Regulatory Updates for Environmental, Social, and Governance (ESG) Issues in the Financial Services Sector on a Monthly Basis

Regulatory Updates for Environmental, Social, and Governance (ESG) Issues in the Financial Services Sector on a Monthly Basis

In a series of significant moves, financial regulators around the world have been taking steps to address climate risks and promote sustainability.

Australia

The Transition Plan Taskforce has published the final version of its Disclosure Framework, aiming to improve the transparency of climate-related risks in the Australian financial sector. The Australian Competition and Consumer Commission has authorised the Australian Sustainable Finance Institute to collaborate on sustainable finance initiatives in Australia. The Australian Securities and Investments Commission has also addressed climate-related risks in the financial system.

United Kingdom

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority have set out proposals to introduce a new regulatory framework on diversity and inclusion in the financial sector. The FCA's anti-greenwashing rule, marked a year of active supervisory enforcement on 31 May 2025, demonstrating the regulator's commitment to combating misleading environmental claims. The UK government will not pursue a UK Taxonomy and will be moving forward on the delivery of its commitments on transition plans and the sustainability reporting standards.

Europe

The European Supervisory Authorities (ESAs) have published Progress Reports on greenwashing in the financial sector, and the European Securities and Markets Authority (ESMA) has launched a consultation on the integration of sustainability preferences in the suitability assessment and product governance arrangements. The European Commission has adopted the European Sustainability Reporting Standards (ESRS) and a recommendation for voluntary sustainability reporting for Small and Medium Enterprises (SMEs) in the EU. The European Banking Authority has released a consultation paper on draft implementing technical standards amending Commission Implementing Regulation (EU) 2024/3172.

The European Commission's sustainable finance package is also under discussion, which includes the International Sustainability Standards Board (ISSB) publishing its inaugural standards. The ISSB's standards aim to provide a global baseline for sustainability-related disclosures, promoting transparency and comparability in the reporting of climate-related and environmental information.

International Developments

The Taskforce on Nature-related Financial Disclosures (TNFD) has published its recommendations, focusing on improving the understanding and management of nature-related risks and opportunities. The International Court of Justice (ICJ) issued a historic judgment affirming states' obligations to protect the climate from greenhouse gas emissions.

However, it's worth noting that since June 2023, no specific national governments have yet fully enacted sustainability reporting regulations for small and medium-sized enterprises (SMEs) because EU member states are required to transpose the new Corporate Sustainability Reporting Directive (CSRD) into national law by July 6, 2024. This directive extends sustainability reporting obligations progressively, including for SMEs, but full implementation at national level is pending and ongoing as of 2025.

The FCA's multi-firm review of climate reporting in the UK highlighted progress in integrating climate change risks but noted challenges with data availability and reporting complexity. The FCA has published final rules and guidance on Sustainable Disclosure Requirements (SDR) and investment labels, and proposed new guidance on the anti-greenwashing rule.

In a landmark case Pabai v Commonwealth of Australia, the Federal Court ruled that the government does not owe a duty of care to Torres Strait Islanders regarding climate change, a decision that has sparked controversy and calls for reconsideration.

These developments underscore the global focus on addressing climate risks and promoting sustainability in the financial sector. As regulators continue to implement new policies and standards, businesses and investors will need to adapt to these changes to ensure long-term resilience and success.