While the regulatory landscape may appear burdensome, there are also clear strategic benefits for businesses that take ESG reporting seriously. Access to capital is increasingly tied to sustainability performance, with banks and investors offering more favourable terms to companies that can demonstrate robust ESG practices. Transparent reporting also reduces reputational risk, helping businesses to avoid accusations of greenwashing, which can be damaging both to brand and to market value.

Beyond financial markets, strong ESG performance can strengthen resilience across supply chains, helping businesses anticipate regulatory changes and operational risks. It can also improve talent attraction and retention. Employees, particularly younger generations, are more likely to work for companies that align with their values, and clear, assured sustainability reporting can be a powerful statement of intent. For these reasons, ESG should be viewed not only as a compliance obligation but also as a source of competitive advantage.

The role of the auditor

As ESG reporting becomes more sophisticated, boards and audit committees are beginning to ask the same question: can we trust this data in the same way we trust our financial statements? This is where the role of the auditor becomes central. By applying independence, scepticism and professional standards to ESG information, auditors can provide assurance that disclosures are accurate, consistent and aligned with the latest regulatory expectations.

This assurance process also highlights weaknesses in data collection and reporting systems, giving management the opportunity to strengthen controls and build credibility. In practice, ESG assurance is no longer a separate exercise; it needs to be integrated with financial reporting so that sustainability and financial information can be considered side by side.

Preparing for what comes next

For finance leaders, the priority now is preparation. The first step is to understand which frameworks and reporting obligations apply to the business, not only today but also in the near future, as regulations continue to evolve.

From there, attention should turn to the quality of data. Carbon and ESG metrics must be collected in a way that is consistent, auditable and capable of withstanding external scrutiny. Building assurance into the reporting cycle early on is crucial. It ensures that when disclosures reach investors and regulators, they have already been tested for accuracy.

Equally important is the strategic perspective. Companies that view ESG purely as a compliance burden will miss opportunities to enhance their access to finance, strengthen their supply chains and improve their market positioning. Finance leaders should work with sustainability and operational teams to embed ESG into long-term planning, ensuring that sustainability is not treated as an isolated reporting requirement but as an integral part of business strategy.

How we can help

At Williamson & Croft, we support large businesses in navigating this complex landscape of ESG reporting and carbon taxation.

Our audit team combines technical accounting expertise with an in-depth understanding of sustainability standards. We help businesses meet regulatory obligations while also giving boards, investors and stakeholders confidence that their disclosures are credible.

Whether you are preparing your first ESG report for assurance, grappling with the financial impact of carbon taxation or seeking to integrate sustainability into your broader audit framework, our expert team can provide practical, tailored support. By treating ESG reporting with the same rigour as financial reporting, we help companies turn compliance into an opportunity to build resilience and strengthen stakeholder trust.

ESG reporting and carbon taxation may seem complex, but they are here to stay. Businesses that adapt quickly and embed sustainability into their reporting and strategy will not only remain compliant but will also stand out in the eyes of investors, regulators and customers. In 2025, ESG is not an optional extra; it is a fundamental part of corporate value.

If you would like to explore how ESG reporting and carbon taxation could impact your business, and how to prepare effectively, please contact our team today.