ESG Knowledge Update | December 2025
Published on 22nd December 2025
Welcome to our Osborne Clarke ESG Knowledge Update, which offers a round-up of legal, regulatory and market news
Legal and regulatory news
European Union
European Parliament approves provisional agreement on Omnibus I CSRD and CSDDD simplification proposal
On 16 December 2025, the European Parliament approved a provisional agreement on simplified sustainability reporting and due diligence rules for businesses.
Under the revised Corporate Sustainability Reporting Directive (CSRD), only EU companies employing over 1,000 employees and with a net annual turnover of over €450 million will be required to carry out social and environmental reporting. The rules will also apply to non-EU companies with net turnover in the EU of over €450 million and to their subsidiaries and branches generating turnover higher than €200 million in the EU.
The reporting requirements will be significantly simplified, and sector-specific reporting will become voluntary. Importantly, companies required to prepare sustainability reporting will not be permitted to shift that responsibility to their smaller business partners. To facilitate compliance, the Commission will establish a digital portal with access to templates and guidelines on EU and national reporting requirements.
Fewer companies will need to carry out due diligence under the Corporate Sustainability Due Diligence Directive (CSDDD), which will only apply from 26 July 2029 for businesses within its new scope. Under the revised rules, this will only be required from large EU corporations with more than 5,000 employees and a net annual turnover of over €1.5 billion, with the same turnover threshold for non-EU companies. They will have to carry out scoping exercises to identify risks in their chain of activities and should only request information from business partners with fewer than 5,000 employees when the information for in-depth assessment cannot be obtained another way.
Transition plans ensuring a company's business model is compatible with the shift to a sustainable economy will no longer be required. Businesses will be liable at the national level for failures to apply the rules correctly and could face fines of up to 3% of their net worldwide turnover.
The final text of the simplification directive will need to be formally approved by the Council and will enter into force twenty days after its publication in the Official Journal.
European Parliament adopts one year delay to EUDR
Last month, the European Commission proposed a delay to the enforcement of the EU Deforestation Regulation (EUDR), in order to reduce the load that the IT system will need to handle and to reduce administrative burden on supply chain actors.
On 26 November 2025, the European Parliament adopted a package of amendments to the EUDR. Under the adopted position, the EUDR will apply from 30 December 2026 for medium and large enterprises, and from 30 June 2027 for micro and small operators.
Key simplifications include:
micro and small primary operators will only be required to provide a one-off simplified declaration (rather than per transaction);
downstream operators and traders will no longer need to file additional due diligence statements;
micro and small operators may provide postal addresses instead of detailed geographical coordinates; and
books and newspapers have been excluded from scope.
Parliament also tasked the Commission to carry out a simplification review by 30 April 2026 to assess the EUDR's impact and administrative burden.
The proposal proceeded to trilogue negotiations between the Parliament, the Council and the European Commission and was approved by both the European Parliament and the Council on 17 December 2025. The revised regulation will now be published in the Official Journal and enter into force three days after publication.
Quick Fix Regulation postpones certain ESRS requirements for first wave companies
On 10 November 2025, Commission Delegated Regulation (EU) 2025/1416 amending Delegated Regulation (EU) 2023/2772 (the Quick Fix Regulation) was published in the Official Journal and entered into force on 13 November 2025.
The Quick Fix Regulation addresses sustainability reporting requirements for "first wave" companies under the Corporate Sustainability Reporting Directive ((EU) 2022/2464), which were required to start reporting in 2025 for the 2024 financial year. While the Postponement Directive (EU) 2025/794 postponed sustainability reporting requirements for "second wave" and "third wave" companies by two years, it did not provide relief for first wave companies.
The Quick Fix Regulation defers the requirement for first wave companies to report on the anticipated financial effects of certain sustainability-related risks until the 2027 financial year. It also allows all first wave companies to benefit from the phase-in provisions relating to European Sustainability Reporting Standards (ESRS) E4 (biodiversity and ecosystems), ESRS S2 (workers in the value chain), ESRS S3 (affected communities) and ESRS S4 (consumers and end-users), which previously applied only to companies with up to 750 employees.
Additionally, it extends to first wave companies the safeguard provision that allows a company using temporary exemptions for a complete topic standard to report certain summarised information on the topic if it is material.
The Quick Fix Regulation applies retrospectively to financial years beginning on or after 1 January 2025. The Commission and the European Financial Reporting Advisory Group (EFRAG) are also working on separate legislation to simplify and clarify the ESRS Regulation.
European Commission proposes Environmental Omnibus to simplify environmental legislation
On 10 December 2025, the European Commission presented a package of measures to simplify environmental legislation in the areas of industrial emissions, circular economy, environmental assessments and geospatial data. The Commission expects the changes to save businesses approximately €1 billion per year while maintaining the EU's environmental and health protection objectives.
Key simplifications include:
streamlined environmental assessments with single points of contact, digitalisation and faster procedures for granting permits, particularly for strategic sectors such as digital projects, critical raw materials and affordable housing;
more flexibility for companies under the Industrial Emissions Directive, including removal of transformation plan requirements and exemptions for farmers from certain reporting obligations;
repeal of the SCIP database on hazardous substances, to be replaced by more effective digital solutions such as the Digital Product Passport;
suspension of the requirement for EU-based companies to appoint authorised representatives in every Member State for Extended Producer Responsibility obligations; and
alignment of geospatial data requirements under the INSPIRE Directive with horizontal legislation to facilitate access to high value datasets.
The proposal, which reflects contributions from over 190,000 responses to a call for evidence launched in July 2025, will now be submitted to the European Parliament and Council for adoption. The Commission has committed to continuing simplification efforts, including upcoming guidance on the Packaging and Packaging Waste Regulation, revision of the Water Framework Directive in 2026, and the Circular Economy Act scheduled for 2026.
EU launches climate resilience framework consultation
The European Commission opened a public consultation on 1 December 2025 on an integrated framework for European climate resilience and risk management, scheduled for adoption in late 2026. The framework aims to protect public health, reduce climate risks and promote climate-resilient technologies. The consultation closes on 23 February 2026.
UK
Government's response to consultation on UK CBAM published
Following the government's consultation on the proposed UK Carbon Border Adjustment Mechanism (CBAM) legislation, it has now published its response with CBAM due to commence on 1 January 2027.
The consultation response confirms that indirect emissions associated with the production of CBAM goods will not be included in scope of CBAM until 2029 at the earliest, to reflect continued support for the energy intensive industries compensation scheme.
Key technical changes made to the legislation following consultation include:
the free allowance adjustment in the CBAM rate calculation will be based on a sectoral average of emissions covered by free allowances over a baseline period, adjusted annually to reflect the phase out of free allowances under the UK Emissions Trading Scheme (UK ETS);
carbon price relief has been extended to enable recognition of carbon prices incurred under CBAMs;
exemptions will be included for emissions embodied in UK-produced precursor goods that are imported into the UK as part of a complex CBAM good and for emissions embodied in CBAM goods under temporary admission in the UK with a full relief from customs duties (customers who have mistakenly overpaid CBAM will have three years to claim repayment); and
the group treatment provision has been removed.
The consultation response also indicates that the government is considering the role of refineries and will publish a call for evidence on the fuel sector, considering whether to include refined products in CBAM in future. HMRC will publish detailed guidance ahead of 2027 with draft secondary legislation and notices for technical consultation expected in early 2026.
Consultation on expanding climate change agreement scheme eligibility
HM Revenue & Customs launched a consultation which ran until 2 December 2025 on draft regulations to expand and refine the Climate Change Agreement (CCA) Scheme from January 2027. Following the government's October 2024 commitment to a new six-year CCA scheme, the consultation proposes adding three new eligible processes:
- Mechanical recycling of plastic.
- Packaging of spirits.
- Production of batteries for electric vehicles.
The draft regulations also introduce technical amendments to consolidate and better define eligibility conditions for existing processes within the scheme, without excluding any businesses currently carrying out eligible activities. The consultation seeks stakeholder feedback on the statutory instrument's drafting to ensure the policy intent is delivered correctly and efficiently.
International
US President signs executive order curtailing proxy advisors
On 11 December 2025, President Trump signed an executive order requiring the SEC and Secretary of Labour to review its rules and guidance relating to proxy advisors, singling out the two largest advisors, Institutional Shareholder Services and Glass, Lewis & Co.
Many of the specifics of the order target activities that are or may be linked to what the order refers to as "diversity, equity, and inclusion" and "environmental, social, and governance".
