ESG and Impact

After months of speculation, the EU Commission announced a "simplification revolution" at the end of February 2025, and published its sustainability "Omnibus" package, designed to simplify the EU's sustainability regulatory framework. It is now clear that there will be significant changes to EU sustainability regulation.

The "Stop-the-Clock" proposal to delay sustainability reporting under CSRD and due diligence obligations under the Corporate Sustainability Due Diligence Directive CS3D was approved by the European Parliament on 3 April, with immediate consequences for many large companies preparing CSRD reports. Member States of the EU must amend their own national CSRD implementing law by 31 December 2025 to provide that reporting obligations for large undertakings and groups and PIEs which are SMEs are paused for 2 years – rather than having to report in 2026 and 2027 respectively, these undertakings/groups would now need to report in 2028 and 2029 respectively. The reporting deadlines for non-EU groups would not be amended. In the meantime, the European Commission expects to be able to finalise the substantive text which would take approximately 80% of currently in-scope companies out of scope entirely, if the proposed scope thresholds are adopted. However, the European Parliament is already markedly divided on what approach to take to the main text.

The Stop-the-Clock directive will be welcomed by many businesses relieved of the burden of reporting next year, particularly those expecting to be below the proposed thresholds for reporting in the future. Many companies are, however, expected to continue with well-progressed preparations to report in the short term, but they will have more flexibility to step outside the strict confines of the ESRS and potentially even dispense with assurance by publishing their report separately from the management report, should they so choose. Those companies will, however, need to be very aware of greenwashing risks – their reports will no doubt be scrutinised by NGOs and it will be important that any data and claims are robustly checked before publication. Other companies may opt to redirect their energy and resources to sustainability action rather than sustainability reporting.

For more, read Simplification or Deregulation? The EU's Sustainability Omnibus Explained | Travers Smith and The clock stops, but the bus rumbles on – CSRD Omnibus clears its first hurdle | Travers Smith.

The CBAM is, effectively, an import tax on carbon intensive products, such as cement, steel, iron, aluminium and electricity. As addressed above, the Omnibus proposed changes to the CBAM scheme to reduce to the administrative burden on small and medium sized enterprises and occasional importers. Scoping would be determined according to total volumes of imported CBAM goods, rather than based on the value of individual shipments. This is expected to relieve around 90% of participants whilst continuing to cover 99% of emissions from CBAM goods. The most drastic amendment being introduced is a de minimis threshold of 50 tonnes per year (to replace the prior de minimis threshold of €150 per load). As this will exempt small and occasional importers, this change is expected to keep around 99% of emissions still in scope, whilst exempting around 90% of importers who are currently required to purchase a CBAM certificate. Furthermore, the obligation to purchase a CBAM certificate has been delayed, starting in 2027 for emissions embedded in goods imported during 2026.

As previously reported, the Economic Crime and Corporate Transparency Act 2023 (ECCTA) introduced a new failure to prevent fraud offence (FTPF Offence), intended to hold large organisations to account for fraud committed by their associates. The FTPF Offence will come into force on 1 September 2025.

Under the FTPF Offence, organisations will be liable where an employee or agent commits a fraud offence, for the organisation's benefit, and the organisation did not have reasonable fraud prevention procedures in place. In-scope companies should consider implementing the necessary policies and procedures in advance of this date. Organisations may consider doing the following:

1. Review any existing procedures that may have been implemented in respect of the failure to prevent tax evasion offence (under the CFA) or the failure to prevent bribery offence (under the Bribery Act) to ensure that they remain suitable in light of ECCTA.
   
   
2. Carry out an anti-fraud risk assessment to assess the risk of fraud being committed by an associated person for the benefit of the organisation.
   
   
3. Implement due diligence measures to mitigate against any material risks identified in the anti-fraud risk assessment.
   
   
4. Implement a new fraud prevention plan, based on the findings of the risk assessment and any due diligence measures implemented.
   
   
5. Appoint a nominated person responsible for fraud prevention in your organisation, and each subsidiary.
   
   
6. Carry out regular training of staff and employees, including tailored training for high-risk members of staff and senior management.
   
   
7. Monitor and review your fraud prevention procedures on an ongoing basis.

For further details on the FTPF Offence, its scope, potential penalties for failure to comply and how in-scope organisations can make use of the defences that apply, see our briefing.

The Government's Technical Advisory Committee (TAC) on UK Sustainability Disclosure has released its technical assessment and endorsement recommendations in respect of the ISSB Sustainability Reporting Standards. This advice is expected to form the basis of a government decision to endorse and adopt the standards as UK national standards in 2025, though at the time of writing the Government has not adhered to its own timetable of publication in Q1. If such an endorsement decision is made, it is expected that listed companies will be required to report in accordance with them, potentially as soon as financial years beginning on or after 1 January 2026. Large private companies currently reporting non-financial and sustainability information under the Companies Act are expected to be covered later, potentially from 2028 or 2029.

The proposed national standards do not deviate significantly from the ISSB's international standards. It is proposed that the first two years of reporting would only require climate-related financial disclosures (under the S2 standard), with an extension to general sustainability matters (under the S1 standard) in the third year.

Late last year, the UK Government launched a consultation on a UK Green Taxonomy. The purpose of this Taxonomy is to establish a framework to define which investment activities support climate, environmental and sustainability goals. The consultation sought views on whether to proceed with a Taxonomy rather than on introducing any specific requirements to report using one. The consultation has now closed, and we look forward to reporting on the results in due course.

The FCA is intending to introduce a transition plan disclosure obligation whilst listed companies move from TCFD to UK-endorsed ISSB standards.

As part of IFRS S2, companies must disclose any climate-related transition plan they have. The intention behind this is to better equip investors to assess a company's future prospects. The FCA has confirmed that they will refer to the framework produced by the Transition Plan Taskforce, which was designed to help businesses report their transition plans in line with IFRS S2 more effectively.

A new Action Plan for regulation aims to streamline administrative processes and cut costs for businesses in order to create a regulatory system that supports economic growth. The plan includes several "pledges" from regulators including the FCA, Environment Agency, Natural England, Ofgem and the HSE (among others) which should be implementable within the next 12 months.

The plan proposes to cut administrative costs for businesses by 25% by the end of Parliament. This will include undertaking an exercise to understand the cost of regulation and identify where the system can be reformed. The plan will also aim to improve the transparency of regulators and effect a simplification of their key duties and roles, merging and consolidating between key regulators where appropriate. Excessive reporting is noted as a particular source of burden for companies.

Also set out in the plan are specific environment and planning and health and safety targets which are all aimed at increasing efficiency in administrative processes.