ESG Focus: UK/EU/International ESG regulation monthly round-up – July 2025

In this issue:

• Chapter 1: EU omnibus simplification package
  • Taxonomy Regulation
  • CSRD
  • Battery Regulation
• Chapter 2: UK Financial Services Growth and Competitiveness Strategy
• Chapter 3: UK FCA confirms disclosure of summaries of transition plans
• Chapter 4: EU Deforestation Regulation

Chapter 1: EU omnibus simplification package

1. Taxonomy Regulation

Commission publishes simplification measures for the application of the EU Taxonomy: On 4 July 2025, the Commission adopted a set of measures to simply the application of the EU Taxonomy and reduce the administrative burden for EU companies. The changes are adopted in the form of a Delegated Act amending the Taxonomy Disclosures, Climate and Environmental Delegated Acts.

The main simplification measures include:

• Companies (financial and non-financial) are exempt from assessing Taxonomy-eligibility and alignment for economic activities that are not financially material for their business. For non-financial companies activities are considered non-material if they account for less than 10% of a company's total revenue, capital expenditure (“CapEx”) or operational expenditure (“OpEx”).
• Non-financial companies are also exempt from assessing Taxonomy alignment for their entire OpEx when it is considered non-material for their business model.
• For financial companies, key performance indicators (“KPIs”) like the green asset ratio (“GAR”) for banks are simplified and they are granted an option not to report detailed Taxonomy KPIs for two years.
• Until the Commission finishes reviewing the Disclosures Delegated Act and taxonomy technical screening criteria, financial undertakings will be allowed to omit disclosure of the detailed templates provided in the Disclosure Delegated Act until 31 December 2027 provided that they publish a statement in their management report to indicate that they do not claim that their activities are associated with environmentally sustainable activities under the Taxonomy Regulation. This means that financial institutions reporting alignment with the EU Taxonomy for other purposes may not be able to use this exemption.
• Taxonomy reporting templates are streamlined by cutting the number of reported data points by 64% for non-financial companies and by 89% for financial companies.
• The ‘Do No Significant Harm' criteria have been simplified for pollution prevention and control related to the use and presence of chemicals.

Next, the European Parliament and Council will scrutinise the delegated act for four months (extendable to six months) and the changes will apply once the scrutiny period is over. The simplification measures laid out in the delegated act will apply as of 1 January 2026 and will cover the 2025 financial year.

2. CSRD

(a) EU CSRD “quick fix” amendments adopted by European Commission: On 11 July 2025, the Commission adopted a targeted “quick fix” delegated act for companies currently reporting under the Corporate Sustainability Reporting Directive (“CSRD”). The “quick fix” will apply to companies that started reporting for financial year 2024 (“Wave One companies”). The European Sustainability Reporting Standards (“ESRS”) currently allow Wave One companies to omit certain information on, amongst other things, anticipated financial effects of certain sustainability related risks. The “quick fix” will allow Wave One companies to continue applying these reliefs for financial years 2025 and 2026. Read more on the “quick fix” here.

(b) Ireland transposes EU “Stop-the-Clock” Directive: On 18 July 2025, Irish Minister for Enterprise, Tourism and Employment, Peter Burke, signed a Statutory Instrument giving effect to the EU’s “Stop-the-Clock” Directive to postpone application of the CSRD in Ireland. The regulation ensures that wave 2 and 3 companies under CSRD (those entities which are not yet reporting under CSRD) will not apply for a further two years in Ireland.

(c) EFRAG publishes its analysis on the first set of CSRD-aligned reports: On 23 July 2025, EFRAG published the results of its analysis of the first CSRD-aligned sustainability statements. In total, EFRAG examined 656 CSRD reports. Alongside this, EFRAG new "2025 State of Play" portal has been launched to present all EFRAG’s analysis reports of each CSRD-aligned statement, holding all 656 analysis statements. Key finding from the results include:

• Materiality Coverage: Only 10% of companies identified all 10 topical ESRS standards as material. Climate Change (E1), Own Workforce (S1), and Business Conduct (G1) were the most commonly disclosed;
• Stakeholder Engagement Gaps: 97% involved internal stakeholders in materiality assessments, but engagement with broader societal stakeholders remains rare;
• Transition Plans: 55% of companies disclosed a climate transition plan, though approaches and formats vary;
• Reporting Depth and Length: Sustainability statements vary widely in length with financial institutions producing longer reports on average; and
• Underreported Topics: Biodiversity and internal carbon pricing remain limited in disclosures. Human rights incidents are rarely reported, despite other social data being present.

EFRAG is using this report to inform its work on the ESRS simplification in the context of the omnibus simplification package.

(d) Commission adopts EFRAG’s Voluntary Sustainability Reporting Standard: On 30 July 2025, the Commission officially adopted EFRAG’s Voluntary Sustainability Reporting Standard for non-listed Micro, Small, and Medium-sized Enterprises (“VSME”) as a Recommendation. The Recommendation is designed for companies with fewer than 250 employees, the VSME Standard delivers a simple, proportionate, and practical framework for sustainability reporting, helping SMEs to:

• respond to growing data requests from banks, investors, and large clients;
• improve access to finance through better ESG transparency;
• manage sustainability risks and opportunities effectively; and
• contribute to a more sustainable and inclusive economy.

To mark the launch and discuss next steps, EFRAG will host a dedicated public event in September 2025.

(e) EFRAG launch consultation on simplified ESRS under the CSRD: On 31 July 2025, EFRAG published its much anticipated Exposure Drafts of the amended European Sustainability Reporting Standards (“ESRS”) which were promised before the end of July 2025.

For context, EFRAG’s review of the ESRS forms part of the omnibus simplification package on sustainability reporting and due diligence, which the European Commission announced in February 2025. EFRAG was mandated by the European Commission in March 2025 to deliver a critical simplification to make reporting under the CSRD more manageable while preserving its relevance and alignment with the European Green Deal. Read our briefing here for an overview of the changes included in the Exposure Drafts. The consultation lasts 60 days and ends on 29 September 2025.

(f) EU Ombudsman requests an explanation for alleged failing to follow procedural steps to launch its Omnibus simplification initiative: On 15 July 2025, EU Ombudsman sent a letter to the European Commission President, Ursula von der Leyen, requesting the Commission to provide an explanation regarding its alleged failure to follow procedure foreseen in the Better Regulation Guidelines and Toolbox when launching its Omnibus simplification initiative. The EU Ombudsman has requested a response by 15 September 2025.

3. EU Battery Regulation

Council adopts two year stop-the-clock regulation on battery due diligence: On 18 July 2025, the Council adopted a new regulation delaying the entry into force of the EU Battery Regulation’s supply chain due diligence obligations for two years, from 18 August 2025 to 18 August 2027, giving battery producers and exporters additional time to prepare. The new regulation is part of the so-called ‘Omnibus IV’ package. The regulation will be published in the EU’s Official Journal shortly after this date and the regulation will enter into force the day after its publication. The European Commission is also expected to publish due diligence guidelines by 18 June 2026, offering pre-implementation clarity.

Chapter 2: UK Financial Services Growth and Competitiveness Strategy

UK Mansion House 2025 speech and Financial Services Growth and Competitiveness Strategy: On 15 July 2025, the UK Government published the UK’s Modern Industrial Strategy ahead of the Mansion House speech later that day.

The Strategy paper highlights the opportunity that increased demand for sustainable finance brings for the UK and reiterates the government’s commitment to maintain the UK’s position as global leader in sustainable finance, including attracting business and mobilising capital towards emerging markets and developing economies. Notable updates announced in the Strategy paper are that the government is:

• Consulting on proposed next steps on the UK Sustainability Reporting Standards (UK SRS), the assurance of sustainability reporting, and how best to take forward the manifesto commitment on the development and implementation of transition plans that align with the 1.5°C goal of the Paris Agreement. Following the announcement of the consultations on these topics on 25 June 2025, the government confirmed that further publications will follow, including from a consultation from the FCA on how listed companies will adopt the UK SRS and work from the Net Zero Council on supporting SMEs to decarbonise.
• Building UK companies’ capacity on nature through the UK Consultation Group of the Taskforce on Nature-Related Financial Disclosures.
• Ensuring that the Financial Policy Committee and Prudential Regulation Committee under the Bank of England support the government’s approach to the net zero transition. The Prudential Regulation Authority is currently consulting on enhancing banks’ and insurers’ approach to managing climate-related risks and the government has taken other steps to ensure these committees and the FCA continue to support sustainable finance.
• Supporting the growth and integrity of the transition finance market and voluntary carbon and nature markets. The government has confirmed that it will respond to the consultation on voluntary carbon and nature markets later this year.
• Regulating Environmental, Social, and Governance (ESG) ratings providers. We can expect to see legislation later this year regulating ESG ratings providers (following a UK voluntary code of conduct which is already in place).
• Not proceeding with the development of a UK Green Taxonomy. It has been confirmed that a UK Green Taxonomy will not be developed as the consultation on the value case for the UK Green Taxonomy confirmed that other policies were of higher priority. HMT published a response to the UK Green Taxonomy consultation here.

Read more about the Mansion House speech 2025 and the Financial Services Growth and Competitiveness Strategy in our latest briefing here.

Chapter 3: UK FCA confirms disclosure of summaries of transition plans

UK FCA confirms that summaries of transitions plans, where material, should be provided in prospectuses under new rules: On 15 July 2025, the Financial Conduct Authority (“FCA”) published its Policy Statement PS25/9 setting out the final rules to implement the Public Offers and Admission to Trading Regulations 2024 (POATRs) which replace the UK Prospectus Regulation. The FCA has introduced a definition of the types of statements that will be subject to the new liability regime for protected forward-looking statements (PFLS) and has confirmed that there will be a new climate disclosure rule for certain equity issuers and optional disclosures to improve transparency of sustainability-labelled debt instruments. Issuers subject to the new climate disclosure rule and which have published a transition plan, where the contents are material, will be expected to include a summary of the plan in the prospectus. The final rules will come into force from January 2026, subject to transitional provisions.

Chapter 4: EU Deforestation Regulation

EU Deforestation Regulation update – impact of the country benchmarking for due diligence obligations: Although the EU Deforestation Regulation’s (EUDR) currently applies from December 2025, several EU Member States and industry associations are calling for a targeted delay, citing practical implementation hurdles, lack of legal clarity and unresolved IT infrastructure issues.

On 9 July 2025, the European Parliament adopted a non-binding objection to the Commission Implementing Regulation (EU) 2025/1093, which defines the benchmarking system under the EUDR. The implementing act classifies countries into low-, standard-, and high-risk categories for deforestation-linked commodities. The non-binding objective has no legal effect and cannot block the implementing act. And the EU Commission is not bound by this vote.

The legal framework remains intact, and the country benchmarking system is applicable as adopted. It is unlikely that the Commission will revise the system in the short term, meaning that companies can — and should — rely on the current risk classifications for their due diligence efforts. That being said, the benchmarking system remains central to determining due diligence depth, so companies must closely monitor any interpretive shifts at EU or Member State level.

Given the short timelines and high regulatory expectations, businesses should continue implementation without delay, leveraging the Commission’s detailed guidance documents and FAQs to navigate open questions and avoid future non-compliance.

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.

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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 Jessica Dhodakia.