ESG Update: June 2025

Legal and regulatory news

European Union

The European Parliament has endorsed the European Commission's proposal to simplify the EU carbon border adjustment mechanism (CBAM) as part of its first "omnibus" simplification package. A major change is the introduction of a new de minimis mass threshold of 50 tonnes, which will exempt 90% of importers, primarily small and medium-sized enterprises and individuals, from CBAM rules. The changes also streamline the authorisation process for declarants, the calculation of emissions, and the management of CBAM financial liability, while strengthening anti-abuse provisions. The Parliament will now start negotiations with the Council to finalise the legislation.

A fourth omnibus simplification package has been published that contains measures to simplify the EU single market. This includes delaying the due diligence requirements under the Sustainable Batteries Regulation from 2025 to 2027. It also includes a proposal to amend the EU F-gas Regulation so that importers who do not exceed annual F-gas thresholds will no longer be required to register and exporters would only need to register if their products and equipment are subject to export restrictions.

Additionally, under the package a new small mid-caps (SMC) category has been proposed. Companies with fewer than 750 employees and either up to €150 million in turnover or up to €129 million in total assets will enjoy a simplified administrative regime even after outgrowing SME status. This new definition will apply to eight legislative acts including the General Data Protection Regulation, the Sustainable Batteries Regulation and the Fluorinated greenhouse gas Regulation. The Commission also intends to consider the impact on SMCs of the implementation of recent acts, such as the Ecodesign for Sustainable Products Regulation and the Packaging and Packaging Waste Regulation, as well as how they will be affected by future legislation (such as the Digital Omnibus which covers the AI Act, Data Act, Data Governance Act, and Open Data Directive), with the implication that the compliance burden will be reduced for them.

The German chancellor, Friedrich Merz, has called on the Commission to scrap the Corporate Sustainability Due Diligence Directive (CSDDD). This follows on from a coalition agreement which agreed to remove Germany's Supply Chain Act (the local equivalent of the CSDDD). Mr Merz said in his statement: “We will revoke the national law in Germany, and I also expect the European Union to follow suit and really cancel this directive.” The French president, Emmanuel Macron, also called for the CSDDD to be removed completely rather than just postponed.

The Commission has adopted the Implementing Act on the country benchmarking system under the EU Deforestation Regulation (EUDR). This classifies countries according to their risk of deforestation associated with the production of the seven commodities covered by the EUDR: cattle, cocoa, coffee, oil palm, rubber, soya and wood. This classification is designed to help businesses perform due diligence and allow authorities to oversee and ensure compliance. The level of risk associated with a country, defines the extent of compliance checks that member states’ competent authorities will undertake. Additionally, sourcing from low-risk countries requires simplified due diligence, where operators and traders only need to gather information without assessing or mitigating risks.

The Commission has published a call for evidence on revising the rules on sustainable finance disclosure (SFDR). The Commission began reviewing the SFDR in 2023. Feedback suggests that while the SFDR has improved transparency and provided detailed ESG information to investors, its implementation is complex and costly. The call for evidence proposes revisions to simplify key concepts, streamline and reduce disclosure requirements with a focus on essential investor information and consider categorising financial products that make sustainability-related claims. These categories should be clear to retail investors, accommodate various sustainability objectives, and reflect current market practices. The call for evidence closed for comments on 30 May.

The EFRAG Sustainability Reporting Board published its work plan on 25 April, that set out the timetable as well as contents for the revision of the European Sustainability Reporting Standards (ESRS) that are to be delivered by 31 October. From April to mid-May, the board will gather evidence from stakeholders to identify actionable levers for simplification. This will include revising ESRS presentation and architecture, addressing challenging provisions and evaluating reliefs to reduce the reporting burden. Focus areas include clarifying the materiality principle, tackling problematic datapoints, streamlining language using international standards and balancing reporting effort with disclosure relevance.

The Council of Europe unveiled on the 14 May its new strategy on the environment for 2025 to 2030. The strategy aims to integrate human rights into environmental policies, enhance democratic governance, support environmental defenders and prosecute environmental crimes. It also prioritises the protection of wildlife, ecosystems and landscapes, and advocates national recognition of the right to a clean, healthy and sustainable environment. A significant part of this strategy is the introduction of the new Convention on the Protection of the Environment through Criminal Law.

At the UK-EU summit on 19 May, the Commission's president, Ursula von der Leyen, and the UK prime minister, Keir Starmer, announced an agreement to work towards linking the Emission Trading Systems (ETS) of the EU and UK. The ETS systems had been developed separately since Brexit. The scope of this agreement is yet to be agreed, but the summit's common understanding noted that it should include the sectors of electricity generation, industrial heat generation (excluding the individual heating of houses), industry, domestic and international maritime transport and domestic and international aviation.

United Kingdom

HMRC has launched a consultation on the draft legislation that will implement the carbon border adjustment mechanism (CBAM) from 1 January 2027. This will impose a carbon price on certain imported goods from sectors vulnerable to carbon leakage, including aluminium, cement, fertilisers, hydrogen, and iron and steel. The legislation outlines the scope, the calculation of CBAM liability and key administrative components. The legislation will be included in a Finance Bill after this consultation, which closes on 3 July.

Under the Environment Act 2021, the UK government has the power to introduce regulations that would prohibit products resulting from illegal deforestation, similar to the EU Deforestation Regulation. Despite ongoing discussions over the past couple of years, no concrete measures have been introduced and it seems unlikely that these are to materialise any time soon. On 30 April, a debate on global deforestation took place in the House of Commons. During this debate, numerous questions were raised regarding the timeline for introducing these regulations. However, Mary Creagh, parliamentary under-secretary for the Department for Environment Food and Rural Affairs, did not provide a specific date for their introduction.

The government has invited feedback on proposed reforms of the Landfill Tax in England and Northern Ireland. This follows calls for evidence on reform by the previous government at the end of 2021. The government response to these calls for evidence was published in 2023 and concluded that the current approach of applying Landfill Tax rates based on material type is outdated and does not fully align with modern waste processes. The consultation closes on 21 July.

The Climate Change Committee has published its 2025 progress report on the government's adaptation to climate change. The report reviews the government's Third National Adaptation Programme (NAP3) and its implementation. The NAP3 progress report assessed the UK's preparations for climate change as inadequate. It said the government has yet to change the UK's inadequate approach to tackling climate risks, and must act without further delay to improve the national approach to climate resilience.

PackUK, the scheme administrator for the extender producer responsibility (EPR) scheme for packaging, has published an updated version of the recyclability assessment methodology (RAM). The RAM is to be used by large packaging producers to assess the recyclability of their household packaging and produce a red, amber and green output that will inform the level of fee modulation payable for that material from year two of EPR (in 2026). Producers are required to apply the methodology for household packaging placed on the market from 1 January 2025, with the first reporting deadline on later this year on 1 October.  

The Welsh government has laid regulations to prohibit the supply (including for free) and offer to supply of single-use wet wipes containing plastic. It is anticipated that these will come into force in December 2026. In its written statement, the Welsh government states that it expects "this timetable to be broadly in line with the other UK nations and believe any small difference in timing arising throughout the UK is manageable for manufacturers and retailers." However, the UK government has not provided an update on when similar regulations will be introduced.

International

The International Sustainability Standards Board (ISSB) published an exposure draft on 28 April proposing amendments to the International Financial Reporting Standard S2 (Climate-related Disclosures) (IFRS S2). In response to challenges to the application of IFRS S2 raised by stakeholders, the exposure draft proposes additional relief and clarity on existing relief from specific GHG emissions disclosure requirements. The amendments aim to reduce complexity and duplication so that the sustainability-related financial information that is reported is useful. Comments on the questions raised in the exposure draft are to be received by 27 June.

The Voluntary Carbon Markets Integrity Initiative (VCMII) has published a code of practice for "scope 3" greenhouse gas (GHG) emissions.  These are considered the hardest GHG emissions for businesses to reduce and occur across a company's value chain; for example, these could be GHG emissions associated with the production of purchased material. The VCMII's code of practice aims to produce a "practical, high integrity solution".

The Paris Agreement crediting mechanism (PACM) (also known as article 6.4) enables countries, companies and individuals to work together to reduce greenhouse gas emissions through the generation of carbon credits. At the latest PACM supervisory body meeting, two new draft standards were proposed: one for estimating emissions that would have occurred without a project (the "baseline"), including downward adjustments to prevent over-crediting, and another for measuring unintended increases in emissions elsewhere due to a project ("leakage"), aiming to capture all potential sources of emissions. The supervisory body is expected to approve the first PACM methodologies by the end of 2025.

The Canadian Securities Administrators has announced it will be pausing its work on developing new mandatory corporate climate reporting rules and amendments to the existing diversity-related disclosure requirements.

Market news

The European Central Bank has published a new opinion supporting the Commission's proposals to simplify obligations under the CSRD and CSDDD, but warns of the risks this could pose to financial stability… the Federal Trade Commission and the US Department of Justice Antitrust Division have filed a statement of interest against asset managers BlackRock, State Street and Vanguard regarding the antitrust case in relation to coal production…Assent has launched a CBAM solution to assist manufacturers in meeting regulatory requirements…a survey of Gen Zs and millennials has revealed that 70% of respondents consider a company's environmental credentials or policies when reviewing a potential employer.

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