Environmental, social and governance | UK Regulatory Outlook October 2026

UK 

HMRC publishes UK CBAM default values and illustrative rate methodology 

HMRC has published default values for use under the UK Carbon Border Adjustment Mechanism (CBAM), which applies from 1 January 2027 to imports in the aluminium, cement, fertiliser, hydrogen and iron and steel sectors. Businesses can use these default values in their CBAM returns instead of verified actual emissions data, measured in tonnes of carbon dioxide equivalent per tonne of product. 

The values are based on EU data, adjusted to a trade-weighted average reflecting the composition of UK imports, and include a 10% markup in all sectors except fertiliser. They will apply from 1 January 2027 to 31 December 2028, after which the UK will move to country-specific figures. 

HMRC has also published illustrative CBAM rates and a worked example showing how sector-level rates will be calculated. CBAM has no single headline rate set in legislation. Each sector's figure combines recent carbon pricing data, sector-level emissions information and the extent to which UK producers still receive free allowances under the UK Emissions Trading Scheme. 

The illustrative figures are not binding and may change before 1 January 2027, when the first official rates will be published; rates will then be updated quarterly. Importers of CBAM goods should use both publications now to model their likely exposure and refine record-keeping processes ahead of the January 2027 start date. 

Immigration and Asylum Bill: amendments proposed to modern slavery supply chain reporting 

See modern slavery section. 

HMRC publishes guidance on mass balance approach for chemically recycled plastic in Plastic Packaging Tax  

See sustainable products section. 

EU 

European Parliament and Council diverge on EPR representative suspension for packaging and batteries 

Producers that sell packaging, batteries, textiles, footwear, electronics or single-use plastics in the EU must currently appoint an authorised representative for extended producer responsibility (EPR) compliance in every member state where they sell. The European Commission proposed suspending this requirement for EU-based cross-border producers entirely until 2035. 

Parliament adopted its position on 20 October 2026, limiting the suspension to small EU-based businesses with fewer than 50 employees and either annual turnover or balance sheet total under €10 million. Larger EU companies and all non-EU companies would still need to appoint a representative in each member state. The suspension would end once a wider circular economy law is agreed, and Parliament has separately called for member states to share more information, use compatible digital systems and apply common reporting requirements. 

The Council has now agreed its own position, but only on packaging and on different terms to the Parliament. Its mandate, agreed on 21 October 2026, uses a sales-volume test rather than company size. A producer would not need a representative in another member state if it places under one tonne of packaging on that market per year. The mandate can be withdrawn for breaches of other EPR duties, and includes a Commission review by the end of 2030 ahead of a 2032 expiry of the suspension. 

Both institutions agree the suspension would only remove the representative requirement, not other EPR duties such as waste-prevention fees. The Parliament and Council must now negotiate a common position on packaging, reconciling the size-based and volume-based approaches, while batteries and the other sectors await a Council position. 

EU Directive on Empowering Consumers for the Green Transition becomes applicable 

The Empowering Consumers for the Green Transition Directive ((EU) 2024/825) became applicable across EU member states on 27 September 2026, amending the Consumer Rights Directive and the Unfair Commercial Practices Directive (UCPD).  

It requires traders to give consumers new sustainability information pre-contract, such as on a product's reparability and durability, and bans or otherwise tackles unfair commercial practices that prevent sustainable consumption choices, including greenwashing. Member states had until 27 March 2026 to transpose the directive into national law. 

Among other things, the directive introduces new definitions into the UCPD, including "environmental claim", "generic environmental claim" and "recognised excellent environmental performance", and adds certain practices relating to green claims to the list of banned commercial practices in Annex 1 of the UCPD. 

UK or other non-EU traders that pursue or direct their activities to EU-resident consumers may face consumer claims and regulatory action in those EU countries for breach of local implementing laws, regardless of any choice of law or jurisdiction clause. 

Simplified ESRS and new voluntary sustainability reporting standard published in Official Journal 

The European Commission has adopted the revised European Sustainability Reporting Standards (ESRS) and a new Voluntary Sustainability Reporting Standard (VS), now published in the Official Journal under two delegated acts dated 21 September 2026. 

Delegated Regulation (EU) 2026/1563 simplifies the ESRS, including the materiality assessment. It comes into force on 10 November 2026 and applies to financial years beginning on or after 1 January 2027, with optional early application for 2026 reporters. 

Delegated Regulation (EU) 2026/1560 establishes the VS for protected undertakings, meaning companies with up to 1,000 employees that sit in a reporting company's value chain. It limits what information in-scope entities can request from these smaller undertakings. For in-scope entities' value chain reporting, it applies to financial years beginning on or after 1 January 2027. For protected undertakings that choose to report voluntarily, it has applied since its entry into force on 24 September 2026. 

EFRAG, which develops the underlying technical standards, has published updated non-mandatory guidance on the VS and will add a revised digital reporting template from November 2026. 

European Parliament adopts amendments to strengthen EU CBAM and establish Temporary Decarbonisation Fund 

The European Parliament's plenary session adopted amendments to two European Commission proposals: a regulation extending the EU Carbon Border Adjustment Mechanism (CBAM) to downstream goods and introducing anti-circumvention measures, and a regulation establishing a Temporary Decarbonisation Fund (TDF), paving the way for negotiations between Parliament, the Council and the Commission (trialogue negotiations).  

On the CBAM extension, MEPs agreed with the Commission's proposal to extend the scope beyond basic materials to an extensive list of downstream products. To close loopholes, MEPs lowered the threshold by which small changes to a good would qualify as circumvention and tightened the rule so it targets only arrangements set up purely to avoid the CBAM. They rejected the Commission's proposed safeguard that would have allowed goods to be removed from CBAM's scope during price shocks, proposing instead a mechanism to temporarily redirect CBAM revenues from the goods concerned to the affected sectors. The Council adopted its general approach on 12 June 2026, so informal trialogue can now begin. 

On the TDF, MEPs want financial support to run from 2027 to 2029, rather than only from 2028 as proposed by the Commission, and want the fund opened to fertiliser producers and downstream users facing higher carbon-related input costs. The Council has not yet adopted its negotiating position on this proposal. 

European Commission launches call for evidence on DiversifyEU supply chain package 

The European Commission has launched a call for evidence ahead of a package of measures, known as DiversifyEU, to speed up the diversification of EU supply chains and reduce critical dependencies on dominant non-EU suppliers. The call for evidence closed on 27 October 2026. The Commission plans to adopt the package in the fourth quarter of 2026. 

The package is expected to include a new trade diversification instrument, based on the EU's exclusive trade competence. It would sit alongside financial and non-financial support to expand alternative supply capacity and aggregate demand, and strengthened monitoring of critical supply chains. The Commission says these measures are intended to complement rather than duplicate the Critical Raw Materials Act, the Net-Zero Industry Act and the Tech Sovereignty Package. 

Because of the urgency the Commission has identified, it will not carry out a full impact assessment before adopting the package.