Table of contents

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

• UK PRA released updated expectations for banks and insurers

Global 

• The International Sustainability Standards Board (ISSB) proposed targeted amendments to IFRS S2 to ease climate disclosure burden, with key reliefs for financial sector 
• International agreement reached to decarbonise global shipping 

UK 

• UK proposed governance framework to strengthen trust in carbon and nature credit markets 
• The Financial Conduct Authority (FCA) delayed policy statement on extending sustainability disclosure requirements to portfolio management amid industry feedback 
• FCA and the Prudential Regulation Authority (PRA) halted plans to advance diversity and inclusion proposals 
• FCA and PRA published an updated regulatory grid 

EU  

• Omnibus “Stop the Clock” proposal adopted and entered application 
• The European Banking Authority (EBA) launched Environmental, Social and Governance (ESG) dashboard to monitor climate risks in European Union (EU) banking sector, highlighting high transition risk exposure and low green asset ratios 
• EU Platform on Sustainable Finance (PSF) published a report with recommendations on criteria for new activities and first review of the Climate Delegated Act under the EU Taxonomy 
• EU PSF published a report on monitoring sustainable capital flows highlighting growth rise in Taxonomy-aligned capex and primacy of debt financing 
• EU PSF proposed a voluntary sustainable finance standard to improve SME access to green finance through simplified disclosures 
• European Securities and Markets Authority (ESMA) launched second consultation on draft technical standards for external reviewers under European Green Bond Regulation 
• European Commission introduced simplification measures for EU Deforestation Regulation ahead of December 2025 application 
• European Commission launched consultation on Industrial Decarbonisation Act to accelerate clean transition in energy-intensive sectors 
• European Commission opens consultation on EU Emissions Trading System (ETS) and Market Stability Reserve ahead of 2026 system review 
• ESMA analysis reveals sustained inflow boost from ESG fund rebranding, with peak impact in initial quarters 
• EU bodies updated climate benchmark handbook and adopted regulation to strengthen oversight of climate benchmarks from 2026 
• ESMA published 2024 corporate reporting enforcement report highlighting supervisory actions on sustainability disclosures 
• The European Financial Reporting Advisory Group (EFRAG) and Carbon Disclosure Project (CDP) published mapping to align ESRS E1 with CDP climate disclosures and streamline corporate reporting 

UK PRA released updated expectations for banks and insurers

On 30 April 2025, the PRA released Consultation Paper 10/25 [1], , updating its supervisory expectations for how banks and insurers manage climate-related risks. Building on 2019’s Supervisory Statement 3/19, the new proposals aim to enhance firms’ resilience and ensure financial stability amid growing climate threats.

Key updates include :

Governance : Boards must integrate climate risk into strategy, risk appetite, and oversight, with clear accountability and training.

Risk managment : Firms should identify, assess, and manage material climate risks, using tailored metrics and internal reporting systems.

Climate Scenario Analysis (CSA) : CSA is emphasised as a critical tool for forward-looking risk assesssment, with expectatiions for scenario design, documentation, and intregation into decision-making.

Data : Firms musy address data gaps, develop internal capabilities, and ensure robuts governance over external data sources.

Discloures : No additional reporting requirements are introduced. The RPA swaps references to TCFD for forthcoming UK Sustainability Reporting Stanrds aligned with the ISSB baseline.

Banking and Insurance-specific guidance : Tailored expectations for integrating climate risks into financial reporting, capital adequancy, liquidity, credit, market, and reputational risk frameworks.

The PRA stresses proportionality - firms must scale their efforts based on their size and exposures. Notably, the implementation costs of the updated supervisory expectations are estimated at £45m annually; however, the PRA believes the long-term benefits in resilience and risk management outweigh these costs.

Key considerations for sustainable finance market participants

Issuers and borrowers will be expected to provide granular emissions, physical risk and adaptation data - and show plans on how they will be able to operate profitably in late action or severe physical scenarios. Those that can do so in a comprehensive, transparent and understandable way may find that relationship banks are more willing to provide balance sheet capacity.

In particular, carbon intensive firms or firms that are located or have supply chains that are located in areas with severe weather-related events may face scrutiny from investors and lenders. Incomplete data could trigger higher newissue premia or investor pushback – especially for issuers that considered higher risk. Increased focus on climate metrics and scenario triggers could make KPIlinked, sustainability linked bonds (SLBs) and transition bonds attractive tools, provided KPIs mirror the risk appetite metrics lenders tracks or that eligible projects are clearly linked to implementing transition plans. The PRA also highlights that bond markets still underprice climate risk. Therefore, for issuers, this should sharpen incentives to present and execute credible transition and adaptation strategies. 

The guidelines provide banks / lenders further specificity following the higher-level expectations set out in SS 3/19. This should help provide further managerial focus and clarity to climate integration measures, particularly relevant in the current geopolitical environment. It also maintains a climate focus, thereby continuing to deviate from the ECB and certain other regulators in their explicit inclusion of a range of environmentally focused risks (such as biodiversity).

As banks further implement these measures, this should be helpful to their debt and equity investors. This should enable more confident capital allocation towards banks and insurers and engagement where such firms are deemed to lag credible transition pathways. Mandatory board level metrics, richer CSA and an explicit plan to close data gaps should give investors more decision useful, forward-looking information, easing peer comparisons and stewardship engagement.

Similarly, it should give them a better sense of the climate nature of a bank’s portfolio. It would enhance access to material information as the PRA’s tighter, data‑centric approach hard‑wires climate considerations into core prudential processes. As banks integrate climate drivers across the credit life cycle, including borrower scoring, collateral haircuts and recovery analysis, credit investors are expected to increasingly monitor downgrades or watch listings for bank issuers with poor transition readiness, and a rise in climate adjusted PD/LGD disclosures that flow into rating agency assessments. 

UK

UK proposed governance framework to strengthen trust in carbon and nature credit markets

The UK government’s latest consultation [4], “Voluntary Carbon and Nature Markets: Raising Integrity”, outlines a framework for improving trust in the use of carbon and nature credits. The initiative seeks to establish clear policy and governance to ensure that carbon and nature credits are used transparently and responsibly.

The consultation is open until 10 July 2025 and outlines six core principles, focused on encouraging companies to go beyond their value chain actions, use high-integrity credits, report and disclose credit use as part of sustainability strategies, plan proactively, communicate green claims accurately, and collaborate to build trusted markets.

FCA delayed policy statement on extending sustainability disclosure requirements to portfolio management amid industry feedback

The Financial Conduct Authority (FCA) provided an update [5] on its consultation paper CP24/8 regarding the extension of the sustainability Disclosure Requirements (SDR) and investment labels regime to portfolio management. While there was broad support for the extension, the FCA has decided to delay the publication of its policy statement to allow more time for careful consideration and to ensure portfolio managers are adequately prepared. This follows earlier delays announced in February 2025. The SDRs, originally introduced through Policy Statement PS23/16 in November 2023, have been phased in for certain funds since May 2024.

The feedback highlighted several key areas of concern: Respondents questioned how the SDRs would apply to various portfolio management models, including bespoke and agent-as-client arrangements. There were also requests for greater clarity on how labelling, naming, marketing, and disclosure requirements would work in practice, especially given the differences between portfolio and asset managers. While the FCA may revisit the extension in the future, its current focus will be on reviewing model portfolio services, i.e. on how firms are applying the Consumer Duty to provide confidence that investors are receiving good outcomes from model portfolio services. The FCA also reminded firms of their obligation to comply with the anti-greenwashing rule, which came into effect on 31 May 2024.

FCA and PRA halted plans to advance diversity and inclusion proposals

In 2023, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) consulted in parallel on proposed rules and expectations aimed at improving diversity and inclusion in regulated firms. In light of the broad range of feedback received, expected legislative developments and to avoid additional burdens on firms at this time, the FCA and PRA announced [6] that they have no plans to take the work further.

The FCA and PRA published an updated Regulatory Initiatives Grid [7] setting out the planned regulatory initiatives for the next 24 months, including ESG related initiatives:

EU

Omnibus “Stop the Clock” proposal adopted and entered application 

On 16 April 2025, the "Stop-the-clock" directive was published [8] in the Official Journal of the European Union (the OJ) and entered into force the following day. The proposal has changed the implementation timelines under the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) as follows:

CSRD:

• Large EU companies: will now report in 2028 in respect of the 2027 financial year (2-year delay).
• SMEs: will now report in 2029 in respect of the 2028 financial year (2-year delay).
• No change for NFRD companies and non-EU companies due to report in 2025 and 2029 respectively.

CSDDD:

• Deadline for transposition postponed by a year until 26 July 2027.
• Companies with more than 5,000 employees and €1.5bn in turnover: will have to comply from 26 July 2028 (1 year delay).
• No change for companies with more than 3,000 employees and €900m in turnover and companies more than 1,000 employee and €450m in turnover, required to comply from 26 July 2028 and 26 July 2029 respectively.

Member states are required to transpose the "Stop-the-clock" directive into their national legislation by 31 December 2025.

The focus now moved to the other directive proposed in the first Omnibus Package, which sets out more substantive changes to the reporting and due diligence obligations under the CSRD and CSDDD (see also our previous newsletter).

EBA launched ESG dashboard to monitor climate risks in EU banking sector, highlighting high transition risk exposure and low green asset ratios

EU banking supervisor, the European Banking Authority (EBA), released [9] a new ESG dashboard, containing key indicators enabling benchmarking and monitoring of climate-related risks in the EU and European Economic Area (EEA) banking sector.                 

Based on information disclosed by banks as part of their Pillar 3 ESG disclosures, the new dashboard covers climate risk from both a transition and physical perspective, with indicators showing levels of green financing, based on alignment with the EU Taxonomy, in addition to considering internal definitions of green finance used by institutions. According to the EBA:

• The EU banking sector may be facing significant exposure to climate-related transition risk, with the data finding that exposure by banks to corporates from sectors highly contributing to climate change is above 70% in most countries, and 61% overall as of June 2024.
• Physical risk exposure appears to be much lower for banks than transition risk, with the indicator an average share of exposures in areas subject to elevated physical risk below 30% in most countries.
• The dashboard also found that the green asset ratio (GAR) remains low, with an average loan GAR across the EU/EEA of 6% as of mid-2024, although the EBA noted that this is partly “due to the fact that the economy is still under transition, with at this stage few activities being able to demonstrate alignment with the Taxonomy criteria”.

EU Platform on sustainable finance published a report with recommendations on criteria for new activities and first review of the Climate Delegated Act under the EU Taxonomy

The Platform on Sustainable Finance (PSF) has released [10] an independent report advising the European Commission on advancing sustainable finance through updates to the EU Taxonomy. The report focuses on two main areas: reviewing the technical screening criteria of existing economic activities in the 2021 Climate Delegated Act - particularly transitional activities - and developing new criteria for additional economic activities.

The aim is to enhance climate resilience and support the environmental transition by enabling more investments to qualify as taxonomy aligned.

Key recommendations include:

• Improving the usability and consistency of climate change adaptation and mitigation criteria
• Updating criteria to reflect new technologies and scientific findings
• Addressing gaps in the “do no significant harm” (DNSH) criteria

EU PSF published a report on monitoring sustainable capital flows highlighting growth rise in Taxonomy-aligned capex and primacy of debt financing

The Platform for Sustainable Finance (PSF) published [11] a report, “Financing a Clean and Competitive Transition: Monitoring Capital Flows to Sustainable Investments”, to gain insights on the state of capital flows to sustainable investments. The report analyses 2180 large listed European companies, primarily using EU Taxonomy data as of 2023. Key findings include:

• Momentum for sustainable investments: Taxonomy-aligned capex from large listed European companies reached €250bn in 2023, a 34% increase from the previous year
• Emergence of transition-related capital flows: €206bn potentially contributed to European companies’ transitions in 2023. These investments were defined as capex that was not Taxonomy-aligned but may support progress towards emissions reductions, provided that the associated companies had transition plans with enough elements of credibility
• The primacy of debt financing: Green bonds were the main financing instrument over the period, with annual EU issuance exceeding €200bn since 2021. Total outstanding green debt (including bonds and loans) reached €1.69tn in 2023

The report also asserts that the EU Taxonomy’s effectiveness “could be undermined if the scope of mandatory reporting is significantly reduced”.

EU PSF proposed a voluntary sustainable finance standard to improve SME access to green finance through simplified disclosures

The PSF published an independent report on streamlining sustainable finance for SMEs. The report suggests [12] a voluntary “SME sustainable finance standard” to help small and medium-sized enterprises (SMEs) access sustainable finance more easily and demonstrate environmental sustainability performance.

SMEs are vital to the EU’s green transition but face challenges in securing external funding due to complex regulations and limited resources. The new standard, inspired by the InvestEU programme, offers a simplified framework for banks and financial institutions to classify SME loans as sustainable and supports voluntary disclosures.

This streamlined approach would allow SMEs to share key climate-related performance indicators with financiers through an easy-to-use online tool. While initially focused on climate sustainability, the standard is expected to expand to other environmental goals, aiming to close the gap between SMEs and sustainable finance opportunities.

ESMA launched second consultation on draft technical standards for external reviewers under European Green Bond Regulation

The European Securities and Markets Authority (ESMA) released its second consultation paper [13] on draft technical standards under the Regulation on European Green Bonds (EuGB Regulation). The EuGB Regulation mandates ESMA to develop technical standards for external reviewers, which have been presented in two phases. The initial ESMA consultation paper was published on March 26, 2024, followed by a final report in February 2025. This latest consultation paper outlines five draft regulatory technical standards (RTS) and one implementing technical standard.

European Commission launched consultation on Industrial Decarbonisation Act to accelerate clean transition in energy-intensive sectors

The European Commission initiated a consultation process [15] to gather input for its forthcoming Industrial Decarbonisation Act (the ‘’Act’’), a central component of the Clean Industrial Deal. This initiative aims to expedite the decarbonisation of Europe’s energy-intensive industries, including steel, cement, and chemicals, while maintaining their global competitiveness.

European Commission opens consultation on EU ETS and Market Stability Reserve ahead of 2026 system review

The European Commission has opened a wide-reaching public consultation [16] on the EU Emissions Trading System (EU ETS) and its Market Stability Reserve (MSR). The feedback period is open until 8 July 2025. The results of the consultation will be used to inform future reviews of the EU ETS, which are planned for 2026. These reviews will assess the need for adjustments to the system, including potential changes to the way allowances are allocated or the way the system operates.

ESMA analysis reveals sustained inflow boost from ESG fund rebranding, with peak impact in initial quarters

On April 10, 2025, the European Securities and Markets Authority (ESMA) has published [17] its first report on trends, risks and vulnerabilities (TRV) for 2025 highlighting market developments, identifying market trends and comparing them over time and across markets.

The report found that adding an ESG term has a significant impact on fund inflows during the five quarters following the name change. The effect is most pronounced in the quarter of the change and immediately after, with inflows increasing by 2.2% in both quarters. In subsequent quarters, the effect remains relatively stable between +1.3% and 1.4%. The cumulative increase in inflows over the first-year amounts to 8.9%. The analysis was performed in the context of the implementation of the ESMA guidelines on funds’ names using ESG orsustainability-related terms.

EU bodies updated climate benchmark handbook and adopted regulation to strengthen oversight of climate benchmarks from 2026

• The EU Platform on Sustainable Finance published [18] an updated version of its handbook on EU Climate Transition Benchmarks (EU CTBs) and Paris-Aligned Benchmarks (EU PABs). The handbook consists of answers to FAQs on EU CTBSs and PABs, compiling responses from 2019, when the first version was published, and 2025. It also indicates which years the responses are from
• The Council adopted a regulation [19] amending the Benchmarks Regulation. Notably, it requires administrators of EU Climate Transition and EU Paris-Aligned Benchmarks to be registered, authorised, recognised, or endorsed to ensure regulatory oversight and prevent misleading ESG claims. The final text will now be published in the Official Journal of the EU and will apply from 1 January 2026.

ESMA published 2024 corporate reporting enforcement report highlighting supervisory actions on sustainability disclosures

ESMA published [20] a report on the “2024 corporate reporting enforcement and regulatory activities”, which provides an overview of the activities related to the supervision and enforcement of 2024 corporate reporting, including sustainability reporting, carried out by ESMA and national supervisors.

Enforcement actions were taken across several key areas such as disclosures relating to Article 8 of the Taxonomy Regulation, disclosures of climate-related targets, actions and progress as well as Scope 3 emissions.

EFRAG and CDP published mapping to align ESRS E1 with CDP climate disclosures and streamline corporate reporting

EFRAG and The Carbon Disclosure Project (CDP) published [21] a mapping between the CDP question bank and ESRS E1 (EU reporting standard on climate). The resource aims to demonstrate the degree of alignment between the two disclosure standards and help companies build reporting efficiency through the identification of data collection synergies.

The interoperability is reflected in areas such as transition plans for climate change mitigation, targets related to climate change mitigation, gross Scopes 1, 2, 3 emissions and internal carbon pricing.

Global

ISSB proposed targeted amendments to IFRS S2 to ease climate disclosure burden, with key reliefs for financial sector

The International Sustainability Standards Board (ISSB) published an exposure draft [2] proposing amendments to IFRS S2, ‘Climate-related Disclosures' (effective as of January 01, 2024), in order to ease application for companies. The exposure draft is focused on the measurement and disclosure of GHG emissions, incorporating modifications in the disclosure of financed emissions, use of jurisdictional reliefs, and use of Global Industry Classification Standard (GICS) codes.

While the changes would affect a wide range of companies reporting on climate-related issues under the standard, the amendments would most significantly impact requirements for financial sector companies. One of the key new reliefs introduced allowing entities to exclude Scope 3 emissions reporting associated with derivatives, facilitated emissions or insurance-associated emissions, focusing instead on financed emissions reporting.

International agreement reached to decarbonise global shipping

The International Maritime Organisation (IMO) has taken a major step towardlegally binding climate action in the shipping sector by approving draft regulations [3] that establish the world’s first combined system of mandatory marine fuel standards and GHG emissions pricing. These measures aim to achieve net-zero emissions from international shipping by around 2050. The new framework, set to be adopted in October 2025 and enforced from 2027, will apply to large ocean-going vessels over 5,000 gross tonnage, which account for 85% of the sector’s CO₂ emissions.

For those looking to discuss any of the above further, please reach out to our authors:

• Tonia Plakhotniuk, Director, Sustainable Finance Advisory
• Daniel Bressler, Director, Sustainable Finance Advisory
• Anika Wadhwa, Analyst, Sustainable Finance Advisory
• Usman Zaheer, Analyst, Sustainable Finance Advisory

References

[1]  Bank of england 

[2]  IFRS

[3]  IMO 

[4]  GOV.UK 

[5]  FCA [5]

[6]  FCA [6] 

[7]  FCA [7]

[8]   Simmons Simmons

[9]  EBA

[10]  European comission

[11]  European comission [11]

[12]  European comission [12]

[13]  ESMA 

[14]  European comission [14] 

[15]  European comission [15]  

[16]  European comission [16]

[17]  ESMA [17]

[18]  EU platform report

[19]  European council 

[20]  ESMA 2024 report