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

Although the clock is ticking, in a surprise turn of events, the European Parliament did not vote for the omnibus simplification package compromise text on sustainability reporting and due diligence which had been approved by its the Legal Affairs (JURI) Committee.  We will take you step by step through what happened.

On 8 October 2025, the European Parliament reached a (in retrospect, tentative) agreement on the scope of amendments to the Corporate Sustainability Reporting Directive (“CSRD”) and the Corporate Sustainability Due Diligence Directive (“CSDDD”).  There were two options on the table and the socialists and liberals agreed to support the proposal with lower thresholds (that is bringing more entities into scope). 

In the next stage, on 13 October 2025, the Legal Affairs (JURI) Committee (“JURI”)  approved the omnibus simplification package compromise and on 17 October 2025, JURI published the latest proposal for amendments to the CSRD and the CSDDD. The proposed thresholds set out in this draft are:

* CSRD – entities with 1,000+ employees and €450 million net turnover

* CSDDD – entities with 5,000+ employees and €1.5 billion turnover.

If this draft is followed, it also seems likely that the harmonised civil liability regime which previously formed part of the CSRD will be removed and that the requirements for the implementation of transition plans may be deleted.

Although, it was thought that the plenary vote of the Parliament on 22 October 2025 was a formality, the MEPs unexpectedly rejected the compromise text approved by JURI.  Effectively this sends the omnibus simplification package back to the Parliament.  This press release indicates that the Parliament will vote again at the next parliamentary plenary session on 13 November 2025.

Chapter 2: UK developments

There has been a lot of back-to-school developments in the UK.  We have seen speeches and publications on nature risk, support for defence financing and on regulation of ESG ratings.

1. UK Treasury Committee publishes report on National Wealth Fund:  On 28 October 2025, The UK House of Commons Treasury Committee published a report on the National Wealth Fund (“NWF”). 

   The report notes that the NWF is “a Government-created investment fund intended to drive UK economic growth by directing Government resources to finance economic activity that supports additional private investment” whose priorities include regional growth and clean energy (reflecting government priorities).

   The report notes that:

   • in order to achieve a positive rate of return the NWF will need to “embrace risk” and create new markets for innovative new industries;
   • the NWF is not a conventional sovereign wealth fund as it relies on borrowing and taxation rather than natural resources for funding – this means more media and public scrutiny;
   • due to the size of the fund it will be challenging to deliver the significant regional and economic growth;
   • the NWF is one of several government-backed funds and will need to establish its specific function to avoid duplication; and
   • the NWF must stay free from political interference in its choice of investments.
2. UK Financial Conduct Authority (“FCA”) signals that proposed rules for ESG ratings providers will be available by the end of the year:  The UK government has published proposed draft regulations to regulate ESG ratings providers. The Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025 was published on 27 October 2025 and gives the FCA the powers to regulate ESG ratings providers.  

   The FCA welcomed the move to bring ESG ratings providers into their remit and said that they intend to consult on their proposed rules before the end of the year.  They will use the IOSCO recommendations to inform their proposals and will focus on the key areas: transparency, governance, systems and controls, and conflicts of interest.

3. FCA Chief Executive asks UK lenders and investors to step up defence finance:  On 22 October 2025, Nikhil Rathi, chief executive of the FCA, gave a speech at the Corporation of the City of London’s annual City Dinner highlighting the need to put finance at the centre of the UK's defence and security, by supporting the funding, insurance and building of resilience in the defence sector.  He said that our “sustainability rules don’t block defence investment.  There is no regulatory reason preventing defence firms from accessing banking services.”  He reiterated that if there is ambiguity creating barriers to investment then the FCA will act. Read more here.
4. UK Climate Change Committee responds to request for advice on strengthening adaptation planning:  On 15 October 2025, the UK Climate Change Committee published a letterwhich was sent from Baroness Brown, the Chair of the Adaptation Committee, to the Parliamentary Under Secretary at DEFRA in response to an earlier letter asking for advice on strengthening the UK’s adaptation objectives.

   The letter reiterates the importance and urgency of strengthening adaptation objectives.  It responds to the questions put to it around timeframe and minimum climate scenarios which should be used to set adaptation objectives.  It recommends that the UK should prepare for an expected warming of 2°C by 2050 with potential warming of 4°C and that adaptation should be achieved by 2050 at the very latest.  Read more here.

5. Why the UK is the smart bet for sustainable finance: On 23 October 2025, Ashley Alder, FCA Chair, spoke at the Climate Financial Risk Forum’s (“CFRF”) Symposium.  The speech reiterated that “physical risks of climate change, both acute and chronic, are getting more frequent, more severe, and are costing more and more to deal with”.  It also identified that these risks are well within the current planning horizons for investors, insurers, lenders and beyond.  The speech identified the steps the FCA is taking to ensure that the UK’s frameworks are fit for purpose, including adaption of ISSB standards and ESG ratings regulation.
6. Climate and nature risk:On 23 October 2025, a number of documents were published by the FCA and the CFRF relating to climate and nature risk.  The FCA also updated its webpageto include these publications:
   1. Developing an approach to nature risk in Financial Services which focuses on the climate-nature nexus and practical steps that financial institutions can take to build on the advances they have already made in climate change risk to develop a more systemic risk assessment capacity (that is looking at risk and how it is interconnected at a systems level rather than in silos).  The paper includes illustrations of how firms can used the Taskforce on Nature-related Financial Disclosures (“TNFD”) LEAP framework to assess vulnerabilities to climate and nature risks, systemic risk discussion, “a methodology for developing a specific, plausible but severe climate-nature scenario resulting in significant (e.g. 15% to 20%) global GDP contraction over a 5-year period”.
   2. From risk to resilience: Integrating adaptation into finance from the Adaptation Working Group (“AWG”) which makes “the case for scaling adaptation finance by demonstrating its relevance to financial stability, credit risk, and investment value.” The report moves AWG from a high-level strategy focus to a focus in operational delivery for the financial services sector.  The report includes:
      • an update on the Aim-Build-Contingency (ABC) framework which helps financial institutions to seek resilience investment opportunities;
      • details of how firms can include adaptation in their transition plans;
      • a demonstration as to how physical climate risk assessments are directly linked to financial outcomes and showing that climate resilience can be quantified in terms of risk reduction;
      • how adaptation can be embedded into sustainable finance, integrating key performance indicators into instruments, such as sustainability-inked loans, blended finance and insurance mechanisms;
      • the importance of physical climate risk on sovereign credit assessments and considering the importance of asset-level forward-looking metrics when looking at resilience in flood data; and
      • a demonstration of the need for adaptation-focused training for finance professionals, including on physical risk and hazard modelling.
   3. Quantitative Climate Scenario Analysis in Financial Decisions: Case Studies – this report sets out a number of case studies, focusing on the quantification of financial impact to enable financial materiality of risks and opportunities to be assessed and risk-based decisions to be made.
   4. Skilling up: training available on physical risks of climate change in the financial sector which recommends that firms should identify their specific training needs around physical climate risks and implement plans to address them, regulatory bodies should consider how they can encourage and support firms to do this and training providers should consider providing courses to fill these gaps.
   5. A Risk Professional’s Guide to Physical Risk Assessments: A GARP Benchmarking Study of 13 Vendors – this study focusses on how to assess physical risk at the level of the individual asset and how much estimates vary.  It is a benchmarking study looking at the extent to which third-party data vendors differ in their property-level risk assessments and projections, providing insights as to why they might differ and quantification of the dispersion.

Chapter 3: EU developments

In the EU, apart from developments on the EU omnibus simplification packages, work is continuing in other areas to simplify and reduce burden.

1. ESMA publishes its latest Spotlight on Markets Newsletter:  On 27 October 2025, the European Securities and Markets Authority (ESMA) published its latest Spotlight on Markets Newsletter.

   The newsletter refers to recent publications and also contains ESMA’s workplan for 2026 which includes work on the ESG Ratings Regulation, the European Green Bond framework and SFDR amongst other initiatives.

2. EU Deforestation Regulation timing update:  In September 2025, the Commission had indicated that the EU Deforestation Regulation (“EUDR”) was likely to be delayed for one year due to IT issues.  But on 21 October 2025, the European Commission announced that it was instead proposing targeted solutions to support the implementation of the EUDR including delaying application for micro and small operators until 30 December 2026 and delaying enforcement for all operators until 30 June 2026 (six months delay).
3. European Commission de-prioritises adoption of certain Level 2 acts relating to financial services legislation:  In the context of the omnibus simplification process and ongoing review of regulation in the EU, the European Commission has decided to de-prioritise the adoption of a number of ‘non-essential' Level 2 acts until after 1 October 2027. 

   Sustainable finance and reporting legislation affected includes the Sustainable Finance Disclosure Regulation (SFDR), the European Sustainability Reporting Standards, the EU Green Bond Standard Regulation and the ESG Ratings Regulation.  Read more here.

4. ESMA announces enforcement priorities for 2025:  The European Securities and Markets Authority (“ESMA”) has published its European Common Enforcement Priorities (“ECEP”) for 2025 annual financial reports of listed issuers.  

   ESMA asks issuers to focus on a number of issues including considerations in reporting under the European Sustainability Reporting Standards (“ESRS”) and the scope and structure of sustainability statements.  ESMA considers “these topics, which include connectivity between financial and sustainability reporting, to be of importance for users and issuers”.  ESMA has exceptionally  carried over these priorities from the 2024 ECEP due to the uncertainty around sustainability reporting and the omnibus simplification process. 

   ESMA has also published the results of a fact-finding exercise on 2024 corporate reporting practices under ESRS Set 1.  The exercise sought to evaluate the quality of the disclosures on materiality considerations which issuers published in accordance with ESRS Set 1 requirements.  It examines disclosures on the double materiality assessment process and its outcomes, providing insights on enforcement priorities and future regulatory improvements. 

   Issuers, auditors and supervisory bodies should consider the topics included in ECEP in relation to 2025 Annual financial reports. 

5. Cyprus transposes CSRD:Cyprus has transposed the CSRD (including delays from the Stop-the-clock Directive) into national law.  The amendments were published in Cyprus’ Official Gazette on 29 July 2025.

Chapter 4: International developments

1. CDP-TNFD correspondence mapping published:  On 22 October 2025, the Taskforce on Nature-related Financial Disclosures (“TNFD”) published an updated mapping of CDP’s 2025 corporate questionnaire.  It includes recommendations from the TNFD to support market participants in understanding how TNFD can be used to enable TNFD-aligned reporting within this framework.  An update will be released for the 2026 questionnaire.
2. United States:
   1. California – CARB further delays rulemaking to implement greenhouse gas emission reporting pursuant to SB 253:  The California Air Resources Board (“CARB”) announced that it aims to finalise the mandatory rulemaking required to implement SB 253 in the first quarter of 2026.  This represents a further delay by CARB after missing the statutory deadline, imposed by SB 219, to finalise a rule by 1 July 2025, and subsequent announcements by CARB that the rule would be finalised in December 2025.

      In the meantime, CARB has published a draft Scope 1 and Scope 2 Emissions Reporting Template (“Draft Template”) for use in filing disclosures mandated by SB 253. Staff is seeking public comments on the Draft Template and an accompanying memorandum until 27 October 2025.  Read more here.

   2. Withdrawal of Principles for Climate-Related Financial Risk Management:  On 16 October 2025, the federal bank regulatory authorities announcedthe withdrawal of interagency Principles for Climate-Related Financial Risk Management for Large Financial Institutions.

      The agencies said that they do not believe that the principles are necessary given that the agencies’ existing “safety and soundness standards required all supervised institutions to have effective risk management commensurate with their size, complexity, and activities”.  The Office of the Comptroller of the Currency (OCC) withdrew its participation earlier in the year.

3. COP30 – 10 to 21 November 2025: The 30th UN Climate Change Conference of the Parties (“COP30”) will be held in Belèm, Brazil from 10 to 21 November 2025. This COP is billed as the “COP of truth”, the implementation COP, where States will weigh how they are doing in the fight against climate change by reviewing the sufficiency of their updated Nationally Determined Contributions and many discussions will focus on climate finance and funding of adaptation. Read more here.
4. LMA, LSTA and APLMA publish Transition Loan Guide:  On 16 October 2025, the Loan Market Association (“LMA”) published its new Transition Loans Guide in association with the Asia Pacific Loan Market Association (“APLMA”) and Loan Syndications and Trading Association (“LSTA”). The guide was informed by the thoughts of a global taskforce with over 60 institutions to ensure global perspectives and emerging regulatory thinking were reflected.  The guide tackles the barriers to transition finance, such as conflicting and fragmented taxonomies, uncertainty in definitions and difficulties in verification and reporting.  It aims to: 
   • clarify the distinction between transition finance and financing the transition;
   • provide clear parameters for what qualifies as transition finance; and
   • present – in exposure draft form – a voluntary, cross-jurisdictional framework for activity-level, use of proceeds transition-labelled loans.
   • The LMA is clear that this “is not a standard, but a practical resource designed to support both borrowers and lenders navigating a complex and fast-evolving landscape”.
5. IMO agreement to adopt shipping carbon pricing scheme postponed for one year:  Although agreed in principle in April, on 17 October 2025, in a surprising turn of events, shipping governments agreed to delay a decision on a global carbon price on international shipping (the Net-Zero Framework) at the Extraordinary Session of the Marine Environment Protection Committee of the International Maritime Organization (“IMO”).
6. Singapore: CCS publishes anti-greenwashing guide: On 6 October 2025, the Competition & Consumer Commission Singapore (“CCS”) published a guide to help businesses make claims relating to  the qualities, uses or benefits associated with their products or business.  It follows concerns over potential greenwashing and recent enforcement actions taken by CCS against businesses alleged to have made misleading claims.  The guide sets out five key principles for businesses.
7. Net Zero alliance updates: 
   1. Net-Zero Banking Alliance (“NZBA”):  On 3 October 2025, the NZBA voted to cease operations as a members group.  The members voted to undertake the transition to establish the guidance as a framework.
   2. Net Zero Asset Managers (“NZAM”):  On 29 October 2025, the NZAM reported that has consulted members and taken a comprehensive review of its requirements and has updated its Commitment Statement.  The new Commitment Statement was sent to investors on 29 October 2025 and they have three months to review it before recommitting.  NZAM will resume target and implementation support activities in January 2026 and the signatories will be re-listed on the website then too.

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.

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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 and Emily Julier.