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

In this issue:

Chapter 1: UK developments

Chapter 2: EU Developments

Chapter 3: International developments

Chapter 1: UK Developments

March saw new publications released from the Transition Finance Council (“TFC”) bringing further clarity to transition finance and publication of more of the UK Financial Conduct Authority’s (“FCA”) Regulatory Priorities reports which provide key priorities sector by sector, amongst other things.

1. Transition Finance Council updates, including publication of Year-end progress report

On 26 March 2026, the TFC published its Year-end progress report following its first year of operation.

It notes that its key achievements in the last year have included publishing key documents to support scaling transition finance (including the below) and public and stakeholder engagement.

It notes that in its second year, it plans to shift from framework development to implementation and global engagement, structured around the following priority themes:

• Internationalisation and Alignment, positioning the Transition Finance Guidelines as a globally recognised reference point.
• Industry Road-Testing and Domestic Adoption, supporting UK and international financial institutions and corporates to apply the Guidelines in real-world financing decisions.
• Market Development and Instruments, catalysing investment by working with industry to advance transition-aligned market instruments.

The following new documents have also been published:

• The Transition Finance Guidelines, Exposure Draft
• Implementation Handbook
• Four policy briefs for scaling transition finance flows

2. FCA publishes regulatory priorities for Wholesale Buy Side and Wholesale markets - ESG takeaway points

On 19 March 2026, the FCA published two more Regulatory Priorities reports for Wholesale Buy Side and Wholesale Markets.

In relation to ESG, the following points were of note:

• In Q2 2026, the FCA will publish a consultation paper on streamlining product level TCFD reporting requirements.
• The FCA says it will be supporting further implementation of the UK Sustainability Disclosure Requirements (“UK SDR”) and labelling regime.
• The FCA says it is fast-tracking the authorisation of investment funds focused on the defence sector, “reducing approval times to as little as 1 month versus our 3 month standard”.
• The FCA will finalise its regime for ESG ratings providers, with a policy statement in Q4 2026, and rules effective June 2028.

3. Defence sector – tackling the barriers to securing finance – EU and UK

We have previously written about how defence investment is not necessarily incompatible with sustainability-related rules and regulations and the EU and UK regulators have confirmed this (see our briefing here). Although these clarifications have been helpful and accompanied a real change in perception of defence both from the public and business, it is not a silver bullet to removing barriers to investment in defence. There are number of other structural barriers to defence and defence-related finance which must be tackled simultaneously. We discuss how sustainable finance can be applied to the defence sector following the publication of the European Commission final Notice on this topic and how other structural barriers to finance can be addressed in our newest article here.

4. UK Pension Schemes Bill update regarding consideration of systems level risks for pension schemes

The Pension Schemes Bill is making its way through the UK legislative process. Amongst other things, the Bill is intended to address the perceived lack of clarity for pension scheme trustees as to whether factors such as ESG considerations and systems level risks can be considered when exercising fiduciary duties.

On 27 March 2026, the House of Lords sent the suggested amendment which would have given the UK Government power to issue statutory guidance instructing pension scheme trustees on how to consider long term financially material factors, including ESG considerations and system level risks (e.g., climate and nature-related risks) when exercising their fiduciary duties back to the House of Commons for consideration. It is not clear why these amendments were not agreed by the House of Lords. The bill is now in its final stages but as the bill must be passed before the end of the Parliamentary session in May it is not clear how this will be resolved.

5. FCA publishes examples of good and poor practice for using labels under the UK Sustainability Disclosure Requirements

On 27 February 2026, the FCA published examples of good and poor practice for using labels under the UK SDR in its publication Sustainability Disclosure Requirements labels: good and poor practice. Read here for more information and some takeaways for UK asset managers disclosing under UK SDR labels.

Chapter 2: EU Developments

This month in the EU we saw developments in respect of the EU Taxonomy and the 2040 EU climate target, as well as publication if the 2026 EFRAG draft work programme.

1. EFRAG publishes work plan and update on timing of consultations for 2026

On 26 March 2026, EFRAG published its draft work program 2026, will now be sent to the European Commission.

EFRAG’s work program

EFRAG’s 2026 activities will focus on:

• ESRS for non-EU Groups based on simplified ESRS (“N-ESRS”);
• Voluntary Standard for Small and medium-sized enterprises (VS);
• Interoperability with international standards;
• Digitalisation and ESRS Knowledge Hub;
• Development of educational materials and structured training content; and
• Implementation activities.

VSMEs and Simplified ESRS

The timing included in the work program takes into account the need to wait for the Commission to adopt the Delegated Acts for Voluntary Standards (“VSME”) and Simplified ESRS (expected June 2026) before launching any public consultations.

Following adoption by the Commission, the Delegated Acts would be scrutinised by the Parliament and Council for two months, extendable by two months. Publication in the Official Journal is expected for Q4 2026.

N-ESRS

EFRAG is envisaged to prepare technical advice for non-EU undertakings falling within the scope of Art 40(a) of the CSRD (N-ESRS). These were originally due to be adopted by the Commission by 30 June 2024 but were deprioritised to allow for simplification of the ESRS under the Omnibus I.

We expect internal preparatory work at EFRAG to commence in April 2026 with public consultations being held from mid-July to mid-October 2026 (for 90 days). EFRAG aims to do dedicated outreach with workshops and to ensure maximum cooperation with standard setters in different jurisdictions. Advice is currently set to be delivered to the Commission at the end January 2027.

Voluntary Standard

Non-listed SMEs and micro-undertakings which are not subject to reporting under CSRD still receive requests for sustainability information. Therefore, the Commission endorsed a voluntary reporting standard for use by non-listed SMEs (“VSME”) in July 2025.

For SMEs and other companies with up to 1000 employees outside the scope of CSRD, the Omnibus I directive anticipates that the Commission will endorse a Voluntary Standard as a Delegated Act, based on VSME (the Voluntary Standard). This is expected to be issued in June 2026.

In connection with this, EFRAG has also opened a call for expression of interest to take part in future engagement and research activities on the application of the upcoming Voluntary Standard (VS) by non-SME companies outside the scope of the CSRD. The deadline for responses is 20 April 2026.

Timeline for EFRAG Public Consultations

2. EU regulation setting 2040 EU climate target to 90% of greenhouse gas reduction published in Official Journal

On 18 March 2026, Regulation (EU) 2026/667 was published in the Official Journal. The regulation amends the EU’s existing climate target to set a new EU 2040 climate target of 90% reduction in net greenhouse gas emissions compared to 1990 levels. It also postpones the operation of ETS2 for buildings, road transport and additional sectors until 2028. It requires the Commission to review every two years. The regulation enters into force on the twentieth day following publication in the Official Journal.

3. European Commission publishes draft revisions to EU Taxonomy delegated acts

On 17 March 2026, the European Commission published draft revisions to the EU Taxonomy Climate Delegated Act and Environmental Delegated Act.

These draft revisions are designed to simplify criteria where experience has shown that requirements are overly complex, duplicative or difficult to apply consistently, including in relation to the ‘do no significant arm’ criteria. This includes clarifying provisions, streamlining assessment steps and improving the internal consistency of the criteria across environmental objectives and sectors, without reducing the level of environmental ambition. The feedback period closes on 14 April 2026.

4. European Commission invites the ESAs to give technical advice on Article 8 of the EU Taxonomy Regulation

On 4 March 2026, the European Commission published a Call for Advice inviting the European Supervisory Authorities (“ESAs”) to develop technical advice to inform the review of the Disclosures Delegated Act under the EU Taxonomy Regulation.

The Commission has requested advice focused on key performance indicators: the operational expenditure (OpEx) KPI of non-financial firms, Commissions and Fees KPI and Trading Book KPI of credit institutions, and the underwriting KPI of insurance/re-insurance undertakings.

They have also requested the ESAs to advise whether other targeted technical amendments to the Disclosure Delegated Act are necessary to simplify and enhance the usability of Taxonomy reporting.

Delivery of the final advice has been requested by October 2026.

5. Ensuring that prudential requirements under the Capital Requirements Regulation (“CRR”) / Capital Requirements Directive (“CRD”) do not undermine the omnibus package’s efforts to simplify reporting for SMEs

On 17 November 2025, a written question was submitted to the European Commission, requesting that Commission ensure that the prudential requirements required under CRR and CRD do not undermine the simplifications made in relation to sustainability reporting under Omnibus I.

On 5 March 2026, the Commission responded confirming that it is committed to reducing unnecessary administrative burdens on banks and companies, particularly SMEs, whilst safeguarding financial stability.

In parallel, the European Banking Authority (“EBA”) is finalising updated CRR implementing technical standards on Pillar 3 ESG disclosures, following public consultation and close coordination with the Commission to ensure alignment with the Omnibus reforms and prudential requirements.

The responses noted that, during the Omnibus negotiations, the EBA issued a no action letter significantly limiting ESG disclosure obligations under prudential rules, which will remain in place until the revised ITS apply, with the aim of ensuring ESG risk disclosures are meaningful, proportionate, risk based and do not impose undue indirect burdens on SMEs.

Chapter 3: International developments

This month was have seen updates from around the world, ranging from draft sector guidance from the Taskforce on Nature-related Financial Disclosures (“TNFD”) and supervisory guidance on climate risk in Singapore to new environmental laws in Mexico and China.

1. TNFD releases draft sector guidance for technology and communications and alternative fuels

On 23 March 2026, TNFD released draft sector guidance for technology and communications, which is open for consultation until 10 April 2026, and draft guidance for the alternative fuels sector, which is open for consultation until 5 May 2026.

2. China – New Ecological and Environmental Code

On 12 March 2026, the National People’s Congress adopted the Ecological and Environmental Code (the Code, 生态环境法典), marking China’s second formal legal code following the 2020 Civil Code (民法典). This Code updates a vast body of existing environmental legislation accumulated over several decades, adopting a “moderate codification” approach: it incorporates ten major environmental laws in full, while most other laws continue to exist separately with their core regulatory schemes referenced or streamlined.

The Code introduces, for the first time at statutory level, national regulatory frameworks in China for chemical substances, non‑ionizing radiation, and light pollution. It formalises lifecycle controls, designation of priority controlled new chemical pollutants and pre‑marketing registration for new chemical substances, clarifies emission standards and tiered regulation for radiation‑emitting facilities, and empowers authorities to set enforceable limits on light pollution. These changes elevate previously administrative rules into statute, increasing requirements and data expectations for companies in chemicals, advanced materials, telecommunications, electronics, infrastructure and large‑scale lighting facilities and operations.

The Code also establishes a statutory framework for climate governance, embedding carbon peaking and carbon neutrality targets into national planning and authorising controls over both the total amount and intensity of carbon emissions. It mandates carbon accounting, product carbon footprint management and monitoring of carbon sinks (such as forests and wetlands), and elevates China’s national emissions trading system (“ETS”) into law, strengthening enforcement of emissions data verification and allowance surrender.

From an ESG perspective, this marks a shift from policy commitments to legally enforceable obligations, with direct impacts on companies subject to ETS or in high emission industries and indirect effects through supply chains arrangements, disclosure practices and investment due diligence. The Code is effective from 15 August 2026.

3. Singapore – climate risk management expectations set for financial institutions

On 5 March 2026, the Monetary Authority of Singapore (“MAS”) issued three Guidelines on Environmental Risk Management - Transition Planning (“Guidelines”) to set out MAS’ supervisory expectations for banks, insurers and asset managers to manage the transition and physical risks they and their portfolios face from climate change. See the MAS press release for more information.

4. Mexico – New water availability zones for 2026: Impact on water use duties

On 27 February 2026, SEMARNAT published the Agreement announcing the values of each of the variables that make up the formulas for determining, during fiscal year 2026, the availability zones referred to in sections I and II of Article 231 of the Federal Law of Fees, effective as of 1 January 2014 (the “Agreement”) in the Official Gazette of the Federation. This update is particularly relevant for concessionaires and assignees of national waters, since the availability zone assigned to a supply source is one of the central elements for calculating federal rights for the use, exploitation, or utilization of national waters. Read more here.

5. New York Climate Corporate Data Accountability Act (“CCDAA”)

On 11 February 2026, New York State Senate passed the CCDAA (previously known as Senate Bill S3456) and passed it to the Assembly for consideration (the beginning of its legislative journey). The proposed legislation would apply to large US-based public and private companies with annual revenues in excess of one billion dollars. It would require an annual report setting out Scope 1, 2 and 3 emissions using the greenhouse gas protocol standards consistent with international reporting requirements. The Act is proposed to take effect from 2027 with reporting from the prior fiscal year. Independent verification of reports will be required starting with limited assurance for Scopes 1 and 2.

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.

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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 Benjamin Garbett.