Environmental, social and governance | UK Regulatory Outlook May 2026

UK 

International Sustainability Standards Board to publish a nature-related disclosure practice statement 

The International Sustainability Standards Board (ISSB), the body responsible for the IFRS Sustainability Disclosure Standards, has announced it will publish a new practice statement on requirements for nature-related disclosures.  

The new practice statement will complement (but not replace) the IFRS S1 (on sustainability-related risk and opportunity reporting) and IFRS S2 (on climate-related disclosures and metrics). It is intended to explain how businesses should disclose information about nature-related risks and opportunities under IFRS S1. 

This follows recent UK developments confirming the introduction of the UK Sustainability Reporting Standards (UK SRS), which are based on the IFRS standards. The UK SRS is currently voluntary, but it is expected to become mandatory – first for listed companies and then for larger private companies (full details of its application are still to be finalised following consultation).  

EU 

European Commission consults on simplified CSRD reporting standards and voluntary framework for smaller companies 

On 6 May 2026, the European Commission published two draft delegated regulations for consultation relating to sustainability reporting standards under the Corporate Sustainability Reporting Directive (CSRD). 

The first revises and simplifies the European Sustainability Reporting Standards (ESRS). It introduces a simplified materiality assessment and additional targeted flexibilities. The revised ESRS will apply for financial years starting on 1 January 2027, with an early adoption option for companies whose CSRD obligations begin in 2026. 

The second establishes voluntary standards for companies with fewer than 1,000 employees on average. These sit outside the mandatory CSRD regime but are drawn into sustainability reporting through the value chain cap, under which large in-scope companies may request sustainability data from supply chain partners. The voluntary standards provide a structured, proportionate basis for responding to those requests. They will apply to in-scope entities undertaking value chain reporting from financial years starting in 2027, and to out-of-scope companies wishing to report voluntarily from the date of entry into force. 

Both consultations close on 3 June 2026, with Commission adoption listed as being planned for Q2 2026. 

European Commission consults on rules for recognising carbon prices paid in third countries 

The EU carbon border adjustment mechanism (CBAM) requires EU importers of certain carbon-intensive goods to purchase certificates corresponding to the carbon price that would have been paid had those goods been produced in the EU. Where a carbon price has already been paid in the country of origin, the number of certificates to be surrendered can be reduced accordingly. On 13 May 2026, the European Commission launched a consultation on a draft implementing regulation setting out the rules that will govern how that reduction is calculated. 

The draft regulation covers five areas: how to determine the carbon price effectively paid in a third country for the embedded emissions in each good, including the use of default carbon prices for precursors and indirect emissions; the conversion of carbon prices expressed in foreign currencies into euros; the methodology for calculating the resulting reduction in certificates to be surrendered; how to account for rebates or other forms of compensation that reduce the carbon price effectively paid; and the qualifications required for an independent person to certify the evidence provided by a CBAM declarant.  

EU importers of in-scope goods produced in countries with a carbon pricing regime should review the draft rules. The certification requirements for independent verifiers will also be relevant to businesses structuring their compliance arrangements. The consultation closes on 10 June 2026. 

European Commission sets out plan to simplify EU lawmaking 

On 28 April 2026, the European Commission presented a communication setting out its plan to modernise EU lawmaking, with the aim of making legislation clearer, simpler, more efficiently enforced, evidence-based and better aligned with the needs of citizens and businesses.  

The Commission will act in five areas:  

• embedding simplicity into the design of new legislation from the outset;  
• strengthening the better regulation framework to enhance transparency, stakeholder engagement and efficiency;  
• tackling inconsistencies and overlapping provisions in existing legislation through a Regulatory Deep Cleaning Action Plan covering 12 priority policy areas; addressing gold-plating by Member States that apply stricter or more extensive requirements than EU law requires; and  
• strengthening enforcement of single market rules with a focus on reducing long-standing infringement cases. 

The 12 priority areas identified for the Regulatory Deep Cleaning Action Plan include free movement of goods and services, financial services, customs, taxation, health and food safety, agriculture, transport, energy, climate, environment, digital policy, housing and permitting. The process may bring changes to compliance requirements and reduce administrative burdens currently arising from overlapping or inconsistent rules. 

European Commission publishes simplification review of the EU Deforestation Regulation 

On 4 May 2026, the European Commission published a report on the simplification of the revised EU Deforestation Regulation (EUDR), alongside a package of further measures to support its implementation ahead of its entry into application.  

The package includes an updated guidance document and Frequently Asked Questions, a draft delegated act on the product scope of the EUDR, and an updated implementing act on the Information System. Together, the measures are expected to reduce annual compliance costs for companies subject to EUDR obligations by around 75% compared to the original regulation. 

The draft delegated act proposes additions to the product scope, including soluble coffee and certain palm oil derivatives, as well as exclusions such as leather and retreaded tyres, and exemptions for product samples, certain packing materials, used and second-hand products and waste. It is open for public feedback until 1 June 2026. The regulation will apply from 30 December 2026 for large and medium companies and micro and small enterprises from the timber sector, and from 30 June 2027 for other micro and small enterprises. Those dealing in commodities covered by the EUDR, including cattle, wood, cocoa, soy, palm oil, coffee and rubber, should review the updated guidance and consider responding to the consultation on the draft delegated act before the deadline. 

EU institutions sign 'One Europe, One Market' roadmap 

On 24 April 2026, the European Commission, the Council of the EU and the European Parliament agreed and signed the One Europe, One Market Roadmap, a political and operational commitment to deliver a series of legislative and policy measures to strengthen the single market and improve the EU's competitiveness by the end of 2027. 

The roadmap is structured around five strategic objectives: simplifying rules; deepening the single market; championing trade; reducing energy prices and decarbonising; and driving digital and AI transformation. Key measures include a Digital and AI Omnibus package by end of 2026, a new EU securitisation framework, a review of merger control guidelines, grid modernisation, an Emissions Trading System review, and new legislation on cloud and AI, a Chips Act 2 and AI Gigafactories. 

The roadmap does not create binding obligations but acts as a framework to accelerate delivery in the priority areas. The institutions have committed to quarterly reviews and regular stocktaking to monitor progress and update the annex where necessary. 

European Commission adopts delegated rules on fees and penalties for ESG rating providers 

Following a consultation (covered in this February update), the European Commission has adopted two Delegated Regulations supplementing the ESG Ratings Regulation (EU 2024/3005), which established ESMA's supervisory role over ESG rating providers. 

The first sets out the procedures ESMA must follow when imposing fines and periodic penalty payments on ESG rating providers, reflecting a mandate under Article 39(9) of the regulation. This includes rights of defence, collection procedures and limitation periods for imposing and enforcing penalties. The second sets out the fees ESMA may charge under Article 42(2), covering annual supervisory fees, authorisation fees, registration fees and recognition fees. 

Both are now subject to scrutiny by the European Parliament and the Council of the EU before publication in the Official Journal. The fees regulation will enter into force the day after publication, while the fines regulation will enter into force on the twentieth day following publication.  

Council of the EU formally adopts regulation on forest reproductive material 

The Council of the EU formally adopted a regulation on the production and marketing of forest reproductive material on 21 April 2026, following the European Parliament's first-reading position adopted in April 2024. 

The regulation aims to increase the diversity and quality of forest reproductive material, ensuring that the right tree is planted in the right place so that forests are better adapted to climate change. Tree breeding under the new framework will allow climate change adaptation of forests to be accelerated, helping to ensure their continued productivity. It forms part of a wider legislative package adopted by the Commission in July 2023 on the sustainable use of natural resources. 

The European Parliament formally adopted the regulation at second reading on 19 May 2026. The regulation can now be published in the Official Journal and will enter into force 20 days later.