ESG Focus: UK/EU/International ESG Regulation Monthly Round-Up – December 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

The omnibus negotiations seem to be coming to an end. Below, we set out the most recent developments on for the omnibus simplification package for corporate sustainability reporting and due diligence and recent EFRAG technical advice on the draft simplified European Sustainability Reporting Standards (“ESRS”).

1. Council and Parliament reach provisional agreement on omnibus simplification package for CSRD and CSDDD

   At the end of November 2025, trilogue negotiations opened.  And a couple of weeks later the Council's presidency and the European Parliament negotiators reached a provisional agreement on the omnibus simplification package for sustainability reporting and due diligence, amending the Corporate Sustainability Reporting Directive (“CSRD”) and the Corporate Sustainability Due Diligence Directive (“CSDDD” or “CS3D”).

   Since then, the Parliament has adopted the provisional agreement.  In these briefings (here and here), we set out the proposed amendments to the CSRD and CSDDD, what happens next and key insights. The final text will become law after adoption by the Council and publication in the Official Journal.

2. EFRAG provides its technical advice on draft simplified ESRS to the European Commission

On 3 December 2025, EFRAG submitted its technical advice to the European Commission on the revised ESRS.  (See here and markup versions against previous drafts here.) 

The revised ESRS deliver a “reduction of burden for companies” under the omnibus simplification package “introducing substantial flexibility, reliefs and phasing-in, as well as reducing the mandatory datapoints by 61%”. The next step will be the preparation of the Delegated Act by the Commission to implement the proposed amendments. Read more here on the key changes to the ESRS and how they will affect reporting companies.

On 23 December 2025, EFRAG published a set of complimentary materials related to the revised ESRS, including a Basis for Conclusions, Cost-Benefit Analysis, Logs of Amendments, Comparative Table of Texts and an Explanatory note on how the draft revised ESRS takes into account the initiatives and legislation listed under Article 29b(5) of the Accounting Directive.

Chapter 2: UK Developments

As expected, UK regulators have released a number of publications before year end, including the latest version of the Regulatory Initiatives Grid which anticipates a policy statement on the ESG ratings regulation in the first half of 2026 and expected consultation on disclosure requirements for UK listed companies and transition plans in January 2026. In addition, the PRA has published a Policy Statement and Supervisory Statement on enhancing banks’ and insurers’ approaches to managing climate-related risks.

1. FCA makes minor amendments to the SDR

   On 19 December 2025, the UK Financial Conduct Authority (“FCA”) published Handbook Notice No 136 implementing minor amendments to the ESG Sourcebook relating to the Sustainability Disclosure Requirements (“SDR”) and labelling regime.  The intent “is to give proper effect to an existing rule, ESG 4.2.4R(2)(b), and to give firms more flexibility in relation to the publication of Part B of a public product-level sustainability report”.

2. Biodiversity Net Gain (BNG) rules to exempt small sites

   On 16 December 2025, the UK Government confirmed plans to exempt small sites (up to 0.2 hectares) from BNG requirements as well as “consulting rapidly on an additional targeted exemption for residential brownfield development (testing ranges up to 2.5 hectares)”. The Government will also introduce measures to deliver cheaper and quicker BNG offsite which they say should benefit medium-sized developments.

3. UK FCA published Regulatory Initiatives Grid

   On 12 December 2025, the FCA published its latest Regulatory Initiatives Grid  setting out the regulatory pipeline with timing for expected actions. Below are some interesting dates for the sustainable calendar: 

   • UK Sustainability Reporting Standards and Transition Plans – FCA consultation on disclosure requirements for UK listed companies and transition plans in January 2026.
   • ESG ratings regulation – FCA consultation in Q1 2026 and FCA Policy Statement in H2 2026.  
   • Stewardship Code 2026 – took effect on 1 January 2026. 
4. UK proposals for the regulation of ESG ratings

   From 29 June 2028, any firm wishing to provide certain types of “ESG rating” in the UK will need FCA authorisation. The government consulted on this in 2023, and in October 2025 it published draft legislation to implement this. Under the proposals the provision of ESG ratings will become a new form of regulated activity.

   The FCA has now published a consultation paper which sets out the FCA’s own proposed rules and guidance for the regulation of ESG providers. This includes draft guidance relating to the regulatory perimeter (which will help firms understand whether they are inside or outside the scope of the new regime) and details of the draft rules that are being proposed for ESG ratings providers.

   We have previously published a note which considers the main elements of the new regime, and in particular looks at:

   • whether firms who are already regulated in the UK will be caught by the regime; and
   • how the regime applies to persons located outside the UK who may wish to provide ESG ratings into the UK.

   Read more here.

5. PRA publishes final Policy Statement on enhancing banks’ and insurers’ approaches to managing climate-related risks

   On 3 December 2025, the UK Prudential Regulation Authority (“PRA”) published a Policy Statement (PS25/25) on enhancing banks’ and insurers’ approaches to managing climate-related risks – update to SS3/19. The accompanying Supervisory Statement (SS4/25) was published at the same time. It updates the previous supervisory expectations with PRA feedback on firms’ progress and examples of effective practice and new international guidance.  The new expectations make clear that firms are expected to take a proportionate approach that takes account of the firm’s size and risk exposure. Read more here.

   The final policy took effect immediately from 3 December 2025.  Firms have six months from that date to transition to the updated expectations. 

6. UK Independent Anti-Slavery Commissioner’s (IASC) publishes report about strengthening the UK’s forced labour and human rights legislative framework

On 16 December 2025, the UK Independent Anti-Slavery Commissioner published a report setting out why action is needed now to bring the UK in line with other countries in the world to “stop goods made with forced labour entering our market”.

As well as setting out the case for change, the report also sets out model legislative drafting.

Chapter 3: EU Developments

In addition to developments on the omnibus simplification package for corporate sustainability reporting and due diligence (Omnibus I), there are a number of other omnibuses being proposed to simplify regulation in the EU. Below we highlight a European Commission proposal to simplify EU environmental legislation as well as an Automotive Package to support automotive transition to clean mobility. We also highlight a development which supports use of the sustainable finance framework for defence investment.

1. Commission publishes a Notice on the application of the sustainable finance framework and the Corporate Sustainability Due Diligence Directive to the defence sector

   On 30 December 2025, the European Commission published a Notice on the application of the sustainable finance framework and the Corporate Sustainability Due Diligence Directive to the defence sector.

   The Notice provides guidance on the applicability of the EU sustainable finance framework to the defence industry, including the Sustainable Finance Disclosure Regulation (“SFDR”), the EU Taxonomy, CSRD and CSDDD.  The Notice makes it clear that the EU sustainable finance framework is compatible with investing in the defence sector, and that sustainability disclosures apply horizontally across all industries.

2. ESMA publishes TRV risk analysis assessing impact of ESMA guidelines on the use of ESG or sustainability-related terms in fund names

   On 17 December 2025, the European Securities and Markets Authority (“ESMA”) published research assessing the impact of its fund naming guidelines on ESG and sustainability-related terms.

   ESMA observed that two thirds of the funds reacting to the guidelines changed their name and more than half updated their investment policies, mainly to introduce fossil fuel-related exclusions.

   The majority of name changes were to remove ESG from the name with half of these funds adopting alternative terminology.  Funds with higher fossil fuel exposures were more likely to change their name and the effect was more pronounced for fund managers affected by regional factors.

   The research indicates that the ESMA Guidelines have driven convergence in the use of ESG terms and have enhanced investor protection by reducing greenwashing risks.  The research notes that funds retaining ESG terminology appear to be greening their portfolio relatively faster than other funds.  An understanding of the impact of the ESMA Guidelines is an important consideration in the context of the review of the SFDR which is currently underway.

3. European Parliament adopts amendments to EU Deforestation Regulation postponing application for one year

   On 17 December 2025, the Parliament adopted the proposed amendments to the EU Deforestation Regulation.  The Council followed suit on 18 December 2025. One of the key amendments is to give businesses one more year to comply with the regulation.

   The text was published in the EU’s Official Journal on 23 December 2025 and the changes will enter into force three days after publication.

4. European Commission publishes Automotive Package

   On 16 December 2025, the European Commission presented its Automotive Package to support the automotive transition to clean mobility. 

   The Commission’s press release proposes plans to replace the effective ban on combustion engines from 2035 with a 90% target as well as other proposals to “ease administrative burden and cut costs for European manufacturers”. 

   The proposal requires approval from the Council and Parliament before it becomes final.

5. EFRAG updates
   1. EFRAG reports on market feedback and practical uses of the Voluntary Sustainability Reporting Standard for Small and Medium Sized Undertakings (VSME) Recommendations: Following the European Commission’s adoption of the VSME Recommendation on 30 July 2025, EFRAG conducted surveys to ascertain awareness of and market acceptance of the VSME Recommendations.  

      On 16 December 2025,  EFRAG published a report exploring this early market feedback and general awareness of the recommendations.

   2. EFRAG calls for greater interoperability in ISSB’s proposed SASB amendments: On 12 December 2025, EFRAG released its comment letter to the International Sustainability Standards Board (“ISSB”) welcoming ISSB’s efforts to enhance the Sustainability Accounting Standards Board (“SASB”) Standards but also calling for greater alignment and clarity for users as well as interoperability with the ESRS.
6. European Commission proposes Environmental Omnibus to simplify EU environmental law

   On 10 December 2025, the Commission published “a package of measures to simply environmental legislation in the areas of industrial emissions, circular economy, environmental assessments and geospatial data”. 

   As with the corporate sustainability reporting and due diligence omnibus, the stated objective is to reduce administrative burden for businesses. The six legislative proposals reflect the contributions received following a call for evidence on 22 July 2025. 

   The key elements of the proposal are:

   1. Streamlined environmental assessments for granting permits;
   2. Simplified industrial emissions standards for industry and farmers – amending the Industrial Emissions Directive;
   3. More effective digital solutions for hazardous substances in products – amending the Waste Framework Directive to repeal the Substances of Concern in Products (SCIP) database;
   4. Simplified Extended Producer Responsibility (EPR) – obligation for an authorized representative to fulfil EPR obligations will be suspended for European producers whilst streamlining the EPR schemes under the Circular Economy Act; and
   5. Facilitated access to geospatial data – alignment of requirements under the INSPIRE Directive with horizontal legislation governing public sector high value geospatial data.

   Further simplifications are to follow including in relation to the Water Framework Directive which will be reviewed and revised in 2026 and the Circular Economy Act, scheduled for 2026. 

   The legislative proposals will now be considered by the Council and the Parliament.

7. EU opens public consultation on climate resilience

On 1 December 2025, the European Commission opened a public consultation on climate resilience. The Commission states that this is a unique chance for citizens, businesses, regional authorities and stakeholders “to influence the EU’s future policies and determine how Europe prepares for and responds to climate change”.  This public consultation follows the open call for evidence launched in summer 2025 which showed participants “calling for ‘resilience by design’ in our policies, harmonised climate risk assessments, nature-based solutions as a first line of defence, stable long-term adaptation funding, and consideration of climate-related health impacts”. 

All stakeholders and citizens are encouraged to respond.  The feedback period closes on 23 February 2026.

Chapter 4: International developments

1. COP 30: What businesses need to know from the COP of Truth

   In November 2025, nearly 60,000 delegates arrived in Belém, Brazil for the 30th Conference of the Parties to the UN Framework Convention on  Climate Change (“COP30”).

   Brazil, holding the presidency, promised a “COP of Truth” that would set countries firmly on the path to implementation of the Paris Agreement. In this briefing, we reflect on the main themes and takeaways for businesses from COP30: including the failure to reach agreement on a fossil fuel  roadmap and some key outcomes in relation to nature and indigenous peoples, climate finance and global trade issues.

2. ICC ratifies Principles for Social Trade Finance and its Principles for Sustainability-Linked Supply Chain Finance

   On 11 December 2025, the International Chamber of Commerce (“ICC”) ratified its Principles for Social Trade Finance (“PSoTF”) and its Principles for Sustainability-Linked Supply Chain Finance (“PSL-SCF”).  The Principles offer a global framework for assessing the sustainability of trade and trade finance.  It is intended to “mitigate the risks of greenwashing and social-washing by providing clear, transparent and consistent guidelines along with standardised definitions”. 

   These principles join the existing Principles for Green Trade Finance (“PGTF”) completing the Principles for Sustainable Trade Finance (“PSTF”).

3. ISSB issues targeted amendments to IFRS S2

   On 11 December 2025, the ISSB issued targeted amendments to IFRS S2 in response to specific issues that companies were having in applying the rules.  The amendments are based on feedback from a consultation earlier in the year.

   The press release states that “the amendments:

   • clarify that an entity is permitted to limit measurement and disclosure of Scope 3 Category 15 GHG emissions to financed emissions as defined in IFRS S2;
   • permit the use of alternative classification systems—beyond the Global Industry Classification Standard—to disaggregate information about financed emissions;
   • clarify the availability of the jurisdictional relief from using the GHG Protocol Standard, if only part of an entity is required to use a different method for measuring GHG emissions; and
   • introduce a jurisdictional relief from using global warming potential values from the latest IPCC Assessment Report for converting GHG emissions”.
4. Lexology Sustainable Finance Law: Singapore chapter

   Hogan Lovells has contributed to the Singapore chapter of Lexology's annual In-Depth: Sustainable Finance Law, a trusted global overview of the evolving landscape of sustainable finance and related regulatory efforts across multiple jurisdictions. The chapter outlines the most significant recent trends and developments shaping Singapore. Read more here.

5. California – CARB updates
   1. CARB proposes regulations to implement SB 253 and SB 261 and invites public comment

   On 26 December 2025, the Office of Administrative Law (“OAL”) formally published a Notice of Proposed Action for adopting the California Air Resources Board’s (“CARB”) long-awaited regulations for the Climate Corporate Data Accountability Act (“SB 253”) and the Climate-Related Financial Risk Act (“SB 261”). Alongside the proposed regulatory text, CARB published a Staff Report (Initial Statement of Reasons) and a Notice of Public Hearing. OAL’s Notice commenced a 45-day comment period that will end on 9 February 2026. A public hearing is scheduled on 26 February 2026 to approve and adopt the regulations. Read more here.

   1. Third public workshop and opening of “optional public docket” for SB 261

   In mid-November, CARB held its third virtual workshop to update the public on efforts to implement California's climate disclosure laws, SB 253 and SB 261.  During the 18 November 2025 workshop, CARB presented a revised reporting deadline for SB 253 and a new proposed methodology for identifying reporting entities.  Staff also discussed several key working definitions relevant to both laws.  Against this backdrop, that same morning, the Ninth Circuit issued an order staying implementation of SB 261.  
   

   On 1 December 2025, CARB formally clarified that, as a result of the Ninth Circuit order, the agency will not enforce the 1 January 2026 reporting deadline.  Nonetheless, CARB proceeded to open an optional public docket for voluntary submission of SB 261 reports.  CARB has indicated that it will provide further information on an alternate date for reporting, as appropriate, after the appeal is resolved.  CARB has not commented on how the order may impact efforts to implement SB 253, which is not directly affected by the Ninth Circuit's order.  Read more here.

6. Mexico sets course for circular economy

On 20 November 2025, a sweeping legislative proposal, the General Law on Circular Economy (“LGEC”), was introduced before Mexico's Chamber of Deputies. The Initiative aims to transform the country's linear economic model by embedding circularity principles such as prevention, traceability, innovation, and Extended Producer Responsibility (“EPR”) throughout production and consumption systems. It creates new federal bodies, digital platforms, fiscal incentives, and binding obligations for producers, importers, waste managers, and governments at all levels. If enacted, the LGEC would significantly reshape regulatory expectations for supply chains, product stewardship, and resource management across Mexico. Read more 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 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, Emily Julier and Teofisto Consistente VI.