Recent UK, EU and globally significant policy and regulatory developments and implications for investors, lenders, issuers, and borrowers

• EU Omnibus proposals – a path to revision and simplification of sustainable finance legislation

Other announcements and publications
 

Global

• Governments agree on the way forward to mobilise the resources to protect biodiversity

• IFRS releases new guide for climate-first sustainability disclosures

• FSB publishes framework for assessing climate-related financial risks

EU 

• Platform on sustainable finance proposes changes to enhance EU taxonomy effectiveness

• EU PSF report highlights key elements for assessing corporate transition plans 

• EU Commission publishes Competitiveness Compass: Key Principles for Action

• EBA launches consultation on ESG scenario analysis guidelines 

UK

• UK’s 2035 emissions target and the pathway to net-zero 

• UK government publishes its national biodiversity strategy

• UK government launches Nature Restoration Fund to support infrastructure and biodiversity

• UK government consults on phasing out petrol and diesel cars by 2030

• UK government announces plans to revitalise nuclear power sector

• FCA statement on sustainability regulations and UK defence

EU Omnibus proposals – path to revision and simplification of sustainable finance legislation
 

On 26 February 2025, the European Commission introduced [1] the “Omnibus” legislation to simplify and streamline sustainability reporting, due diligence, the EU taxonomy as well as the Carbon Border Adjustment Mechanism. By this legislation, the Commission aims to reduce administrative burdens1 by at least 25%.
 

Key proposals for changes to CSRD (Corporate Sustainability Reporting Directive):

Key proposals for changes to CSDDD (Corporate Sustainability Due Diligence Directive):

Key proposals for changes to the EU taxonomy:

Taxonomy Delegated Acts: call for evidence (CfE)

The Commission published a consultation on changes to the Taxonomy Disclosures Delegated Act, Climate Delegated Act, and the Environmental Delegated Act. The CfE is open until 26 March with plans to adopt the changes in Q2 of 2025. 
 

Amendments to the Taxonomy Disclosures Delegated Act

• Introduction of a 10% de minimis threshold: This would allow certain financial institutions, such as credit institutions, to avoid reporting KPIs that capture activities not material to their business (e.g., green asset ratio (GAR) for the trading portfolio or KPIs for fees and commissions from services other than lending that account for less than 10% of total revenue).

• Amendments to the main KPIs of financial institutions, especially the GAR for banks. Based on the published text, banks will be able to exclude from the denominator of the GAR, exposures that relate to entities which are not under the future scope of the CSRD. Finally, given the limited relevance and decision usefulness of the trading book KPI, and fees and commission KPI for certain financial institutions, the application of these KPIs is postponed until 2027.

• Simplified reporting templates: Reporting templates will be significantly simplified, in particular for credit institutions.
   

Amendments to the Climate and Environmental Delegated Acts

• DNSH criteria: The proposals aim to address challenges with Do-No-Significant-Harm (DNSH) criteria with the focus on the generic DNSH criteria for pollution prevention and control objective as a starting point. 

• Technical screening criteria: As a next step, the Commission will carry out a systematic and thorough review of all the technical screening criteria, particularly the DNSH framework, to assess ways to make it simpler, more usable, and more aligned with EU legislation.

  The legislative proposals have been submitted to the European Parliament and the Council for their consideration and adoption, with a request to treat this with priority. 

Key considerations for sustainable finance market participants

Less resource intensive reporting and assurance process:

For companies, particularly smaller ones, the proposals will likely help avoid unnecessary reporting and assurance burdens and free up resources to enhance their overall sustainability practices. Furthermore, guidelines on limited assurance by 2026 will help issuers and borrowers have comfort that their data will be reviewed in the same way regardless of who the auditor is, allowing for easier future planning of EU taxonomy-aligned CapEx and the funding for it.

The potential reduction in the volume of data points and improving consistency with other pieces of legislation will certainly be welcome, as usability of data across standards can help ensure that investors have the information they need for their own reporting (e.g. Principal Adverse Impacts (PAIs) for reporting) and to help in their credit and investment decisions.

Important to monitor materiality of final ESRS standards:

However, despite the simplification efforts, it is not yet clear how the European Sustainability Reporting Standards (ESRS) will be revised. Issuers and investors will need to monitor any changes to the ESRS framework, as there is a risk that the revisions could inadvertently exclude or downplay certain ESG factors that were previously deemed material – due to sector specific guidelines no longer being developed. 

More pragmatic minimum due diligence standards:

The revisions to the CSDDD seek to set clearer boundaries around the definition of a company’s value chain, limiting the scope of due diligence to the "Tier 1" stakeholders (direct business partners). This simplification will reduce the burden on companies, where full value chain assessments are often quite cumbersome. Of course, for some sectors extending due diligence to Tier 2 or 3 suppliers could still be necessary to effectively identify and mitigate sustainability and business-continuity risks. 
 

Worth reviewing the final nature of implementation:

Issuer and investors should be aware that regulatory implementation risk remains. The extended expected adoption timeline, with full implementation not likely until 2028, raises questions about the continuity of sustainability programmes already in place. Issuers, particularly those that have already begun implementing CSRD/ESRS reporting practices, may need to adjust their strategies and processes in response to the final version of the legislation. Similarly, investors may find it difficult to evaluate the effectiveness of these programmes in the interim period, which could lead to inconsistencies in ESG data and reporting. 

Global

COP 16: governments agree on the way forward to mobilise the resources to protect biodiversity

Governments reached a landmark agreement [2] at COP16 in Rome to mobilise substantial resources and strengthen financial mechanisms to protect global biodiversity and implement the Kunming-Montreal Global Biodiversity Framework (KMGBF). The plan aims to close the biodiversity finance gap by mobilising at least $200bn annually by 2030, with $20bn per year in international flows by 2025, increasing to $30bn by 2030. The strategy includes a mix of financial mechanisms, public and private funding, and improved monitoring and reporting to ensure effective implementation. Additionally, governments enhanced the planning, monitoring, reporting, and review mechanisms for the KMGBF, agreeing on indicators to track progress towards the framework’s 23 targets and 4 goals. These measures aim to improve transparency and accountability, ensuring that all parties can measure and report their progress effectively at future COP meetings.

IFRS releases new guide for “climate-first” sustainability disclosures

The International Financial Reporting Standards (IFRS) Foundation has published [3] a new guide titled ‘Applying IFRS S1 when reporting only climate-related disclosures in accordance with IFRS S2’. This guide is designed to support companies that are beginning to adopt the ISSB (International Sustainability Standards Board) standards.

The primary objective of the guide is to address investor concerns about data availability and the readiness of companies to provide comprehensive climate-related information. To facilitate a smoother transition, the guide introduces several transition reliefs within the ISSB standards, including the 'climate-first' transition relief. This relief allows companies to focus on climate-related disclosures as a priority while progressively enhancing the scope of their sustainability reporting.

FSB publishes framework for assessing climate-related financial risks

In January 2025, the Financial Stability Board (FSB) released [4] a report outlining a framework for assessing climate-related vulnerabilities in the financial system. This report is part of the FSB’s ‘Roadmap to Address Climate-related Financial Risks’ and presents an analytical toolkit designed to evaluate these risks using a forward-looking approach.

The framework details how both physical and transition climate risks can spread through the global financial system via various transmission channels, including credit, liquidity, market, and underwriting risk. In addition to these pathways, the report highlights potential amplification mechanisms that could exacerbate financial vulnerabilities, such as cross-sector contagion, fire sales, and interactions with existing economic risks. The report also introduces a set of metrics aimed at providing a forward-looking perspective on climate-related vulnerabilities. 
 

EU

Platform on Sustainable Finance proposes changes to enhance EU taxonomy effectiveness 

The EU Platform on Sustainable Finance (PSF) has published a report [5] outlining recommendations aimed at simplifying the EU taxonomy to improve its effectiveness and usability for both the European Commission and industry stakeholders. The recommendations focus on addressing four key constraints that currently impact the implementation of the taxonomy.
 

Do No Significant Harm (DNSH) assessment:

• Introduce a lighter compliance assessment process for DNSH criteria.

• Regularly review all DNSH criteria to ensure they remain relevant.

• Implement a “comply or explain” approach where DNSH evaluation is particularly complex. 

Simplification of corporate reporting:

• Adjust the OpEx KPI to be a voluntary disclosure, with the exception of R&D.

• Introduce a materiality threshold for reporting Turnover, OpEx, CapEx KPIs, and combined KPIs for financial companies. Simplify reporting templates, with a reduction in data points required from companies.

Simplified Green Asset Ratio (GAR):

• Ensure a symmetrical GAR by aligning the numerator and denominator.

• Allow the use of proxies and estimates for reporting purposes.

Application of the taxonomy to SMEs:

• Adopt tailored approaches to classify loans and financing activities as sustainable finance for small and medium-sized enterprises (SMEs).

EU PSF report highlights key elements for assessing corporate transition plans [6]

The EU Platform on Sustainable Finance published a report on “Building trust in transition: core elements for assessing corporate transition plans”. The report identifies core elements for evaluating corporate transition plans which included:

• Science-based and time-bound targets: Alignment of targets with the limiting of global warming to 1.5 °C (with no or limited overshoot), usage of scenarios for target-setting. 

• Key levers and actions to achieve the targets: DNSH assessments of implemented or planned actions and fossil-fuel phase-out and carbon lock-in assessment.

• Financial planning: Integration of transition plans to its financial plans, disclosing taxonomy-aligned CapEx and CapEx for fossil-fuel infrastructure.

• Governance of the plan and its implementation: Introduction of board and audit committee oversight, stakeholder engagement for monitoring and implementing plans. 

• Usability: Recommendation to the Commission to develop a common transition plan template for non-financial undertakings.

The report also offers recommendations to the Commission for enhancing the effectiveness of its policy framework and supporting the market to provide and access transition finance. 
 

EU Commission publishes Competitiveness Compass: key principles for action

In January, the European Commission released [7] the EU Competitiveness Compass, accompanied by a speech from President von der Leyen. The Compass aims to establish competitiveness as one of the EU's overarching principles for action and consists of:
 

Five “Horizontal Enablers” for competitiveness:

• Simplification

• Lowering barriers to the single market

• Financing competitiveness

• Promoting skills and quality jobs

• Better coordination of policies at EU and national level 

Three “transformational imperatives” for competitiveness:

• Decarbonisation and competitiveness

• Closing the innovation gap

• Reducing excessive dependencies and increasing security

The Compass highlights how these enablers and imperatives are essential for boosting Europe's competitiveness in a rapidly evolving global economy. 
 

European Banking Authority (EBA) launches consultation on ESG scenario analysis guidelines 
The EBA has launched [8] a public consultation on its draft guidelines on ESG scenario analysis, open until 16 April 2025. These guidelines outline the expectations for institutions when adopting forward-looking approaches to integrate scenario analysis into their management frameworks. Institutions are expected to design a comprehensive framework to incorporate ESG scenario analysis into their risk management systems. The guidelines aim to ensure that institutions can assess their financial and operational resilience in the face of ESG-related risks over short, medium, and long-term time horizons.

UK 

UK’s 2035 emissions target and the pathway to net-zero

In a significant announcement, the UK Prime Minister revealed [9] the country’s 2035 Nationally Determined Contribution (NDC) target, aiming for a reduction of at least 81% in greenhouse gas emissions by 2035, compared to 1990 levels. The 2035 target builds on the UK’s previous NDC, which set a goal of reducing emissions by at least 68% by 2030, based on advice from the independent Climate Change Committee (CCC).

Further, on 26 February 2025, the CCC presented [10] the Seventh Carbon Budget (CB7), outlining a roadmap to reduce the UK’s greenhouse gas emissions for the period 2038-2042, limiting them to 535 MtCO2e. The path to achieving net-zero by 2050 relies heavily on electrification, private sector investment, and strategic measures across key sectors.

Sectoral trends assumed under the seventh carbon budget: 

Electrification of the economy

• By 2040, electricity will account for 61% of industrial energy demand, up from 26% today.

• The rapid expansion of renewable energy is expected, including a six-fold increase in offshore wind capacity, a doubling of onshore wind capacity, and a five-fold growth in solar capacity by 2040.

• Electric vehicles (EVs) will represent 95% of vehicles by 2030 and 100% by 2035, with price parity with internal combustion engine (ICE) cars expected between 2026 and 2028. 

• Heat pumps will heat 50% of homes by 2040, compared to just 1% in 2023, requiring nearly 450,000 installations by 2030 and 1.5m by 2035.

Demand

• By 2040, energy efficiency measures will be deployed across sectors, including home insulation, more efficient industrial resource use, and reductions in waste.

• Consumers will shift towards lower-carbon choices, such as public transport, reduced meat and dairy consumption, and slower growth in aviation demand.

Low-carbon fuels and Carbon Capture and Storage (CCS)

• Sustainable aviation fuel (SAF) will meet 17% of aviation fuel demand by 2040.

• Ammonia and synthetic fuels will make up a significant portion of shipping energy use.

• Hydrogen will play a role in industrial sectors, electricity supply, and synthetic fuels, but will not be used for building heating. 

• CCS will be critical in sectors with limited alternatives, enabling long-term storable power in electricity generation and reducing emissions from manufacturing processes.

Nature-based solutions

• By 2040, woodland coverage in the UK will increase from 13% to over 16%, with tree planting rates doubling to 37,000 hectares per year by 2030.

• The proportion of peatlands in natural or rewetted conditions will rise from 26% in 2023 to 55% by 2040.

Engineered removals

• Removals will be necessary to offset residual emissions, especially in aviation.

• By 2040, both bioenergy with CCS and direct air capture technologies will be deployed.
   

UK government publishes its national biodiversity strategy 

The UK has reaffirmed its commitment to the UN's COP15 biodiversity framework by publishing its [11] National Biodiversity Strategy & Action Plan (NBSAP). This plan outlines how the UK will meet all 23 global targets of the Kunming-Montreal Global Biodiversity Framework (GBF). The NBSAP sets out clear actions, including expanding protected areas to 30% of land and seas, reducing pollution to safe levels, and enhancing sustainability in sectors like agriculture and fisheries. The strategy also emphasises the role of the UK's overseas territories and crown dependencies, which contribute significantly to global biodiversity.
 

UK government launches Nature Restoration Fund to support infrastructure and biodiversity

The UK government has announced [12] the creation of a Nature Restoration Fund, designed to enable infrastructure builders to meet their environmental obligations more effectively and at greater scale. By pooling contributions from developers, the fund will support larger strategic interventions to accelerate the recovery of natural habitats alongside the expansion of critical infrastructure. Key aims of the initiative include:

• Infrastructure decisions: The government plans to fast-track decisions on 150 infrastructure projects.  

• Reversing habitat loss: The changes are intended to address the decline in natural habitats and biodiversity resulting from facilitating large-scale projects. 

• £70m funding commitment: The government has confirmed a £70m ($85.7m) package in its latest budget to support both infrastructure development and nature recovery efforts.
   

UK government consults on phasing out petrol and diesel cars by 2030

Government has commenced a consultation [13] on phasing out the sale of new petrol and diesel cars from 2030. A key part of the consultation is to define which electrified (hybrid) powertrain technologies will be permitted for sale between 2030 and 2035. The consultation also proposes updates to the Zero Emission Vehicle (ZEV) mandate. The mandate sets out the percentage of new zero emission cars and vans manufacturers will be required to sell each year up to 2030. To support manufacturers in the transition, the ZEV mandate already features a range of options for industry compliance.  
 

UK government announces plans to revitalise nuclear power sector

The Prime Minister and the Department for Energy Security and Net Zero (DESNZ) released a joint statement [14] titled “Government rips up rules to fire-up nuclear power” declaring plans to put Britain back in the global race for nuclear energy. The plans will change the planning rules to make it easier to build nuclear across the country. The PM and DESNZ claim that there will continue to be “robust criteria” for nuclear energy projects, with a balance to be struck in respect of population density; community engagement; military activity; the maintenance of high environmental standards and a variety of other factors.
 

FCA statement on sustainability regulations and UK defence

The Financial Conduct Authority (FCA) released a statement [15] clarifying that there are no FCA rules, including those related to sustainability, that prevent investment or finance for defence companies. The statement is clear that the sustainability-related rules focus on two objectives:  

1. To ensure information about investments claiming to be sustainable can be trusted and readily understood.
2. To improve the quality of sustainability-related information in the market.

However, the FCA was clear that financial institutions may have their own policies relating to defence companies and they are free to decide how or whether they provide capital to defence companies.

1. Commission simplifies rules on sustainability and EU investments, delivering over €6 billion in administrative relief and reducing administrative burdens by at least 25%
2. Governments agree on the way forward to mobilise the resources needed to protect biodiversity for people and planet
3. IFRS Foundation publishes guide to help companies understand how to report only climate-related information when applicable in accordance with ISSB Standards
4. Assessment of Climate-related Vulnerabilities: Analytical framework and toolkit
5. Simplifying the EU Taxonomy to Foster Sustainable Finance
6. Platform on Sustainable Finance report on Building trust in transition: core elements for assessing corporate transition plans
7. A Competitiveness Compass for the EU
8. Guidelines on ESG scenario analysis
9. UK's 2035 Nationally Determined Contribution (NDC) emissions reduction target under the Paris Agreement
10. The Seventh Carbon Budget
11. UK national biodiversity strategy and action plan
12. Planning proposals to unblock vital infrastructure and drive nature’s recovery
13. Phasing out sales of new petrol and diesel cars from 2030 and supporting the ZEV transition
14. Government rips up rules to fire-up nuclear power
15. FCA Statement on sustainability regulations and UK defence