Sustainability

What's happening? 

On 26 February 2026, the Sustainability Omnibus package simplifying sustainability reporting and due diligence rules was published in Official Journal of the EU, and entered into force on 18 March 2026. 

The thresholds for reporting under the Corporate Sustainability Reporting Directive (CSRD) have been raised considerably, taking many companies who expected to have to report out of scope entirely. EU companies and groups are now in scope if they have at least 1000 employees and a net annual turnover of €450m. The non-EU parent companies of groups will need to report if they have at least €450m of EU turnover and either an EU branch or an EU subsidiary with at least €200m of turnover. There is a new exemption for financial holding companies, but the strict boundaries of this mean that its application will need to be considered carefully on a case-by-case basis. 

The scope of the Corporate Sustainability Due Diligence Directive – which were already significantly higher than CSRD – have also been increased and will now capture only the very largest companies. EU companies and groups with more than 5000 employees and €1.5bn of turnover, and non-EU companies and groups with more than €1.5bn of EU derived turnover will be caught.

Separately, in December 2025, EFRAG submitted revised and simplified drafts of the ESRS to the European Commission. The drafts would dramatically reduce the number of datapoints to be reported under the CSRD by 68%, with all optional datapoints deleted. The Commission will now prepare the Delegated Act revising the existing set of ESRS based on EFRAG’s technical advice, expected by mid-2026. Given that the first ESRS were quite significantly revised by the Commission before being adopted, further changes are still possible. 

Why it matters:

Previously, during the "limbo period", businesses faced a number of challenges; they technically remained under a legal obligation which they knew would be at least amended and potentially eliminated in the short term. This limbo has now (for the most part) ended, with new thresholds and compliance deadlines finalised. Member States have 12 months to transpose the provisions into their own national law before they can become effective.

What's happening? 

On 25 February 2026, the UK Government released its long-awaited Sustainability Reporting Standards (UK SRS). The finalised UK SRS are based on IFRS standards S1 and S2 with some minor amendments. Businesses can now voluntarily report against these standards, but some uncertainty remains as the Government decides which private companies will be legally required to comply. 

A key change in the final UK SRS is the indefinite option to report only on climate-related issues, instead of full sustainability disclosures, which marks a change from the ISSB's approach of requiring both disclosures, with climate-first for only a limited period. There are very few other changes between the ISSB's original standards the UK SRS, which is helpful for companies facing multiple disclosure requirements across jurisdictions using ISSB as their sustainability reporting baseline.

The UK Department for Business and Trade (DBT) said that it would consult on the introduction of mandatory reporting for "economically significant companies" once the standards were endorsed. While we still expect that to happen, it may not be immediate as it is part of a wider review of corporate reporting, including the benefits of non-financial reporting and the multitude of thresholds which apply. 

While an assurance framework is in the works, the UK SRS do not envisage any mandatory assurance. Whether audit of sustainability information is required will ultimately be determined by legal rules mandating reporting under the SRS. 

Why it matters:

With the publication of the UK SRS, businesses can now choose to voluntarily disclose against them, though many will wait for the UK Government to decide which entities will be legally required to use the UK SRS for sustainability reporting. UK listed companies already know that the FCA is planning to introduce mandatory reporting for financial years beginning 1 January 2027 or later. 

What's happening?

On 30 January 2026, the UK's Financial Conduct Authority (FCA) launched a consultation on the introduction of mandatory sustainability reporting for listed companies, based on the UK SRS. The consultation will be of high interest to any UK listed company – including overseas companies with a UK listing. Exclusions from the scope of the new rules will align with exclusions from TCFD reporting, namely closed-ended investment funds, shell companies, and debt and debt-like securities. 

The FCA is proposing to amend the Listing Rules to remove references to TCFD, and instead require listed companies to disclose against S2. There is a standalone requirement to disclose whether companies have a transition plan, in addition to the S2 requirements on transition plans. S2 requires that the company disclose information about any climate-related transition plan that it has, including key assumptions in its development and dependencies on which it relies. 

Disclosure of scope 3 emissions will not be mandatory (as per the SRS S2) but will be optional in year 1 and on a comply or explain basis in years 2 onwards. This provides companies with more flexibility but potentially raises questions over the UK’s positioning on climate, given many companies subject to mandatory climate-related risk reporting have spent the last few years developing an approach which would allow them to make sufficiently reliable scope 3 disclosures.

Similarly, all SRS S1 general sustainability disclosures will be on a comply or explain basis from year 3 onwards (optional in the first two years of reporting) – investor expectations and market practice will likely determine whether compliance or explanation becomes the norm.

Why it matters:

Listed companies are quite accustomed to reporting on climate-related financial risks and opportunities, given that the UK was the first country to introduce mandatory reporting in line with the TCFD framework (for premium listed companies, initially, in 2021). The ISSB's S2 climate standard is very similar to TCFD in many respects, with some notable differences including mandatory disclosure of scope 3 emissions in all cases (subject to transitional relief and comply or explain as above), rather than "if appropriate" as per TCFD, and the disclosure of industry-based metrics relevant to a company's business model. Overall, listed companies accustomed to disclosing under TCFD should find it reasonably straightforward to shift to S2 disclosures, though a gap analysis would be a helpful exercise. S1 reporting will require a deeper understanding of the broad sustainability-related risks and opportunities relevant for the company and of interest to investors.

2026 also brings new developments relating to the UK and EU Carbon Border Adjustment Mechanisms (CBAM).

In the UK, the Finance Bill 2025-26 includes draft primary legislation for CBAM, with HMRC sharing draft secondary legislation for consultation on 10 February 2026. The draft secondary legislation covers the legislative requirements associated with the administration of the CBAM charge, including matters such as registration, returns, reimbursement arrangements, weight of CBAM goods, and record keeping.

In the EU, the definitive (i.e. payment) phase of the CBAM began on 1 January 2026, although the changes made by the Omnibus simplification package will remove many importers from its scope. On 16 December 2025, the Commission published a comprehensive legislative package relating to the definitive period. The Commission is proposing to extend the scope of the CBAM to include specific steel- and aluminium-intensive downstream products, in addition to introducing additional anti-circumvention measures and a Temporary Decarbonisation Fund to support EU producers of CBAM goods and mitigate carbon leakage risks. The proposal also clarifies the use of default values, the calculation and publication of emissions and the price of CBAM certificates and the free allocation adjustment.

Why it matters:

As the EU CBAM moves into the definitive phase, in-scope businesses must be prepared for the immediate cashflow impacts from the purchasing of CBAM certificates. The EU’s proposed scope expansion to specific steel- and aluminium‑intensive downstream products, plus tougher anti‑circumvention rules, could capture importers previously outside the scope of the regime. On the other hand, the UK CBAM regime is crystallising: draft primary and secondary legislation set out concrete obligations (registration, returns, product weights, reimbursement, and record‑keeping), meaning systems and data processes must be built now to avoid compliance gaps.

What is it?

On 3 February 2026, the UK Government published its first ever Plan to tackle per- and poly-fluoroalkyl substances (PFAS), commonly known as 'forever chemicals'. The plan sets out a range of further measures and interventions, which includes:

• Developing new guidance for regulators and industries to address legacy PFAS pollution on contaminated land,
  
  
• Consulting on the introduction of a statutory limit for PFAS in England’s public water supply regulations,
  
  
• Carrying out tests on food packaging to trace the presence of PFAS and support future regulatory action,
  
  
• Introducing new guidance for regulators and site operators on how to improve their handling, monitoring and disposal of PFAS, and
  
  
• Completing work to consider restrictions on the use of PFAS in firefighting foams. 

Why it matters:

The UK PFAS Plan signals a step‑change in PFAS regulation and enforcement in the UK. The Plan does not in itself propose any new legislation – however, a public consultation on the restriction of PFAS in firefighting foams was open until 18 February 2026, and the UK Government is considering introducing further restrictions on PFAS including the addition of more PFAS substances to the UK REACH candidate list of substances of very high concern (SVHCs).

Many companies will be familiar with the long-standing requirement for certain businesses to conduct an energy audit every four years, implemented in the UK as the Energy Savings Opportunity Scheme (ESOS). Though UK ESOS continues (and a new scoping deadline looms at the end of 2026), the EU has recently updated the Energy Efficiency Directive and with it the scoping boundaries for the obligation to conduct an energy audit.

Whereas the previous Energy Efficiency Directive determined scope of the requirement based on the size of the company (or partnership, or other entity), the new rules are based on energy consumption over the last three years. Businesses with 10 TJ (approximately 2.8 GWh) of annual consumption will now be required to carry out an audit, regardless of the size of their organisation in financial terms or headcount.

The rules also require in-scope entities to prepare an energy efficiency action plan, laying down how they will act on energy audit recommendations to improve their energy efficiency over time. 

The Directive sets a deadline for the first audit of October 2026, but at the time of writing, only a handful of member states have laws in place to meet this deadline. Many more have laws in draft, and are likely to provide for an extended deadline. 

Why it matters:

Past assumptions around scope no longer hold – even small companies with decent sized office premises can be caught by the new obligation. The requirement is primarily about reporting, but the follow on obligation to prepare an energy efficiency action plan may involve some business changes and potentially cost.