ESG Focus: UK/EU/International ESG Regulation Monthly Round-Up – August/September 2025

In this issue:

• Chapter 1: EU omnibus simplification package
• Chapter 2: UK developments
• Chapter 3: EU Developments
• Chapter 4: International developments

Chapter 1: EU omnibus simplification package

In the EU, omnibus simplification debates rumble on, with agreement yet to be reached in the European Parliament on the amended requirements of the Corporate Sustainability Reporting Directive (“CSRD”) and the Corporate Sustainability Due Diligence Directive (“CSDDD”). Agreement is still expected in October 2025 and we will update as soon as anything happens. 

EFRAG has been particularly active over the Summer publishing exposure drafts of the amended and simplified European Sustainability Reporting Standards (“ESRS”) and related materials.  Read more below. 

(a) CSRD/ESRS updates:

Following its publication of the exposure drafts of the amended ESRS on 23 July 2025 (see here for more information), on 16 September 2025, EFRAG published a Phase 2 work plan relating to its public consultation on the exposure drafts of the amended ESRS. The public consultation concluded on 29 September 2025, and EFRAG plans to publish a preliminary report on the 14 October 2025 and a final report on 12 November 2025.

On 16 September 2025, EFRAG shared a fact sheet and several explainer videos summarising its simplification of the amended ESRS.

On 19 September 2025, the Taskforce on Nature-related Financial Disclosures (“TNFD”) submitted technical input to EFRAG on the ESRS simplification process. The central proposal was to create a single, integrated nature standard (E2) by consolidating ESRS E2-E5. This “would align with need and urgency for a holistic, science-based and practical approach to nature-related corporate reporting”.

It suggests four complementary proposed changes:

• Provision of structured materiality assessment guidance for nature-related risks based on the TNFD framework to address limited stakeholder awareness and technical understanding of nature-related dependencies, impacts, risks and opportunities (“DIROs”) which has resulted in relatively low percentages of reporting under ESRS E2-E5.
• Elevated recognition of ‘dependencies’ on nature and explicit reference to ‘DIROs’ not only ‘IROs’. Market experience of application of TNFD has demonstrated that identifying dependencies on nature has helped inform internal risk management and strategic planning.
• Incorporate TNFD’s core discourse metrics to help streamline the number of datapoints and aid global comparability.
• Retention of the requirement for quantitative information about anticipated financial effects of material nature-related risks and opportunities.

On 25 September 2025, EFRAG released two reports to support the application of the Voluntary Sustainability Reporting Standard for SMEs (“VSME”):

• The first report provides practical support to SMEs that wish to report their GHG emissions based on VSME, including mapping 100 digital tools, including GHG calculators. The shortlist of GHG calculators offers practical support to SMEs that wish to report their GHG emissions based on VSME.
• The second report provides an overview of the 223 platforms and initiatives for SMEs reporting, comparing the characteristics of shortlisted platforms and initiatives that met pre-defined criteria and that completed a self-assessment grid to test VSME alignment.

(b) Update on complaint to European Ombudsman: On 8 September 2025, the European Commission responded to an inquiry from the European Ombudsman arising from a complaint that the Commission did not apply its Better Regulation Guidelines in preparing its proposal to streamline a number of directives, including the CSRD and the CSDDD. The Commission highlighted that the Better Regulation Guidelines do not create legally binding requirements and must be applied proportionally.  They also state that competitive pressure, ‘a deteriorating security situation and geopolitical environment’ and transposition and implementation processes around the CSRD and CSDDD justified flexibility its approach to preparing the amendments.

Chapter 2: UK Developments

In the UK, we have seen a number of developments on transition finance from the Transition Finance Council and a number of publications from the FCA.

(a) Sustainability reporting:

1. On 10 September 2025, the UK’s Financial Conduct Authority (“FCA”) published CP25/24: Quarterly Consultation Paper which includes, among other things, in Chapter 5, proposed minor amendments to the Sustainability Disclosure Requirements (“SDR”).
   • Proposed guidance to ESG 4.2.4R(2)(b): in response to feedback that this rule is challenging for index-tracking funds, the FCA proposes new guidance clarifying that a manager of an index-tracking fund may meet this rule by investing in assets that satisfy these criteria, as opposed to ‘selecting’ assets.
   • Proposed amendment to ESG 5.4.3R(1): feedback suggests that publishing Part B of public product-level sustainability reports (sustainability product reports) with a set 12-month period is challenging for preparers and causes administrative issues because such reports are not aligned with other relevant reports.  In response to this feedback and in the interests of transparency for consumers, the FCA proposed an amendment allowing managers to prepare and publish a sustainability product report which is not restricted to the set 12-month period, subject to a number of conditions.
   • A number of minor consequential deletions have also been proposed to align with the flexibility in the amended ESG 5.4.3R(1).

   These amendments are consistent with the policy proposals consulted upon in Consultation Paper (CP22/20) and finalised in Policy Statement (PS23/16).

2. On 6 August 2025, the FCA updated its sustainability reporting requirements webpage to clarify how firms in scope of both TCFD-aligned and SDR can report efficiently under both regimes.  In light of this they intend to streamline and enhance the sustainability reporting framework and will consider sustainability reporting as a whole (UK SDR, endorsement of ISSB/UK Sustainability Reporting Standards (“SRS”) and development of transition plans). The FCA intends to consult later this year on how listed companies will adopt SRS.  They encourage asset managers and FCA-regulated asset owners to engage with the FCA on the streamlining and enhancement of the sustainability reporting framework.
3. On 6 August 2025, the FCA published its findings and next steps following its review into firms’ climate reporting in line with the FCA rules. The FCA found that:

• The rules had helped firms to consider their climate risk as a material risk, build their capabilities and integrate climate risks and opportunities into their strategies, enhancing transparency;
• Sustainability reports were suitable for institutional investors but perhaps too complex for retail investors;
• Firms found it hard to report on forward-looking disclosures, such as scenario analysis. Therefore comparability between reports was limited because only around half of the product reports reviewed disclosed the impact of all three climate scenarios on the fund;
• Firms are required to report under multiple sustainability disclosure regimes: they suggested that disclosures could be simplified and streamlined; and
• Firms wanted to understand the direction of travel for sustainability disclosure in the UK and encouraged the FCA to consider international consistency when developing future regimes. 

(b) Sustainable products: On 14 August 2025, the FCA published a letter on the sustainability-linked loans (“SLL”) market. In the letter, the FCA notes that the SSL market has made progress towards addressing some of the key integrity and credibility issues that the FCA had previously identified, including in relation to setting key performance indicators (“KPIs”) and sustainability performance targets. The FCA’s ongoing monitoring indicates that KPIs are now generally of greater relevance and alignment to a borrower’s business model. The FCA also reminds banks of the importance of having clear governance and escalation processes in place for SLLs.  The FCA also encourages banks to engage collaboratively with the Transition Finance Council ("TFC") and the Loan Market Association to build alignment in approaches to transition finance and deepen trust in SLLs.

(c) Transition planning and finance: Over the last couple of months, the TFC, co-launched by the UK government and the City of London Corporation, has published a number of discussion papers, reports and consultations. We set out some key points arising from them in our Climate Transition Focus: Second Edition.

Chapter 3: EU Developments

In addition to the developments on the omnibus simplification package, there have been a number of developments on other EU law, including the possible delay of implementation of the EU Deforestation Regulation.

(a) EU Taxonomy: On 10 September 2025, the Court of Justice of the European Union published a press release announcing the General Court of the European Union’s decision to dismiss an action brought by Austria seeking the annulment of the Commission Delegated Regulation (EU) 2022/1214 (Austria v Commission, Case T-625/22). The General Court held that the European Commission was entitled to take the view that certain economic activities in the nuclear energy and fossil gas sectors can, under certain conditions, contribute substantially to climate change mitigation and climate change adaptation. The Commission was therefore not exceeding its powers as properly conferred to it by the EU legislature by including nuclear energy and fossil gas in the sustainable investment scheme. 

(b) SFDR:

1. On 9 September 2025, the Joint Committee of European Supervisory Authorities (“ESAs”) published an annual report on principal adverse impact (“PAI”) disclosures under Article 18 of the Sustainable Finance Disclosure Regulation (“SFDR”). The ESAs state that they have observed a steady improvement in the quality of the PAI voluntary disclosures at entity and product level. The 2025 Report notes an effort from financial market participants to publish more complete information in compliance with SFDR disclosure requirements, with a general improvement in the quality of information provided. In line with previous years, the findings also confirm that financial market participants within larger multinational groups tend to provide more detailed disclosure, while smaller entities often combine general ESG or marketing information with their SFDR disclosures.
2. On 4 August 2025, the ESAs updated the consolidated Q&As on the SFDR and SFDR RTS. The ESAs have clarified how to interpret certain requirements under the SFDR and the SFDR RTS relating to (i) the additional PAI indicator for water usage; (ii) what ‘per meter squared' means for investments in real estate assets when calculating energy consumption; (iii) financial products and what to do if the minimum percentage of environmentally sustainable investments and socially sustainable investments do not add up to the total minimum proportion of sustainable investments in the asset allocation; and (iv) calculating investments in the periodic reports. Read more here.

(c) Due diligence:

1. On 23 September 2025, Reuters reported that the European Commission has suggested a postponement of the entry into force of the EU Deforestation Regulation (EUDR) for another year till 30 December 2026 ‘to avoid uncertainty for authorities and operational difficulties for stakeholders in the EU and third countries, and to allow time to remedy the identified risks’.  This will not become law until the proposal has been through the normal legislative process. While this suggested postponement will likely be approved, some uncertainty remains. The situation should be monitored closely.
2. On 29 August 2025, a draft bill to delete the reporting obligation from the German Supply Chain Due Diligence Act (“LkSG”) was published for public consultation purposes.

The proposed key amendments are:

• Retrospective effect:  the proposed draft contemplates deleting the reporting obligation in its entirety with retrospective effect.
• Potential offences reduced: the number of potential administrative offences have been reduced.
• Fines: fines can only be incurred if there is a failure to implement (i) preventive and/or remedial measures or (ii) the grievance mechanism, both considered to be “severe violations”. Hence, fines are not limited to violations of specific protected positions (e.g., child labour, forced labour), but can still be imposed also in case of failures to implement the above measures in case of violations of other protected positions (e.g., violations of the right to collective bargaining).
• CSDDD: no further amendments have been made to implement the requirements of the CSDDD.

All other due diligence obligations under LkSG remain fully in force and enforceable by the Federal Office for Economic Affairs and Export Control.

The deadline for feedback was 29 August 2025. It is likely that the draft bill will be adopted soon.

(d) EBA issues no action letter on application of ESG disclosure requirements: On 5 August 2025, the European Banking Authority (“EBA”) published a no action letter on the application of the ESG Pillar 3 disclosure requirements under the EBA disclosure Implementing Technical Standards (“ITS”). The no-action letter addresses legal and operational uncertainties arising from developments in the evolving ESG disclosure framework in light of the omnibus simplification package on sustainability reporting.

The EBA recommends competent authorities do not prioritise enforcement until the ITS (set out in the consultation published on 22 May 2025) enter into force in relation to:

• the disclosure of certain ESG disclosure templates (notably EU 6 to EU 10, and specific columns in Templates 1 and 4) of the EBA disclosure ITS (aka Commission Implementing Regulation 2024/3172) for large institutions with listed securities;
• the collection of templates EU 6 to 10, and specific columns in Templates 1 and 4 of the EBA Decision EBA/DC/498 of 6 July 2023, for large institutions with listed securities; and
• the disclosure of the corresponding ESG templates under the EBA disclosure ITS for all other institutions recently brought under the scope of Article 449a of the Capital Requirements Regulation. 

The EBA  also published an updated version of the EBA ESG risk dashboard which can be found here.

Chapter 4: International developments

(a) Singapore: Extension of Climate Reporting Timelines for Listed and Large Non-Listed Companies: On 25 August 2025, ACRA and SGX RegCo announced revised timelines for mandatory climate reporting and external assurance to give companies more time to prepare, particularly smaller issuers and large non-listed companies. For listed companies:

1. Scope 1 and 2 greenhouse gas (“GHG”) emissions reporting remains mandatory from FY2025.  Scope 1 GHG emissions refer to direct emissions from a company’s own operations (e.g. fuel combustion at facilities and vehicles) and Scope 2 GHG emissions refer to indirect emissions from purchased energy (e.g. electricity, steam, heating, and cooling consumed).
2. Scope 3 GHG emissions will apply only to Straits Times Index (“STI”) constituents from FY2026, while other listed companies may report voluntarily. Scope 3 GHG emissions refer to all other indirect emissions across the value chain that the company does not directly control, such as emissions from suppliers, product use, transportation, business travel, and waste disposal.
3. Broader ISSB-based climate disclosures, i.e. reporting aligned with the International Sustainability Standards Board’s IFRS S2 Climate-related Disclosures, covering governance, strategy, risk management, and metrics and targets for climate-related risks and opportunities, will be phased in: STI constituents from FY2025, non-STI listed companies with market cap ≥ S$1 billion from FY2028, and those with market cap < S$1 billion from FY2030.

For large non-listed companies (annual revenue ≥ S$1 billion and total assets ≥ S$0.5 billion):

1. Mandatory reporting of Scope 1 and 2 GHG emissions and other ISSB-based disclosures will start from FY2030 (deferred from FY2027).
2. Scope 3 reporting remains voluntary.

(b) Hong Kong: consultation on second phase of green taxonomy: On 8 September 2025, the Hong Kong Monetary Authority (“HKMA”) launched a public consultation on Phase 2A prototype of the Hong Kong Taxonomy for Sustainable Finance. Key enhancements include expanded sector coverage, increased number of economic activities, transition elements and a new environmental objective (climate adaptation).

(c) California accelerates towards GHG Disclosures in advance of 2026 Deadlines with Regulatory Timeline and Litigation Win (SB 253 and SB 261): The California Air Resources Board (“CARB”) is forging ahead in implementing what the Agency now refers to as “the 200s”—the Climate Corporate Data Accountability Act (“SB 253”) and the Climate Related Financial Risk Act (SB 261), as modified by California Senate Bill 219 (“SB 219”).  In its public workshop on 2 August 2025, CARB provided key updates on its rulemaking timeline, announcing that a proposed rule will be considered for finalisation at a public hearing in mid-December. CARB expects to propose an initial deadline of 30 June 2026 for SB 253's required Scope 1 and 2 reporting. In the meantime, Staff continue to move forward with regulatory and implementation efforts, including: (i) a proposed concept for “doing business” in California, (ii) opening a public docket to facilitate informal comments on the workshop, (iii) preparation of a preliminary analysis of covered entities under both laws, and (iv) development of proposed Scope 1 and Scope 2 GHG emissions-reporting templates (for SB 253) by the end of September. Meanwhile, SB 253 and 261 survived a requested preliminary injunction in litigation pending in the Central District of California. This litigation success by CARB eliminates one of the few pending obstacles to seeing both laws implemented in 2026.  Read more here.

(d) International Court of Justice Advisory Opinion on climate change: On 23 July 2025, the International Court of Justice (also known as the World Court) issued its landmark advisory opinion on climate change.  We set out the key highlights and the consequences for businesses and States in our briefing here.

Our global Sustainable Finance & Investment group brings together a multidisciplinary global team that provides clients with best-in-market support.  We are following developments relating to the ESG regulation, so please get in touch if you would like to discuss.

Stay ahead with timely curated developments, insights and thought leadership on ESG regulation with our ESG Regulatory Alerts tool. 

This note is intended to be a general guide to the latest ESG developments. It does not constitute legal advice.

Authored by Rita Hunter and Emily Julier.