ESG Market Alert UK – July 2025

UK Government issues new guidance for environmental impact assessments for oil and gas projects

In June 2025, the UK Government issued new guidance outlining how it will assess new applications for oil and gas projects. In seeking development consents for new oil and gas projects in the UK, greenhouse gas (GHG) emissions from burning oil and gas, not just those from the upstream production of that oil and gas, must be taken into account. This guidance responds to last year’s landmark Supreme Court ruling (Finch v Surrey County Council) which criticised UK authorities for failing to account for the downstream climate impact of burning fossil fuels when granting development consents.

It instructs ministers to balance environmental impacts, economic benefits, and proposed carbon removal efforts when deciding whether to grant consents. Although the guidance does not specify exact emission mitigation methods, it emphasises that such methods should be of “high integrity”.

This guidance coincides with significant government investment in carbon capture and storage, as the government gets underway with its plan to maximise opportunities for the clean energy transition.

The guidance is available here

The Bank of England issues proposals to reinforce climate-related expectations, drawing on the Basel Committee’s voluntary framework

The Bank of England has proposed a fresh set of climate-related supervisory expectations for UK banks and insurers, amid concerns that climate risk management remains underdeveloped across the sector. The Prudential Regulation Authority (PRA) launched a consultation in June to revise its 2019 guidance, citing continued weaknesses in data governance, scenario analysis, and alignment with risk appetite as drivers for change. The update, outlined in a Consultation Paper open until 30 July, reflects international best practice and incorporates elements of the Basel Committee’s new voluntary disclosure framework.

Under the proposals, firms would be expected to identify data gaps, apply scenario insights to strategy, and regularly update climate risk appetite statements. The approach will remain proportionate; firms with less material exposures may scale back, but must ensure prudent assumptions.

Internationally, the Basel Committee's new disclosure framework marks a milestone, albeit a tempered one. Following U.S. pressure, the framework has been made voluntary, softening initial ambitions to establish a mandatory global Pillar 3 regime. Key disclosures will include governance, strategy, physical and transition risks, and financed emissions, though requirements around capital markets emissions and sectoral reporting have been diluted.

The PRA’s proposals underscore growing regulatory momentum in the UK. For UK firms, the message is clear: integration of climate risk into governance, controls, and strategy is no longer optional, and scrutiny is set to intensify.

UK Government provides funding for major Carbon Capture and Storage (CCS) projects

On 12 June 2025, the UK Government announced that it is providing UK carbon capture industries with £9.4 billion, following the 2025 Spending Review. The aim of this funding is to support the Government’s Plan for Change commitment of accelerating to Net Zero while driving growth.

The Government has specifically announced support for the Acorn CCS project in Aberdeenshire and Viking CCS project in Humber, with final investment decisions to be taken later this Parliament. It is expected that Acorn and Viking will support approximately 15,000 and 20,000 jobs respectively. Already, the Government has agreed to meet the request for development funding of c.£200m to prepare the Acorn project for delivery. Moreover, funding has been earmarked for the National Gas SCO2T Connect initiative to repurpose gas pipelines and allow captured CO2 to be transported to storage facilities under the North Sea. Once operational, the Viking and Acorn projects are expected to remove 18 million tonnes of CO2 from the atmosphere per year.

Ed Miliband, Secretary of State for Energy Security and Net Zero, views this as an important step in building the UK’s clean energy future. The Government believes that the improved capability to generate low-carbon power will increase the UK’s energy security, modernise and repurpose existing infrastructure, and align the UK with its Net Zero commitments.

This early and decisive government backing sends a strong signal to the UK energy industry that investment in CCS will be encouraged – CCS is clearly integral to the Government’s Plan for Change.

The FRC publishes new Investor Stewardship Code 2026

On 3 June 2025, the Financial Reporting Council (FRC) issued an updated UK Stewardship Code 2026. The voluntary Code establishes the core principles of effective stewardship and sets high standards for transparency for asset owners (e.g. pension funds and insurers), asset managers, and providers of supporting services. According to the FRC, the revised Code aims to “support long-term sustainable value creation while significantly reducing the reporting burden for signatories”. The Code will come into force from 1 January 2026, giving current signatories time to familiarise themselves with the changes.

Key features of the new UK Stewardship Code include:

1. A new definition of “stewardship”: The revised Code defines stewardship as “the responsible allocation, management and oversight of capital to create long-term sustainable value for clients and beneficiaries”. The wording “leading to sustainable benefits for the economy, the environment and society” which was present in the 2020 version of the Code has been scrapped, showing the shift of the FRC’s focus from standalone ESG benefits to value-creation for the signatories’ clients and beneficiaries.
2. Reduced reporting requirements: The new Code includes fewer principles and more concise 'how to report' prompts, fostering more meaningful reporting. The FRC expects that this change will help signatories reduce reporting volume by 20-30%.
3. Flexible reporting structure: Signatories can choose to submit separate Policy and Context Disclosures and Activities and Outcomes Reports or combine them into a single document. The former will only need to be submitted once every 4 years.
4. Targeted principles: The Code includes dedicated principles for different types of signatories.
5. New guidance: Optional guidance is now available to support effective implementation, particularly for those managing non-equity asset classes.

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Authored by Nicola Evans, John Livesey, Alastair Young, Scott Prior, Hope O'Dwyer, Adam Barratt, Aimee Fullen, Oliwia Puto, and Joe Viles.