ESG Focus: UK/EU/International ESG Regulation Monthly Round-Up – February 2025

1.1 EU sets new course for "a simpler and faster Europe”

This month more detail has been confirmed about how Europe will position itself to be more competitive and more prosperous.

(a) 2025 Commission Work Programme

On 11 February 2025, the Commission published the Commission Work Programme 2025 setting out the Commission’s key strategies, action plans and legislative initiatives for 2025. The Work Programme is accompanied by an Annex which lists the policy objectives and new initiatives for 2025.

It mentions, of course, the first omnibus package on sustainability.  But also confirms that the revision of the Sustainable Finance Disclosure Regulation, including the impact assessment, has been delayed until Q4 2025.

(b) “A simpler and faster Europe: Communication on implementation and simplification”

On 12 February 2025, the Commission published “A simpler and faster Europe: Communication on implementation and simplification” setting out how it intends to “make Europe an even more desirable place to live, work and invest.”  It describes how its simplification proposals will be fast-tracked, without reopening other parts of the legislation, to provide maximum and swift clarity and relief to companies.

The EU will achieve this by reducing unnecessary bureaucracy (including administrative burden), improving how new EU rules are made (including better impact assessments) and improving how rules are implemented (including cooperating with stakeholders and providing swift and resolute enforcement action).

The communication outlines five of its omnibus proposals for 2025. We consider the omnibus package on sustainability in greater detail below.

(c) EU Omnibus Simplification Package on sustainability reporting and due diligence

On 26 February 2025, the Commission published proposals to amend the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CS3D), the EU Taxonomy and the Carbon Border Adjustment Mechanism (CBAM). 

The first package of amendments proposes a postponement of the application of the CSRD and CS3D to 2028 to ensure that there is time for the Council and Parliament to consider the changes – it is uncertain how the Parliament and the Council will receive the Commission's proposals. But the Commission has asked co-legislators to treat these proposal as a priority, especially in relation to the postponement of the application of the CSRD and the CS3D.

In brief, the proposed amendments to the CSRD include: (1) raising the thresholds for the CSRD to more closely align with the CS3D; (2) limiting the application of the EU Taxonomy; and (3) addressing the burden on SMEs by limiting value chain reporting. 

For the CS3D, the proposed amendments would make the due diligence process less burdensome by limiting to direct suppliers rather than business partners, and also seeking to make the penalty regime more proportionate.

At this stage, these changes are proposals and any new legislation would need to be adopted by the Council and the Parliament.  This will take time and it is likely that there will be many negotiations and that changes will be made – the original files took in excess of two years to agree and were heavily negotiated.  Read more here for more detailed insights on the proposals and next steps.

1.2 EU Taxonomy

(a) Omnibus proposals for the EU Taxonomy

On 26 February 2025, the Commission proposed amendments to the Taxonomy Disclosures Delegated Act, the Taxonomy Climate Delegated Act and the Taxonomy Environmental Delegated Act using a delegated regulation which is subject to a four-week feedback process which closes on 26 March 2025.

The proposed amendments include:

• simplifying the reporting templates, leading to a reduction of data points by almost 70%;
• introducing a financial materiality threshold which will exempt in-scope undertakings from reporting in respect of Taxonomy-eligible activities that represent less than 10% of their business;
• introducing simplifications to the most complex “Do no significant harm” (DNSH) criteria for pollution prevention and control related to the use and presence of chemicals that apply horizontally to all economic sectors under the EU Taxonomy.This will be a first step in revising and simplifying all such DNSH criteria; and
• amending the main key performance indicators for financial institutions, such as to simplify the green asset ratio (GAR) for banks.

(b) The EU Platform on Sustainable Finance report on simplification of taxonomy reporting

A couple of weeks before the Commission proposed changes to the EU Taxonomy, the EU Platform on Sustainable Finance published a report setting out evidence‑based recommendations to simplify taxonomy reporting and enhance its effectiveness on 5 February 2025.

The report identifies several areas for improvement including simplification, data access and regulatory coherence. The report proposes five simplifications for  taxonomy reporting and it can be seen that the Commission’s proposed changes under the omnibus package address some of these:

• refine the DNSH assessment by distinguishing between users, uses and geographies;
• introduce a materiality principle applicable to all entities, materiality thresholds for all non-financial KPIs and a simplified DNSH assessment for the turnover KPI. Clarify the KPIs related to operational expenditures calculation and limit scope to research and development;
• define clear guidelines for the use of estimates and establish safe harbours for financial sector reporting;
• allow proxies and estimates across all assets in the context of the green asset ratio (GAR) and green investment ratio (GIR). Introduce a simplified retail assessment and a reduced denominator for asset classes strictly measurable against the taxonomy; and
• develop simplified and voluntary approaches for small and medium‑sized enterprises (SMEs), as well as for banks and investors, to integrate the taxonomy into their disclosures.

1.3 EBA publishes report on data availability and feasibility of common methodology for ESG exposures

On 24 February 2025, the European Banking Authority (EBA) published a report on the data availability and feasibility of common methodology for ESG exposures.   

In the report, the EBA finds that whilst there have been improvements over recent years, the data landscape remains incomplete particularly in relation to the availability and accessibility of data. It noted that key policy initiatives, including the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards, are expected to improve this landscape and mitigate challenges (this was published prior to any suggested amendments to CSRD).

The EBA noted some degree of standardisation in methodologies for mortgage exposures and found that methodologies were most mature in the assessment of transition risk in corporates portfolios, where companies used sectoral classification, greenhouse gas emissions and transition plans of counterparties as the key sources of information.

1.4 Nature

(a) TNFD releases final sector guidance for four sectors

Following the release of draft guidance in June 2024 and a six-month consultation process with knowledge partners and market participants, on 23 January 2025, the Taskforce on Nature-related Financial Disclosures (TNFD) released final sector guidance for the following four sectors:

• Apparel, textiles & footwear
• Beverages
• Construction materials
• Engineering, construction & real estate

TNFD has now provided guidance for thirteen sectors.  The additional guidance should be read in conjunction with the ‘TNFD’s Guidance on assessment of nature-related issues – LEAP approach’.

TNFD has also released draft guidance for consultation covering an additional three sectors:

• Fishing
• Marine transportation & cruise lines
• Water utilities & services

(b) Positive outcome of COP16 negotiations in Rome

Late into the night on 27 February 2025, agreements were reached on the outstanding points from COP16.  Parties met in Rome for “COP16 resumed session” to progress the negotiations before COP17 in Armenia.

Agreements were reached on:

• a Global Roadmap of the activities and decision-making milestones from now until COP 19 in 2030, this includes countries agreeing to assess whether to create a new fund to replace the Global Environment Facility to distribute global biodiversity funds (this was a bone of contention in Cali and further discussions could reignite these divisions);
• a Strategy for Resource Mobilisation which sets out “a broad range of instruments, mechanisms and institutions” which can be used to mobilise the finance for the implementation of the KMGBF. This includes the commitment to establish permanent arrangements for the financial mechanism of the Convention while simultaneously working on improving existing financial instruments;
• a Mechanism for Planning, Monitoring, Reporting and Reviewing (PMRR) progress made against common yardsticks under the Kunming-Montréal Global Biodiversity Framework (KMGBF). This will enable Parties to transparently track progress to provide a global picture of implementation;
• the Cali Fund which will receive contributions from private sector entities making commercial use of Digital Sequence Information on Genetic Resources (DSI). The fund is voluntary but entities are encouraged to contribute a proportion of their proceeds with biodiverse countries of origin and at least half of the fund will be allocated to indigenous peoples and local communities.

Read more here for our briefing on COP16 in November 2024.