Sustainability Disclosures: Testing Section 463 of the Companies Act 2006

UK sustainability disclosures are moving from the margins to the mainstream. The UK Government is currently consulting on the draft UK Sustainability Reporting Standards (UK SRS), climate transition plans, and sustainability assurance. Soon, companies will be expected to disclose far more detail about their climate-related risks and opportunities.

Crucially, it is expected that these disclosures could be incorporated into the annual report rather than published separately — a shift that brings Section 463 of the Companies Act 2006 firmly into play.

What Is Section 463 Of The Companies Act 2006?

Section 463 is designed to hold directors accountable for untrue or misleading statements in annual reports. Historically, it has been viewed through a financial lens, applying to accounts, strategic reports, and narrative disclosures. But its reach is wider: any information included in the annual report — whether financial or non-financial — falls within scope. That could now include sustainability disclosures.

The provision makes directors liable if they knowingly approve reports containing untrue or misleading statements, or if they omit something material. In this way, Section 463 acts as a safeguard: ensuring directors take responsibility for the accuracy and completeness of company reporting. Sustainability disclosures often include assumptions, are forward-looking, and reliant on external sources of data. 

This raises fresh questions: does Section 463 work in this new world, or will it need to adapt?

The Section 463 Challenge

If adopted, the forthcoming UK SRS is expected to move sustainability disclosures into the annual report — a potential step change. Directors would no longer be dealing with standalone sustainability reports on company websites; instead, sustainability disclosures could sit alongside financial statements, governance disclosures, and audit opinions.

That integration would strengthen accountability but also widen liability. Unlike financial reporting, sustainability disclosures are forward-looking, with assumptions, and heavily dependent on third-party and supply chain data. All of this would fall within Section 463’s scope, raising difficult questions about how director liability should be applied.

The contrast is clear. Financial reporting rests on decades of accounting standards, audit practice, and regulatory enforcement. By contrast, sustainability reporting remains immature, marked by evolving methodologies, and supported by assurance standards that are only starting to emerge. This creates risks as directors could face liability for disclosures made in good faith but later judged incomplete, inconsistent, or based on unreliable third-party data.

Managing The Risk Under Section 463

Two approaches the UK Government could consider to help moderate liability as sustainability reporting develops are transitional protections and temporary safe harbour provisions.

Transitional protections could phase in liability, so directors are not immediately exposed while companies develop the data systems and controls needed for reliable sustainability reporting. This would recognise the steep learning curve and allow reporting standards and methodologies to mature before full liability under Section 463 takes effect.

Temporary safe harbour provisions could provide directors with protection where sustainability disclosures are necessarily forward-looking, assumption-based, or reliant on third-party data. Such relief could be conditional on directors acting in good faith and transparently disclosing the assumptions, methodologies, and data limitations underpinning their reports, and it could be targeted to areas of disclosure that are inherently uncertain, such as supply chain emissions, financed emissions, or long-term climate scenario analysis.

Together, these approaches could balance accountability with proportionality: ensuring directors take responsibility for sustainability disclosures without exposing them to disproportionate legal risk in the early years of the new UK SRS.

Finding The Balance

Section 463 has long served as a safeguard against misleading reporting. But sustainability disclosures present different challenges: they are forward-looking, complex, and evolving — unlike the financial information Section 463 was designed to cover.

For policymakers, the task is to strike the right balance: maintaining accountability while giving companies space to build capacity and improve data quality. For directors, the message is clear — sustainability reporting is no longer peripheral; it sits firmly within the governance agenda, and Section 463 is part of that landscape.

The debate is only beginning: will Section 463 suffice for evolving sustainability disclosures — or must the law evolve too?