Environmental, social and governance | UK Regulatory Outlook July 2025

UK  

Governmental consultation on climate-related transition plans 

On 25 June, the UK government published a consultation on introducing climate-related transition plan requirements.  

The consultation seeks views on how the government should take forward its manifesto commitment to mandate “UK-regulated financial institutions (including banks, asset managers, pension funds and insurers) and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement”. It acknowledges the wider context, including potentially mandating climate-related transition plans via the proposed UK Sustainability Reporting Standards (UK SRS) and use of the Transition Plan Taskforce disclosure framework.  

The consultation closes on 17 September 2025. 

Consultation on UK Sustainability Reporting Standards  

On 25 June, the government published a consultation seeking views on UK SRS S1 and UK S2 which are based on the International Sustainability Standards Board (ISSB) standards. Subject to a positive endorsement decision by the government, the Financial Conduct Authority (FCA) will use these standards to introduce requirements for UK-listed companies to report sustainability-related information.  

The government also has plans to implement disclosure requirements against UK SRS for companies that are not regulated by the FCA. The consultation closes on 17 September 2025. If endorsed, the government aims to publish the final UK SRS S1 and UK SRS S2 in autumn 2025. 

EU  

EUDR and country categorisation  

The European Deforestation Regulation is due to come into effect in just five months for medium and large operators and traders and there is still considerable debate as to whether to delay the measures to reformulate how it categorises risk and to allow smallholders to adequately prepare. Currently, under the new law, countries are to be divided into three categories: high, standard and low risk, with the amount of due diligence paperwork required to import products increasing dramatically through the risk tiers. See this Regulatory Outlook for more.  

Concerns, however, have been raised with both ends of the risk spectrum. The announcement of country designations on 22 May 2025 only designated four countries (Belarus, Myanmar, North Korea and Russia) as "high risk", despite concerns regarding deforestation in countries (such as Brazil, Indonesia and Malaysia) that have only been designated "standard risk".  

There have also been calls from some MEPs to add a fourth category – "negligible" or "no risk" – for countries that have robust legal frameworks, low land-use change dynamics, and sustainable land management practices. This latter motion has been taken up and adopted by the European Parliament's Committee on Environment, Public Health and Food Safety (ENVI) following a parliamentary resolution adopted by MEPs – while this does not guarantee the amendments will be adopted into the EUDR, it does represent a step towards a potential policy change.  

European Commission consults on extension of EU CBAM to downstream products 

The European Commission has launched a consultation on extending the EU Carbon Border Adjustment Mechanism (EU CBAM) to downstream products and implementing additional anti-circumvention measures.  

The initiative aims to address carbon leakage risks where EU producers might relocate production abroad or EU buyers switch to imports from countries with weaker climate policies. Additional anti-circumvention measures would target practices aiming to avoid the CBAM financial obligation, without due cause or economic justification. The proposed regulation would supplement the existing EU CBAM Regulation (EU) 2023/956, with final adoption planned for the fourth quarter of 2025. The consultation period runs from 1 July to 26 August 2025.  

You can provide feedback on this consultation. 

Commission confirms Green Claims Directive not withdrawn 

The European Commission has contorted itself through a series of U-turns relating to the Green Claims Directive (GCD) over the last month. Introduced in March 2023, its aim was to combat greenwashing across the EU. EU data suggested that more than 50% of green claims currently made by companies are vague or misleading, and 40% are completely unsubstantiated. 

The directive progressed through the EU legislative framework with final trilogue negotiations scheduled for 23 June 2025. However, days before the final negotiations were due, the largest party in the European Parliament, the European People's Party, issued a formal request for the Commission to reconsider and withdraw it because the compliance burden it would create would be too high, especially for microenterprises (employing fewer than 10 persons and generating under €2 million in revenue). 

The Commission responded by stating at a press conference on 20 June 2025 that the "Commission intends to withdraw the Green Claims proposal" – leading to the immediate cancellation of the final trilogue, and general confusion among lawmakers. 

However, via a subsequent statement, a Commission spokesperson confirmed that it had not been formally withdrawn, but clarified that the Commission would withdraw the proposal if microenterprises remained within its scope. Sandro Gozi, the EU Parliament's lead negotiator on the GCD emphasised that Parliament had already agreed to exempt microenterprises in the previous trilogue round but Politico reported that a Commission official had told it that "at no point has there been a backtrack…". 

In response to the lack of clarity, the Polish Council presidency has paused further discussions of the GCD, however Italy has withdrawn its support and consequently the directive no longer has the qualified majority needed for the Council to move forward. This leaves its future uncertain, even if the Commission eventually clarifies its position.    

Stop the clock for Sustainable Batteries Regulation: European Parliament and the Council adopt amending regulation at first reading 

On 10 July 2025, the European Parliament plenary session formally adopted its first reading position on a proposal for a regulation amending the Sustainable Batteries Regulation (2023/1542) regarding obligations of economic operators concerning battery due diligence policies.

The Council also adopted the proposal on 18 July.

This regulation amends the Sustainable Batteries Regulation 2023 by postponing the date of application of the due diligence obligations by two years, from 18 August 2025 to 18 August 2027 to give affected companies more time to prepare. The Commission is also required to publish due diligence guidelines one year before the obligations come into effect. 

The regulation will now be published in the EU’s Official Journal and enter into force the day after this publication. 

Please also see our latest international ESG Knowledge Update, for a round-up of legal, regulatory and market news.