Environmental, social and governance | UK Regulatory Outlook February 2026

UK 

UK-EU relations update: UK government responds to House of Lords committee report 

The House of Lords European Affairs Committee received the UK government's response on 27 January to its November 2025 report on resetting UK-EU relations. Key developments are summarised below. 

Sanitary and phytosanitary agreement and emissions trading schemes  

The government is currently negotiating with the EU on dynamic alignment mechanisms for both the agreement on proposed sanitary and phytosanitary (SPS) rules and on linking emissions trading schemes. Further details will be announced as negotiations progress. The government's target is to conclude the SPS agreement negotiations and establish the necessary legislative framework by 2027. See our January edition for details on how an SPS agreement would affect businesses operating in the UK and EU. 

UK participation in the EU internal electricity market  

Exploratory discussions on potential UK participation in the EU internal electricity market concluded in December 2025. Participation conditions have been established, with implementation details to follow. A decision on transitioning from current electricity trading arrangements is expected in the first half of 2026. 

Trade and co-operation agreement review 

The government and the EU are still determining the approach to the 2026 joint review of the UK-EU Trade and Co-operation Agreement implementation under article 776. Businesses should monitor developments as the review will impact existing trading arrangements. 

UK launches technical consultation on Carbon Border Adjustment Mechanism secondary legislation 

The UK government has opened a technical consultation on the draft secondary legislation for the Carbon Border Adjustment Mechanism (CBAM), which will come into effect on 1 January 2027. The consultation runs until 24 March 2026 and seeks stakeholder feedback on the drafting to ensure the tax operates as intended. 

The draft secondary legislation covers administrative requirements including registration for the CBAM, tax returns and required content, reimbursement arrangements, weight of CBAM goods, and record keeping. The CBAM will place a carbon price on specified goods imported to the UK from sectors at risk of carbon leakage, covering aluminium, cement, fertilisers, hydrogen, and iron and steel sectors. 

UK importers of goods from these sectors and downstream producers using these goods in their supply chains should review the draft legislation and responses should be sent to cbampolicyteam@hmrc.gov.uk by 24 March. 

First UK PFAS plan published 

See sustainable products section. 

CMA publishes short explainer on the Green Claims Code with focus on supply chain responsibility for green claims 

See advertising and marketing section.

EU 

European Commission consults on ESG rating activities delegated regulations 

On 20 January 2026, the European Commission published two draft delegated regulations for consultation, supplementing Regulation (EU) 2024/3005 on the transparency and integrity of ESG rating activities. This follows the FCA's proposals published in December 2025 to ensure ESG ratings are transparent, reliable and comparable (see our January edition for further details on the FCRA proposals). 

The first draft regulation concerns European Securities and Markets Authority (ESMA) supervisory fees charged to ESG rating providers (article 42(2) mandate), setting out rules on fee types, coverage, amounts, rationale and payment methods.  

The second draft regulation addresses procedural rules for fines and periodic penalty payments imposed by ESMA on ESG rating providers (article 39(9) mandate), including provisions on rights of defence, temporal provisions, collection procedures, and detailed rules on limitation periods. 

Both draft delegated regulations will come into force 20 days after publication in the Official Journal of the European Union. The deadline for comments was 13 February, with adoption expected during this first quarter of 2026.  

European Commission launches infringement proceedings against 16 Member States over Energy Charter Treaty 

On 30 January 2026, the European Commission began infringement proceedings against 16 EU Member States that remain parties to the Energy Charter Treaty (ECT) following the EU and Euratom's withdrawal on 28 June 2025. 

Trade and investment fall within the exclusive competence of the EU so Member States may only exercise this competence if specifically empowered by the EU. The 16 Member States concerned have neither received this empowerment nor taken steps to withdraw from the ECT. 

The Member States affected are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czechia, Estonia, Finland, Greece, Hungary, Ireland, Latvia, Malta, Romania, Slovakia and Sweden. The Commission has sent formal letters calling on these to withdraw "without undue delay" with two months to respond. Failure to respond may result in the Commission issuing reasoned opinions, a binding legal request where failure to comply can lead to referral to the Court of Justice. 

International business and biodiversity assessment flags systemic risks of nature loss 

A new international assessment by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), endorsed by over 150 governments, warns that nature loss is a systemic risk for economies and supply chains. The IPBES assessment finds that financial flows harmful to biodiversity reached €6.12 trillion in 2023, compared to just €184.58 billion invested in conservation and restoration. Currently, fewer than 1% of publicly reporting companies disclose biodiversity impacts. 

In the EU, the European Commission's roadmap towards nature credits aims to reward measurable positive outcomes for ecosystems and mobilise private finance for restoration with work progressing through an expert group and pilot projects, with early results expected in the coming months. 

Businesses should note that pressure is growing to measure and disclose biodiversity impacts as regulatory expectations and investor demands increase. 

EU consults on forced labour guidelines 

See Modern slavery section.

European Commission publishes communication and package of measures to boost circular economy and plastic recycling

See sustainable products section.