ESG Knowledge Update | April 2026

Sustainability and climate reporting

ISSB proposes amendments to sustainability reporting standards

On 26 March 2026, the International Sustainability Standards Board (ISSB) published proposed amendments to the Sustainability Accounting Standards Board (SASB) standards in three priority sectors: agricultural products; meat, poultry and dairy; and electric utilities and power generators.

SASB standards are an important source of guidance for entities reporting under IFRS S1, also published by the ISSB, which sets out general requirements for the disclosure of sustainability-related financial information. This follows the publication of amendments in July 2025 to the SASB standards in nine other priority sectors, in the extractive and minerals processing and processed foods industries.

The ISSB is also consulting on whether to make consequential amendments to its industry-based guidance on implementing IFRS S2 which covers climate-related disclosures.

As previously reported, the UK government has published final UK Sustainability Reporting Standards (UK SRS), based on the ISSB's standards, in preparation for voluntary and mandatory adoption.

Businesses operating in any of the priority sectors preparing to report under UK SRS or ISSB standards should ensure that they have familiarised themselves with the new SASB standards.

EU sets binding 2040 climate target

The EU has amended the EU Climate Law to set a binding 2040 target of a 90% reduction in net greenhouse gas emissions compared to 1990 levels.

Regulation (EU) 2026/667, published in the Official Journal of the European Union on 18 March 2026, also requires the Commission to review relevant EU legislation to enable both the new 2040 target and the existing 2050 climate neutrality targets to be achieved.

The review must address the use of international carbon credits under Article 6 of the Paris Agreement, capped at 5% of 1990 EU net emissions from 2036, the role of domestic carbon removals under the EU ETS, and broader social and economic impacts including energy security and the need for a just transition.

The regulation also introduces a biennial review of the EU Climate Law and postpones the extension of emissions trading to buildings, road transport and additional sectors under EU ETS II until 2028.

In response to the entry into force of the regulation, on 19 and 20 March, the European Commission published consultations to revise the Renewable Energy Directive II and the Energy Efficiency Directive. It plans to adopt legislative proposals to amend the two directives in Q4 of 2026.

Circular economy

PackUK proposes differentiated fees based on recyclability of packaging

PackUK, scheme administrator for the UK's extended producer responsibility for packaging regime, has published its operational plan for 2026 to 2027. A central development for Year 2 is the introduction of eco-modulation (a system of variable fees based on environmental performance), under which producer fees will be differentiated based on the recyclability of packaging.

Fees will be categorised as green, amber or red under the recyclability assessment methodology (RAM), with illustrative fee rates having been published in December 2025. Year 2 (2026-27) is the first year in which RAM ratings will directly affect fees.

Producers are required to submit RAM data for the second half of 2025 (H2) by 1 April 2026. Where producers did not include RAM data in their first half (H1) submissions, PackUK will apply ratios from their H2 data to calculate H1 figures, though H1 data may be resubmitted at a later date.

PackUK has forecast total fee recovery of approximately £1.56bn for the year. To improve stability, it will cease accepting new local authority data after 1 May 2026 and will limit recalculations of producer notices of liability to set points in the year.

With the H2 2025 RAM data deadline of 1 April 2026 imminent, producers should prioritise accurate data submissions and review their packaging portfolios against the green/amber/red categorisations. Those using less recyclable packaging will face higher fees, creating a direct financial incentive to consider reformulation ahead of the forthcoming RAM 2027 update, due by 1 July 2026.

Wales approves deposit return scheme for drinks containers

The Senedd voted on 25 March 2026 in favour of the Deposit Return Scheme for Drinks Containers (Wales) Regulations 2026, establishing a Deposit Return Scheme (DRS) in Wales from October 2027.

The scheme will add a small deposit to the price of drinks in eligible containers at the point of purchase, which consumers can reclaim by returning empty containers to designated return points such as reverse vending machines in supermarkets and shops. Wales will be the only nation in the UK to include glass bottles within the scope of its scheme.

The Welsh government will now enter the next phase of implementation, including the appointment of a Deposit Management Organisation to run the scheme and delivery of the detailed operational arrangements ahead of the October 2027 launch date. It has also indicated that it will explore how reusable drinks containers could be incorporated alongside single-use deposit items in due course.

Businesses involved in the production, distribution and retail of drinks in eligible containers in Wales should begin assessing what operational, logistical and labelling changes will be required to comply with the scheme ahead of the October 2027 implementation date. Those with supply chains or retail operations across multiple UK nations should note that the Wales scheme differs in scope from counterpart schemes elsewhere, particularly in its inclusion of glass bottles, and should plan accordingly.

Supply chain transparency

UK Emissions Trading System Authority consults on future treatment of sustainable aviation fuels

The UK Emissions Trading System (UK ETS) Authority is consulting on the future treatment of sustainable aviation fuels (SAF) in the UK ETS given the introduction of the SAF mandate from 1 January 2025. The mandate places an obligation on aviation fuel suppliers in the UK to provide an annually increasing amount of SAF within the overall UK aviation fuel mix.

Proposals include whether the types of SAF eligible under the UK ETS should extend beyond biofuels, whether SAF eligibility under the UK ETS should align with the SAF mandate sustainability criteria and how the UK ETS should recognise and account for SAF.

SAF production in the UK is to be supported by a revenue certainty mechanism based on a guaranteed strike price, similar to contracts of difference mechanisms in other low carbon and renewable energy sectors.

Interested businesses have until 15 June to respond to the consultation.

European Commission proposes Industrial Accelerator Act

The European Commission adopted a proposal on 4 March 2026 for a regulation establishing a framework to accelerate industrial capacity and decarbonisation in strategic sectors, known as the Industrial Accelerator Act (IAA).

The proposal aims to strengthen Europe's industrial base, with a target of raising manufacturing's share of GDP to 20% by 2035, focusing on energy-intensive industries such as steel, cement and aluminium, as well as net-zero technologies including batteries, solar photovoltaics and electrolysers, and the automotive sector.

The IAA introduces three key measures. First, it seeks to streamline and digitalise permitting procedures for industrial projects through a single digital one-stop-shop, with statutory deadlines and tacit approval at intermediate stages for energy-intensive decarbonisation projects. Second, it introduces targeted "Made in EU" and low-carbon requirements for public procurement and public support schemes across selected strategic sectors. Third, it introduces foreign direct investment safeguards for investments above €100 million in emerging sectors such as batteries, electric vehicles, photovoltaics and critical raw materials, to ensure such investment strengthens EU supply chains and supports job creation.

The proposal delivers on the recommendations of the Draghi report on EU competitiveness and will now proceed through the ordinary legislative procedure, requiring adoption by both the European Parliament and the Council before it can enter into force.

Businesses in energy-intensive and net-zero technology sectors should monitor the progress of the IAA through the legislative process, as it has the potential to significantly affect permitting timelines, procurement eligibility and foreign investment in strategic sectors. Companies with operations or supply chains in the sectors targeted by the foreign direct investment safeguards (including batteries, electric vehicles and critical raw materials) should consider how the proposed thresholds may affect their investment structures.

Natural capital

Defra and BSI publish guidance and standards for UK nature investment markets

The Department for Environment, Food and Rural Affairs (Defra) published guidance on 24 March on the British Standards Institution's (BSI) Nature Investment Standards, a voluntary framework developed with Defra funding and support from the devolved governments to govern the supply, storage and trade of nature credits in UK nature markets.

The framework comprises a series of standards covering overarching principles, biodiversity, carbon, nutrient benefits and community engagement. It is intended for use by credit suppliers, crediting programmes, market intermediaries, and buyers and investors across the UK. The standards aim to ensure market integrity by preventing greenwashing, promoting transparency and consistency, and enabling private sector investment to deliver genuine environmental benefits including biodiversity, carbon storage, clean air and water, and flood protection.

Following the publication of Defra's guidance, BSI confirmed on 27 March 2026 the release of two new nature market standards: BSI Flex 702 v2.0 for biodiversity benefits and BSI Flex 704 v2.0 for nutrient benefits, both of which are now available for adoption. These standards build on the overarching principles published in March 2025 and provide frameworks for the design, verification and trading of nature credits. A third standard on community engagement (BSI Flex 705 v1.0) is open for consultation until 19 May 2026.

Businesses investing in or supplying nature credits, as well as financial institutions and market intermediaries active in UK nature markets, should familiarise themselves with the BSI Nature Investment Standards and assess how adoption of the biodiversity and nutrient standards may affect their existing or planned activities. Those with an interest in the community engagement standard should consider engaging with the consultation ahead of the 19 May 2026 deadline.

Sustainable finance

European Commission consults on revising sustainability criteria under Taxonomy Regulation

The European Commission launched a consultation on 17 March on revising the technical screening criteria (TSC) under the EU Taxonomy Regulation which define the conditions that economic activities must meet to be considered sustainable for the purposes of the EU's sustainable finance framework.

The proposed changes follow the Commission's Call for Evidence conducted in late 2025 and build on the Platform on Sustainable Finance's recommendations on simplification. The consultation closes on 14 April, with the Commission intending to adopt the revised legislation by the summer.

The amendments cover a broad range of sectors including forestry and environmental protection, manufacturing, energy, transport and construction, as well as the "do no significant harm" criteria. The aim is to make the framework simpler and easier to use without lowering environmental ambition, reflecting both stakeholder feedback and technological advances since the original criteria were introduced.

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