ESG Regulatory Evolution: A Look at 2025 and the Road Ahead

The landscape for ESG regulation has shifted considerably over the last several years, with the EU leading the way with its Green Deal. For investors and managers, trying to stay up to date with a shifting ecosystem represents both a challenge and an opportunity.

Here we lay out any regulatory changes that may impact firms, portfolio companies, and managers through 2025 and beyond.

EU Omnibus 2025

The EU Omnibus Directive will be published on the 26 February 2025 and will introduce measures to streamline reporting requirements across EU sustainability laws.

Businesses have responded to the fast-approaching Omnibus in opposing ways, with some leaders suggesting businesses are over-burdened with reporting requirements with a resulting impact on growth and long-term investment. Most recently, however, a coalition of 11 global companies, including L'Occitane, Mars, Nestlé, Primark, Signify, and Unilever, has appealed to the European Commission, urging it not to weaken current sustainability reporting standards.

EU Taxonomy 2025, 2026, 2027

The EU taxonomy is a system of classification which sets criteria for identifying economic activities that support a net-zero pathway by 2050, as well as other environmental objectives beyond climate-related goals.

Companies that published reports in 2022 (for 2021 fiscal year) under the NFRD had to include taxonomy disclosures. In short, this means disclosing how economic activities align with the criteria set by the EU Taxonomy regulation.

Companies that must now comply with CSRD are obligated to provide taxonomy disclosures under Article 8, with 2025 seeing large companies who are already under the NFRD subject to providing taxonomy disclosures. In 2026 & 2027, the scope will widen further, including other large companies who are not currently subject to the NFRD and non-exempt SMEs, respectively.

Sustainable Finance Disclosure Regulation 2025

The SFDR applies to both European and non-European entities or individuals involved in marketing or advising on financial products within the EU.

SFDR reporting requirements became applicable in 2021 for specific in-scope firms. Starting in 2024, disclosures must include year-over-year comparisons between reference periods, eventually encompassing five reference periods as they accumulate over time.

Corporate Sustainability Reporting Directive 2025, 2026, 2027

The CSRD aims to enhance corporate transparency and accountability across sustainability themes. It also aims to establish standardised reporting requirements so that reliable, relevant and comparable ESG related data can improve ESG performance, as well as be utilised in the market.

The CSRD has undertaken a staggered implementation phase, with 2025 seeing the first report deadlines for companies currently covered by the Non-Financial Reporting Directive (NFRD). In 2026, the CRSD will extend to large non-NFRD captured companies who will have to report on the 2025 fiscal year, and 2027 will see the umbrella open even further to capture non-exempt SMEs.

European Sustainability Reporting Standards 2025

The ESRS aims to ensure that companies reporting under the CSRD will report reliable and comparable information, supporting broader efforts under Europe’s sustainability umbrella. Any companies that report to CSRD for the first time in 2025 will also have to comply with ESRS that same year.

California Climate Related Acts 2026, 2027

The Climate Corporate Data Accountability Act will require companies with annual revenues exceeding $1 billion and who are conducting business in California to publicly disclose their greenhouse gas emissions across all scopes. 2026 will see the reporting of Scope 1 and 2 emissions, with scope 3 following in 2027.

The Climate-Related Financial Risk Act mandates companies with annual revenues over $500 million and operating in California to prepare biennial reports disclosing climate-related financial risks and describing measures adopted to mitigate those risks. The first reports are due in January 2026.

Corporate Sustainability Due Diligence Directive 2026

The purpose of the CSDDD is to promote sustainable and responsible corporate behaviour by requiring companies to assess and manage adverse human rights and environmental impacts within their operations and throughout their global value chains. The new rules apply to actions both within and beyond Europe, with implementation taking a staggered timeline from 2026 onwards. The CSDDD will be fully implemented in July 2029.

Carbon Border Adjustment Mechanism 2026

The CBAM aims to address carbon leakage and encourage more sustainable production practices globally by imposing a carbon price on imports of certain goods into the EU, with a carbon price matching that of the EU’s Emissions Trading Scheme. CBAM will be definitive from 2026 with preparations in 2025.

Emissions Trading Scheme 2025, 2026

The EU’s ETS is set to see various changes in the next few years. 2025 will see the end of the transitional phase, in which importers move from solely reporting the embedded emissions of goods to being required to purchase CBAM certificates. 2026 will also see the ETS expand to cover methane and nitrous oxide, with ETS2 expected to be fully operational in 2027. ETS2 will introduce buildings, road transport and other sectors to the scheme.

UK Sustainability Reporting Standards 2025

The UK has endorsed the International Sustainability Standards Board standards IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2: Climate-related Disclosure.

The UK Government is currently undergoing an assessment process and is expected to consult on the exposure drafts in the first quarter of 2025. If the process results with an affirmative endorsement, it will result in the creation of the first two UK Sustainability Reporting Standards which will be able to be utilised by the Financial Conduct Authority to introduce requirements on UK listed companies to report on sustainability related information to their investors.

Australian Accounting Standards Board 2025

Based on the International Sustainability Standards Board (ISSB) frameworks, the AASB has developed AASB S1: General Requirements for Sustainability-Related Financial Disclosures and AASB S2: Climate-Related Disclosures.

S1 seeks to establish general requirements for entities to disclose sustainability related information in regard to their financial position and performance, whilst S2 provides specific requirements for disclosures such as detailed climate metrics and is aligned with the TCFD framework. 2025 will see in full compliance for in-scope entities with 2024 acting as an initial adoption period.

US Securities and Exchange Commission

The SEC adopted new rules in March 2024 which would have required companies to disclose certain climate-related information in their registration statements and annual reports, including material climate risks and carbon emissions. However, following legal challenges from various entities these rules were suspended pending judicial review, and a new regulatory landscape in the US has left an uncertain future for the SEC’s climate rules.

So what now?

The evolving ESG regulatory landscape necessitates that businesses, investors, and financial institutions must remain proactive in adapting to these changes. The expanding scope of reporting requirements underscores the growing expectation for transparency and accountability across markets.

A common thread throughout these regulations is the increasing reliance on high-quality, standardized ESG data. Robust data collection, analysis, and reporting are not only compliance necessities but also critical tools for driving long-term value creation. Companies that integrate strong data governance into their ESG strategies will be better positioned to navigate regulatory shifts, mitigate risks, and seize opportunities in an increasingly sustainability-focused economy.

By staying ahead of compliance deadlines and embedding ESG data into decision-making processes, businesses can turn regulatory challenges into strategic advantages, fostering resilience and sustainable growth in the years ahead.

To find out how Dasseti can help you stay ahead of regulatory requirements Book a demo today.