ESG Focus: UK/EU/International ESG Regulation Monthly Round-Up – February 2026

In this issue:

Chapter 1: UK developments

Chapter 2: EU Developments

Chapter 3: International developments

Chapter 1: UK Developments

This month we saw the final publication of the UK Sustainability Reporting Standards (“UK SRS”) and examples of good and poor practice under the UK Sustainability Disclosure Requirements (“UK SDR”).  We also saw a number of nature and environmental bills being passed in Wales and the UK.

1. UK FCA publishes a document setting out Good and Poor Practice under the UK SDR Regime

   On 27 February 2026, the Financial Conduct Authority (“FCA”) published “Sustainability Disclosure Requirements labels: good and poor practice” setting out observations on firms’ implementation of sustainability labels under the UK SDR (which has been in use since July 2024). The document illustrates examples of good and poor practice across each of the four FCA labels. It aims to guide firms towards clear, robust and specific labelling and disclosure practices and to reinforce the FCA’s expectations regarding integrity and accuracy in sustainability claims. Read more here.

2. UK DBT publishes final UK sustainability standards

   On 25 February 2026, the UK Department of Business and Trade (“DBT”) published the final UK Sustainability Reporting Standards and accompanying response to the consultation on the UK SRS. 

   UK SRS S1 and S2 are available now in the UK for voluntary use and the FCA is currently consulting on the use of UK SRS for UK listed companies (see here for more information). 

   The final standards include certain amendments to IFRS S1 and S2.  Although four amendments were proposed to IFRS S1 and S2 based on the UK Sustainability Disclosure Technical Advisory Committee advice, there have been two changes to the proposed amendments since the draft UK SRS were published. 

   • In one case, the amendment which intended to remove the requirements to use the Global Industry Classification Standard (GICS) from UK SRS S2 was superseded by a broadly consistent amendment made by the ISSB itself in December 2025. Therefore no further change is required and the ISSB language will be endorsed as amended.
   • In the UK SRS consultation, the DBT proposed extending the transitional reliefs which permit delays in reporting sustainability-related risks and opportunities beyond climate, from one to two years.  As explained in the recent letter from DBT to the FCA, it has decided to remove specific time references about when the reliefs would apply in the UK SRS.  It will be for the specific set of rules implementing the UK SRS to determine this, eg the FCA’s rules for listed companies.

   Other changes include:

   • Adding a mechanism for financial institutions which have not been able to comply with the financed emissions disclosure requirements of UK SRS to explain why they have not been able to comply.
   • Removing the specific time references for application of transition reliefs for non-climate reporting and Scope 3 emissions.  Therefore voluntary reporters will be able to use them indefinitely.
   • The ISSB’s amendments to IFRS S2 have been incorporated into UK SRS S2 with the exception of the amendments to the effective date and transition (adjusting comparatives).

   The response confirms that those reporting under UK SRS (whether voluntarily or not) do not need to duplicate disclosures in order to meet obligations under the Companies Act and the government will update its guidance on climate-related financial disclosures for companies and LLPs accordingly. The Department for Energy Security & Net Zero (“DESNZ”) will also consider how the SECR requirements interact with UK SRS with a view to reducing unnecessary duplication where possible. 

   The response to the consultation also sets out that the government will consider whether to require private companies to report under the UK SRS and a mapping of differences between IFRS and UK SRS provisions. It also confirmed that DESNZ will provide a summary of feedback to the transition plan requirements consultation in due course.

3. Welsh Government passes environmental and nature-related laws
   1. Environment (Principles, Governance and Biodiversity Targets) (Wales) Bill

      On 24 February 2026, the Senedd Cymru (Welsh Parliament) passed the Environment (Principles, Governance and Biodiversity Targets) (Wales) Bill, establishing a new framework for environmental protection in Wales. The legislation creates the Office of Environmental Governance Wales, an independent body tasked with holding public authorities to account for compliance with environmental law, including scrutiny of the Welsh Government, Natural Resources Wales and local authorities. It also empowers Welsh Ministers to set ambitious, legally binding biodiversity targets, reinforcing Wales’ approach to nature protection and governance.

   2. Sustainable Investment Principles for Nature Recovery

      On 20 February 2026, the Welsh Government published sustainable investment principles for natural resources to support nature recovery. The principles seek to address the “nature emergency” by promoting high integrity finance that benefits and engages local communities, avoids inappropriate land use change and mitigates greenwashing risks. They are intended to steer public and private investment toward projects that deliver credible biodiversity outcomes while integrating ESG considerations into regional capital allocation decisions.

4. UK government to consult publicly on fiduciary duty guidance

   According to Responsible Investor, Baroness Sherlock told a House of Lords committee that the government will establish a technical working group aiming to give the market clarity on how fiduciary duty applies to long-term factors such as climate risk and members’ future living standards, expecting to consult “later this Spring”.  She also added that the government expects trustees to more fully embed nature considerations into long-term decision-making as nature reporting evolves. She mentioned that the government will consider including guidance on identifying, assessing and managing nature-related risks in its forthcoming guidance on trustee investment duties.

5. UK Biodiversity Beyond National Jurisdiction Act Receives Royal Assent

On 12 February 2026, the UK Biodiversity Beyond National Jurisdiction (“BBNJ”) Bill, implementing the High Seas Treaty, received Royal Assent. While the Act is in force, further secondary legislation is required before the UK can ratify the BBNJ Agreement, including amendments to the marine licensing regime to align with environmental impact assessment obligations under the treaty. These changes are intended to ensure that UK activities in areas beyond national jurisdiction are subject to robust environmental scrutiny. The High Seas Treaty introduces obligations related to sharing monetary and non-monetary benefits and may affect companies in food, feed, biotechnology, pharmaceuticals and cosmetics using use marine genetic resources and digital sequence information.

Chapter 2: EU Developments

This month there has been progress of finalising the Omnibus I and opinions published on the revised draft ESRS.  Amendments affecting laws on water-related pollution have also been published.              

1. Omnibus I – Amendments to CSRD and CSDDD published in the EU Official Journal

   On 26 February 2026, the directive which amends and simplifies sustainability reporting and due diligence requirements under the Corporate Sustainability Reporting Directive (“CSRD”) and the Corporate Sustainability Due Diligence Directive (“CSDDD”) was published in the EU Official Journal. This followed final approval from the Council. Member States must transpose most provisions by 19 March 2027 and amendments to the CSDDD by 26 July 2028. 

2. Opinions on the revised draft European Sustainability Reporting Standards (“ESRS”)

   In mid-February 2026, the European Banking Authority (“EBA”), the European Securities Markets Authority (“ESMA”), the European Insurance and Occupational Pensions Authority (“EIOPA”) and the European Central Bank (“ECB”) each published  opinions on the revised draft ESRS: 

   1. On 18 February 2026, the EBA opinion welcomed the streamlining and clarification achieved by EFRAG.  However, the EBA notes that there are “key aspects and concerns related to the proposed reliefs, specially those with a permanent nature, and their possible consequences”.  The EBA notes that the overall impact from the reliefs may significantly reduce the amount of quantitative information reported by undertakings, which does not meet the objectives expressed by the Commission when opening this review and may shift the burden onto users of the information, including banks.
   2. On 18 February 2026, ESMA issued its Opinion on EFRAG’s proposed revisions to ESRS, supporting simplification but recommending targeted modifications. ESMA advises the European Commission to introduce time limits for certain permanent reliefs, refine requirements concerning transition plans and strengthen governance related disclosure on sustainability expertise within administrative, management and supervisory bodies. It also calls for greater transparency on financial resources devoted to sustainability actions and recalibration of exemptions allowing subsidiaries to omit reporting on sustainability risks and opportunities for subsidiaries excluded from consolidated financial statements due to immateriality. 
   3. On 17 February 2026, the ECB issued its staff opinion.  It set out three critical points for improvement to ensure that the need to balance EU policy objectives of the CSRD with the need for simplification.  These critical points include:
      • Consideration of limitations that the permanent relief measures, phase-ins and exemptions from disclosure requirements will bring to comparability and meaningful data being available;
      • The need for interoperability with the International Sustainability Standard Board (“ISSB/IFRS”) standards, in particular in relation to reliefs beyond those in ISSB/IFRS; and
      • The need for clarification to ensure that the revised draft ESRS are appropriate for meaningful disclosures by the financial sector.
   4. On 16 February 2026, the EIOPApublished its Opinion assessing the revised ESRS from the perspective of the (re)insurance and occupational pensions sector.
3. Targeted Amendment to ETS2

   On 18 February 2026, the Council adopted its position on a targeted amendment to the market stability reserve for the new ETS2 emissions trading system, covering fuel for heating buildings, road transport and additional sectors. The amendment does not alter the core design of the reserve but introduces mechanisms to automatically adjust allowance volumes in response to price movements, with the aim of improving price stability and predictability ahead of ETS2’s launch in 2028. The European Parliament has yet to adopt its position on the proposal.

4. European Commission Targeted consultation on competitiveness of the EU banking sector

   On 11 February 2026, the European Commission launched a targeted consultation on the competitiveness of the EU banking sector, seeking feedback on the state of the sector, cross border capital mobility and global competitiveness. Stakeholders are asked to provide views on three main areas in light of recent simplifications under Omnibus I: (1) EU and global banking competitiveness; (2) the single market and banking union, including the impact of prudential rules on market integration; and (3) complexity and effectiveness of prudential, crisis management and related frameworks. The consultation runs until 19 April 2026. 

5. EESC Roadmap Towards Nature Credits 

   On 10 February 2026, the European Economic and Social Committee (“EESC”) published a Roadmap towards Nature Credits. The roadmap explores how nature credit schemes could be structured to support biodiversity and ecosystem services while maintaining environmental integrity. It forms part of broader EU efforts to mobilise private finance for nature related objectives and sits alongside other sustainable finance initiatives within the EU Green Deal framework.

6. EU Water Directives updated – Stricter Protection for Surface Water and Groundwater

On 4 February 2026, the Council formally adopted a directive updating the list of pollutants affecting surface water and groundwater, including pesticides, pharmaceuticals and PFAS. The revised rules tighten environmental quality standards and enhance monitoring obligations, amending the water framework directive, the groundwater directive and the directive on environmental quality standards. The European Parliament is expected to hold its final vote by the end of March. EU Member States will have until the end of 2039 to meet the new standards for groundwater and surface water, with a shorter deadline of end of 2033 for substances subject to more stringent surface water standards.

Chapter 3: International developments

This month we saw updates on water regulation in Mexico and further developments on climate reporting and environmental legislation in California and the US.

1. California Air Resources Board unanimously approves initial climate disclosure regulation recommended by staff

   On 26 February 2026, the California Air Resources Board (“CARB”) held a public hearing to consider adoption of its initial regulation implementing the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). At the conclusion of the hearing, CARB unanimously approved adoption of the regulation (see CARB’s press release here and presentation slides here). The regulation establishes a flat-fee program, defines key terms, and sets 10 August 2026, as the first-year reporting deadline for Scope 1 and 2 emissions under SB 253. CARB will submit the final rulemaking package to the Office of Administrative Law, which must approve the proposed regulation. Read more here.

2. Mexico – New carbon registry signals market shift in Mexico

   Mexico continues to reinforce its climate policy framework through instruments designed to expand the domestic supply of carbon credits and support national emissions reduction targets. In this context, the Mexican Stock Exchange and the carbon platform MexiCO₂ are promoting the creation of the Mexican Registry for the Green Transition, a national scheme aimed at certifying projects that generate verifiable emissions reductions while delivering social and environmental co-benefits.

   The initiative is developing alongside the anticipated launch of the operational phase of Mexico's Emissions Trading System, suggesting increased future demand for domestic offsets and positioning Mexico within the global trend toward locally tailored carbon standards. Read more here.

3. US EPA finalises landmark recission of 2009 GHG Endangerment Finding for motor vehicles 

   On 12 February 2026, the US Environmental Protection Agency (“EPA”) announced that it finalised a proposal to reconsider the 2009 Endangerment Finding that has served as the foundation for EPA's authority to regulate greenhouse gases (“GHG”) from new motor vehicles and engines and repeal all GHG regulations promulgated pursuant to that finding. See EPA Final Rule, Reconsideration of 2009 Endangerment Finding and Greenhouse Gas Vehicle Standards, 91 Fed. Reg. 7686  (Feb. 18, 2026). The final rule rescinds all EPA GHG standards for light-, medium-, and heavy-duty vehicles dating back to the beginning of the program in model year (MY) 2012. Read more here.

4. US EPA’s “Year One” PFAS actions: Where things stand and what to watch

   The US EPA issued a press release highlighting “major year one PFAS actions” under the current administration, summarised in a corresponding briefing. The Agency outlines a wide range of PFAS related activities, including the creation of an internal coordinating group to share research, innovation and actions to accelerate PFAS cleanup and protect human health and the environment. The briefing emphasises that PFAS remain a top agency priority and provides context on current testing capabilities and expected near term regulatory developments. Read more here.

5. US SEC Proposes amendment to Names Rule and ESG reporting requirements

   On 18 February 2026, the US Securities and Exchange Commission (the “SEC”) published proposed amendments to the form used by most registered investment companies to report portfolio-related information, including modifying Form N-PORT to remove “Names Rule” reporting and removing direct reference to ESG and sustainability funds. On the same day it also published Staff Guidance 2025-26 Names Rule FAQs and a list of the rules which the staff has determined to withdraw.

6. Global: Net Zero Asset Managers Initiative Announces Relaunch
   
   On 25 February 2026, the Net Zero Asset Managers initiative (“NZAM”) was officially relaunched with an updated Commitment Statement which was reached following a six-month review period.

Our global Sustainable Finance & Investment group brings together a multidisciplinary global team that provides clients with best-in-market support.  We are following developments relating to ESG regulation, so please get in touch if you would like to discuss.

Stay ahead with timely curated developments, insights and thought leadership on ESG regulation with our ESG Regulatory Alerts tool. 

This note is intended to be a general guide to the latest ESG developments. It does not constitute legal advice.

Authored by Emily Julier, Rita Hunter and Teofisto Consistente VI.