Environment, social and governance | UK Regulatory Outlook May 2025

UK

No sign of UK regulations banning products made from illegal deforestation

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 (Defra), did not provide a specific date for their introduction. Read the full debate.

Additionally, a House of Commons Library briefing paper was published ahead of the debate. This paper highlights several parliamentary questions related to the introduction of these regulations, yet it still does not provide an indicative timeline of when the government will introduce them.

EU

EUDR risk classifications adopted

On the 22 May, the European Commission 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 Commission also hopes the classification will incentivise countries to improve the sustainability of their agricultural practices and reduce their impact on deforestation and forest degradation.

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 Annex to the implementing act sets out the low and high risk countries. All other countries not listed remain as standard risk. See information on the methodology behind the benchmarking system.

Simplification to EU CBAM

On 22 May, the European Parliament endorsed the Commission's proposal to simplify the EU carbon border adjustment mechanism (CBAM) as part of the first Omnibus simplification package.

A key 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 Council of the EU adopted its negotiating position on 27 May.  

The Parliament and Council will now start negotiations to finalise the legislation. 

EFRAG's work plan on proposed revision of ESRS

As set out in the EU's Omnibus Package, the European Commission intends to adopt a delegated act to revise the first set of European Sustainability Reporting Standards (ESRS), which are to be delivered by 31 October 2025.

On 25 April, the EFRAG Sustainability Reporting Board published its work plan setting out the timetable as well as contents for revision of the ESRS. From April to mid-May, they will gather evidence from stakeholders to identify actionable levers for simplification. This will include in relation to revising ESRS presentation and architecture, addressing challenging provisions, and evaluating reliefs to reduce the reporting burden. Specific focus areas include clarifying the materiality principle, tackling problematic data points, streamlining language using international standards, and balancing reporting effort with disclosure relevance.

After gathering evidence, EFRAG will draft amendments and publish exposure drafts by July 2025, followed by a 30-45 day public consultation and outreach events, aiming to finalise technical advice by October 2025.

European Commission call for evidence on revising the SFDR

The European Commission has published a call for evidence on revising the rules on sustainable finance disclosure (SFDR).

The Commission commenced its review of the SFDR in 2023. Although some feedback to the Commission's review indicates the SFDR has increased transparency and given investors access to detailed ESG information, other feedback suggests implementation of the SFDR is complex and costly. Therefore, the call for evidence indicates that revisions to the SFDR could:

• Simplify key concepts.
• Streamline and reduce disclosure requirements (by focusing on the most important investor information).
• Explore the case for categorising financial products that make sustainability-related claims. Product categories should be easily understandable by retail investors, accommodate different sustainability objectives and take into account current market practices in terms of available data and financial products. The Commission is examining making far-reaching changes involving the establishment of a number of categories reflecting different sustainability objectives of financial products, underpinned by common criteria (for example, products contributing to a sustainability objective, products contributing to the transition, or products contributing to other ESG strategies).

The call for evidence notes that revisions need to interact with requirements relating to the distribution of financial products and the Omnibus sustainability package that impacts the Corporate Sustainability Reporting Directive (CSRD) and Taxonomy Regulation. Comments can be made until 30 May 2025.

German Chancellor and French President call for EU to scrap CSDDD

The German Chancellor, Friedrich Merz, has called on the European 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 [the CSDDD] directive.”

French President, Emmanuel Macron, also called for the CSDDD to be removed completely rather than just postponed.

European Commission proposes new small mid-caps category

The European Commission has published its new "Single Market Strategy" which aims to tackle 10 of the most harmful barriers reported by businesses – the “terrible ten”: complicated business establishment and operations; complex EU rules; lack of ownership by Member States; limited recognition of professional qualifications; lack of common standards; fragmentated rules on packaging; lack of product compliance; restrictive and diverging national services regulation; burdensome rules for posting of workers in low-risk sectors; unjustified territorial supply constraints causing high prices for consumers. See our Insight for more.

To tackle complex EU rules, the Commission adopted its fourth simplification omnibus which introduces a new category of companies, small mid-caps (SMCs): companies with fewer than 750 employees; and either up to €150 million in turnover or up to €129 million in total assets. 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 working document on this measure highlights that this will be on top of the simplification packages announced earlier this year to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the Carbon Adjustment Mechanism (CBAM). Therefore, this new definition, when agreed, will be applicable to these pieces of regulation as well to "benefit from tailored regulatory simplification in the same spirit as SMEs".

Delay to battery due diligence obligations and changes to F-gas regulation

The fourth simplification omnibus package also includes a proposal to delay the due diligence obligations under the battery regulations from 2025 to 2027. Guidelines on these obligations will be published a year before the requirements take effect, giving businesses time to prepare. A consultation has been launched on this proposal and closes on 24 July 2025.

It also includes a proposal to amend the EU F-gas Regulation so that importers who do not exceed certain 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.

International

Corporate reporting: International Sustainability Standards Board consults on changes to IFRS S2

On 28 April 2025, the International Sustainability Standards Board (ISSB) published an exposure draft on proposed amendments to International Financial Reporting Standard S2 (Climate-related Disclosures) (IFRS S2).

The ISSB issued its first two IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2) in June 2023, setting out requirements for an entity to disclose information about its sustainability-related risks and opportunities. 

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 greenhouse gas (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 2025.

Code of Practice launched for Scope 3 greenhouse gas emissions by the Voluntary Carbon Markets Integrity Initiative

Please see Environment.

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