Key updates at a glance

UK

1. PRA publishes its business plan for 2026/27, reinforcing expectations on banks and insurers to manage climate-related financial risks
2. FCA publishes its 2026/27 work programme, including priorities on climate finance, ESG ratings and consumer understanding of climate risks
3. FCA launches pilot reporting requirements for ESG ratings providers, ahead of the final UK regime coming into force
4. UK Climate Change Committee releases a major output of the Climate Risk Assessment 4 (CCRA4)

EU

1. EU Commission seeks feedback on ESRS revision draft & a Voluntary Standard
2. EU Parliament publishes report on draft negotiating position SFDR 2.0 reforms
3. ESMA launches consultation on endorsement of non-EU ESG ratings
4. EBA consults on revised supervisory reporting and benchmarking requirements, including ESG reporting simplification

Global

1. ISSB agrees on the proposed way forward for nature-related disclosures

EU Commission seeks feedback on the European Sustainability Reporting Standards (ESRS) revision draft & a Voluntary Standard for sustainability reporting

On March 18, several changes under the ‘Omnibus I’ Directive [1] came into force. These changes amend the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) (refer to the Appendix section for more details). For the other planned initiatives, the Commission has a set of priorities in the near term including:

• March 2026: Omnibus I Directive enters into force - Changes to CSRD and CSDDD come into effect (including on revised scope, timelines etc.)
• May 2026: “Have your Say” feedback on simplified ESRS & Voluntary Standard - Revised draft simplified ESRS & Voluntary Standard VSME (Voluntary Sustainability Reporting Standard SMEs) published for feedback
• Late 2026: Simplified ESRS & Voluntary Standard adoption - Finalisation and expected formal adoption as delegated acts
• January 2027: Simplified ESRS & Voluntary Standard application - Delegated regulations likely apply starting January 01, 2027, with earlier voluntary application possible under each

The final draft of simplified European Sustainability Reporting Standards (ESRS)

The overall ESRS [2] structure largely unchanged, i.e. there are still two cross-cutting standards and ten topical standards (refer to the appendix section for more details), but the content has been revised and streamlined. While the Commission intended to align the revised standards with the International Sustainability Standards Board (ISSB), the retained architecture and few other factors such as concept of materiality, prescriptiveness of requirements as well as applicability continue to remain a gap. The most material additional changes are with regards to:

• Materiality assessment becomes more flexible: A company can begin at the topic level and avoid a detailed assessment of individual impacts, risks and opportunities. Further, they are not expected to meet every individual user’s specific information needs and shall not report immaterial information.
• Greater ability to omit commercially sensitive information: A company may omit information, especially if disclosing it would harm its commercial position.
• More flexibility on anticipated financial effects: Anticipated financial effects can be estimated, and further updated, without constituting a reporting error, once new data becomes available.
• Wider use of proxies and estimates: Direct data is not prioritised. Reasonable estimates, proxies, peer data, and public or in-house information are acceptable instead. Specifically for value chain data, companies are expected to clearly distinguish between direct and indirect information – making it transparent enough for users and assurance providers.
• Simplification does not mean lesser accountability: Companies are expected to pay more attention to documentation so as to distinguish between material and immaterial information, basis for such decisions and other related processes.

The draft is expected to formalise by mid/late 2026, with mandatory application starting in January 2027.

Implications for issuers:

For issuers, the ESRS revisions are a shift from prescriptive compliance to greater flexibility in how issuers define and present ESG information, creating a double‑edged effect. On the one hand, simplified standards should reduce the immediate compliance burden and make reporting more proportionate. On the other hand, a reduction in mandatory data points may increase investor reliance on direct engagement, third-party data providers and ESG ratings, although this is also subject to the current Sustainable Finance Disclosure Regulation (SFDR) revision. Issuers should expect continued market pressure to provide clear, consistent and decision‑useful sustainability information, particularly where data has been disclosed or is financially material. For this, they may need to redesign value chain data strategies, essentially redefining what data is requested and how it is collected.

Implications for lenders/investors:

For lenders and investors, the revised ESRS signal a shift from disclosure volume to decision-quality information. The continued focus on double materiality and links to risk management should support a more strategic approach to sustainability analysis. Increased linkage to SFDR 2.0 should also foster a cohesive environment, with the ongoing efforts to align SFDR PAI indicators with ESRS data points. However, reduced granularity in some areas may create challenges for data comparability, trend analysis and portfolio-level reporting, particularly for thematic investors who rely on less standardised and less widely disclosed information (such as nature or social topics).

EU developments

EU Parliament publishes report on draft negotiating position for SFDR 2.0 reforms

The draft [3] report broadly supports the European Commission’s direction of travel to move SFDR towards a more explicit product classification framework, though it recommends several changes for negotiation during political negotiations later this year. These include:

• Higher threshold for ESG Basics (Article 8): Investments must perform better than the average investment universe, reference benchmark, or rating on a ‘specific appropriate sustainability indicator’. Based on these criteria, funds must exclude at least 20% of the worst-performing holdings when performing this calculation.
• Removal of the benchmark shortcut: Funds tracking a Climate Transition or Paris-aligned benchmark would qualify as compliant with the requirements of each category. Parliament’s report removes this approach, and funds will be required to independently demonstrate compliance.
• Expanded product-level PAI reporting: Mandatory product-level Principle Adverse Impact (PAI) reporting would apply across all categories, a core set of PAIs would apply to all products and funds would be required to report on further PAIs where they are key to the product’s strategy.
• Greater transparency on engagement: Parliament’s draft would require all fund categories to disclose their engagement policies and outcomes on a comply-or-explain basis.
• Disclaimer for non-categorised products: Funds that do not qualify under any of the three categories will be required to present a disclaimer stating this.

What does this mean for issuers: The direction of travel is towards a more structured and transparent EU sustainable investment product framework. For asset managers and investors, this could reduce ambiguity over time but may also increase reporting requirements and raise the bar for products marketed with sustainability characteristics.

ESMA launches consultation on endorsement of non-EU ESG ratings

Background: European Securities and Markets Authorities (ESMA) has launched a public consultation [4] on Guidelines for endorsing non EU ESG ratings (Article 11) under the ESG Ratings Regulation. The following points are being consulted on:

• Information requirements: Before an ESG rating provider can begin to endorse ESG ratings it must first seek authorisation from ESMA. This information can be provided as part of the initial authorisation application, or at a later date, following the authorisation of the ESG Rating Provider.

ESMA is asking for views on whether documentation outlined in the consultation paper is suitable.

• Ongoing requirements: A small number of Guidelines entail an ongoing requirement for the ESG Rating Provider to either a) provide ESMA with information upon request or b) notify ESMA if there have been any changes to the reasons for endorsing an ESG rating.

ESMA asks for views on whether mechanisms for ongoing supervision demonstrated to ESMA are suitable.

Next steps: The consultation closed on 29th May 2026; finalisation is expected by July 2026.

EBA consults on revised supervisory reporting and benchmarking requirements

Background: The European Banking Authority (EBA) is announcing a series of measures to simplify EU supervisory reporting [5], with the aim of reducing the reporting burden on banks while maintaining supervisory access to critical information. Some key proposals are:

• Fewer datapoints: EU harmonised reporting datapoints would be reduced by approximately 50%.
• Better integration: EU-wide stress test and supervisory benchmarking data collections will be integrated into regular reporting.
• EU-wide repository: Development of a database of European and national supervisory data requests.
• Proportionality: Despite new requirements that extend the scope of ESG supervisory reporting to all institutions, the burden of supervisory reporting templates will be proportional to the size and complexity of the institution.

Next steps: The consultation closes on 10th July 2026 – with proposed changes intended to apply from September 2027.

UK developments

UK regulators continue to focus on the financial implications of climate risk, sustainable finance market integrity and consumer understanding of climate-related financial impacts. The PRA and FCA work programmes for 2026/27 point to a market where climate and sustainability considerations are increasingly embedded into supervision, conduct expectations and financial product regulation.

UK PRA (Supervisory body) publishes its business plan for 2026/27

The UK Prudential Regulation Authority (PRA) published its Business Plan for 2026/27 [6], wherein it set out the workplan for each of the strategic priorities.

Following the PRA’s December 2025 supervisory statement on banks’ and insurers’ approaches to climate-related risks, firms are expected to:

• Review the extent to which they meet the PRA’s expectations
• Demonstrate credible and ambitious plans to address any gaps from June 2026
• Continue embedding climate-related risks into governance, risk management and scenario analysis

The PRA also reaffirmed that, alongside the FCA, it will continue to support the industry through the Climate Financial Risk Forum, including through guidance and scenario analysis tools.

UK FCA’s work programme highlights key priorities, including on climate finance and risks

The Financial Conduct Authority (FCA) published its annual work programme for 2026/27 [7], sets out four strategic priorities and includes several sustainability-related initiatives:

• Engaging with market to identify barriers to scale climate finance and consider removal mechanisms
• Exploring ways to improve consumer understanding of rising climate risks and how these risks, particularly flood risk, may affect them financially
• Implementing a regulatory regime for ESG ratings, and
• Supporting the mobilisation of defence investment, including prioritising defence-focused funds applying for authorisation.

The FCA also published the 2026 Regulatory Priorities Reports for the Wholesale Buy Side sector [8]. These replace FCA’s portfolio letters and set out its priorities, including:

• Consultation on streamlining product-level TCFD requirements for asset owners and managers in Q2 2026
• Publishing a policy statement on existing ESG ratings in Q4’26, ahead of rules in effect from June 2028
• Supporting the implementation of UK SDR and labelling regime

UK FCA to pilot reporting requirements for ESG rating provider

Background: In October 2025, the FCA published a near-final draft of the ESG Ratings Regulation (applicable to UK-based and foreign providers offering ESG ratings in the UK), followed by a consultation detailing proposed metrics, rules and guidance for providers.

What is new: The FCA has launched a voluntary pilot programme [9], aiming to avoid unnecessary reporting burdens for firms over time. The initiative seeks to assess whether the proposed metrics are clear, feasible and proportionate across different business models, and useful for supervisory purposes.

Next steps: Feedback from the pilot may lead to revisions to the proposed reporting metrics. The final reporting regime is expected to apply from June 2028.

UK Climate Change Committee (CCC) releases a major output of the Climate Change Risk Assessment 4 (CCRA4)

UK’s Climate Change Committee, the statutory body responsible for advising on carbon budgets and monitoring of UK’s progress towards net zero emissions published a major output under CCRA4.

The report splits risks into seven systems, with critical actions aligned to each. Across those systems, three risks repeatedly emerge: overheating, flooding, and drought. The analysis for the cost of inaction suggests that the water system (both flooding and drought) presents the largest growth in costs that should be abated by the 2030s, after which overheating in the built environment will require the most focus.

The CCC estimates the UK needs to spend £11bn per year to support an adaptation-aligned pathway, with 41% coming from the private sector, 36% from the public sector, and 23% undetermined, implying £4.5bn private sector investment per year. It recommends a spending pathway to smooth delivery.

Global developments

IFRS - ISSB agrees on the proposed way forward for nature-related disclosures

The ISSB has agreed to develop guidance on nature-related disclosures [10] via an IFRS Practice Statement, with an exposure draft due published in October 2026. The ISSB is proposing the following:

• Practical guidance: The Practice Statement will sit alongside IFRS S1 and S2, explaining how to disclose nature-related risks without changing existing requirements.
• Reinforcing requirements: Companies already report material nature-related risks under IFRS S1; this aims to improve usability in practice.
• Building on TNFD: Nature-related disclosures will draw on the TNFD framework for structure and content.

What does it mean for issuers: Nature is moving into mainstream sustainability reporting. Companies should assess whether nature-related dependencies, impacts, risks and opportunities are financially material, particularly in sectors with high reliance on biodiversity or natural resources.

Appendix

CSRD 

Revised Scope (Application starting January 2027)

• EU entities: At least 1K employees and >€450 million in net turnover
• Non-EU entities: >€450 million in net turnover in the EU. 
• SMEs removed: However, may report the under voluntary standard (VSME)

Other changes 

• Value chain cap (for companies under 1K employees) – introduced alongside ESRS revision
• Removes reference to reasonable assurance standards; EU Limited Assurance Standard to be adopted by July 2027
• ESRS revision – introduced in May 2026
• Removes requirement to issue sector-based standards; only sector-specific guidance by EU Commission

CSDDD

Revised Scope (Application starting July 2029)

• EU entities: At least 1K employees and >€450 million in net turnover
• EU entities: At least 5K employees and >€1.5 billion in net turnover 
• Non-EU entities: Net turnover of >€1.5 billion in the EU, obligation to prepare transition plans and EU-wide civil liability have been removed

Other changes

• Obligation to prepare transition plans compatible with the Paris Agreement removed
• EU-wide civil liability requirements have been removed

Authors

Anika Wadhwa, Analyst, Sustainable Finance Advisory

Usman Zaheer, Associate, Sustainable Finance Advisory 

Rui Zu, Director, Sustainable Finance Advisory

References

[1] EU Omnibus I and II Directive

[2] ESRS Revision, Draft Delegated Act

[3] EU Parliament Draft Report on SFDR 2.0

[4] ESMA consults on Guidelines on Endorsement under Article 11 of the ESG Rating Regulation

[5] EBA Consultation on EBA consults on revised Implementing Technical Standards (ITS) on Supervisory Reporting and Supervisory Benchmarking Reporting 

[6] UK PRA Business Plan 2026/27

[7] FCA annual work programme 2026/27

[8] FCA Regulatory Priorities Report for Wholesale Buy Side sector March 2026

[9] FCA to pilot reporting requirements for ESG rating providers

[10] IFRS-ISSB agree on a proposal for nature

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Sustainable financing and facilitation represents only a relatively small proportion of NatWest Group’s overall financing and facilitation activities.  Details of our financing and facilitation activities and associated emissions can be found in the NatWest Group 2025 Climate Transition Plan Report (sections ‘Estimates of financed emissions’ (p.39) and ‘Estimates of facilitated emissions from bond underwriting and syndicated lending’ (p.43)