Sustainability in focus / Q4 2026

Government consults on modernizing corporate and sustainability reporting

• On 7 September 2026, the UK Government published its long-anticipated consultation on modernizing the UK's corporate reporting framework, including non-financial narrative reporting. The Modernizing Corporate Reporting (MCR) review aims to address the existing complex and duplicative requirements that obscure the purpose of corporate reporting so that future requirements are simpler, more proportionate and focus on providing financially material information for investors and creditors.
• On financial reporting, the consultation seeks views on proposals to move all detailed financial reporting content requirements from the Companies Act 2006 (2006 Act) and supporting regulations to the accounting standards and to streamline the number of those standards whilst redrawing company size classifications.
• The government proposes to replace most existing strategic reporting requirements with a core set of baseline narrative disclosures and to move towards a principles-based framework. The baseline narrative disclosures will replace the disclosures relating to environmental matters, employees, social and community matters, human rights and anti-corruption and anti-bribery matters as well as the Section 172(1) statement.

FCA publishes rules requiring listed issuers to report using the UK SRS

• The UK Financial Conduct Authority (FCA) has published rules requiring listed issuers to make climate and sustainability disclosures against the UK Sustainability Reporting Standards (UK SRS) on a 'comply or explain' basis.
• The new rules replace existing climate-related financial disclosures and apply to accounting periods starting on or after 1 January 2027, with first reporting in 2028.
• Most of the requirements are those consulted on earlier this year. A key change is that all categories of disclosures will be subject to a 'comply or explain' approach, whereas the consultation had proposed that climate disclosures (other than in relation to Scope 3 emissions) would be mandatory.
• Transitional reliefs are available, including in relation to Scope 3 emissions and non-climate related sustainability (S1) disclosures.
• Alongside the rules, the FCA is consulting on a technical note to help issuers apply the 'comply or explain' approach.

EU adopts simplified ESRS and sustainability reporting standard for voluntary use

• On 3 July 2026, the European Commission adopted two delegated regulations, which are now subject to European Parliament and Council scrutiny.
• The revised ESRS will replace the existing reporting standards for financial years beginning on or after 1 January 2027, although undertakings within the CSRD's scope may choose to apply the revised standards for financial year 2026 or to use specified reliefs while continuing to apply the existing standards.
• The revised ESRS shorten and clarify the standards, introduce additional reliefs and phase-ins, reduce mandatory datapoints by 61% and total datapoints by more than 70%, simplify materiality assessment and improve interoperability with international standards and EU legislation.
• The Voluntary Standard is intended for undertakings that are not subject to mandatory CSRD reporting and that do not exceed an average of 1,000 employees during the preceding financial year.
• The Voluntary Standard also establishes the value chain cap: for CSRD reporting purposes. As a result of the cap, reporting undertakings may not require protected undertakings in their value chains to provide sustainability information beyond the datapoints specified in Annex II to the Voluntary Standard, and protected undertakings have a statutory right to decline requests that exceed the Voluntary Standard.

California Climate Disclosure Laws Update

On 27 July 2026, California Air Resources Board issued modifications to the initial implementing regulations for SB 253 (the Climate Corporate Data Accountability Act) and SB 261 (the Climate-Related Financial Risk Act). The reporting deadline for SB 253 has been deferred from 10 August 2026, to 10 November 2026. Revisions to the reporting requirements regulations clarify that Scope 3 emissions are not required for 2026 reporting; that reports may be consolidated at the parent company level; and clarify the allowable alternative reporting methods for the 10 November 2026, report. SB 261 enforcement remains paused pending the Ninth Circuit's ruling on the appeal of the lawsuit challenging SB 261 and SB 253.

Australian government publishes climate-related transition planning guidance

On 24 August 2026, the Australian government published guidance on climate-related transition planning. The guidance is intended to support organizations in undertaking good practice, internationally-aligned transition planning regarding the impacts of the net zero transition and changing climate on their operations.

The guidance is structured around a four-stage planning cycle: assess, set ambitions, plan actions, and implement. It builds on the Transition Plan Taskforce (TPT) Transition Planning Cycle while incorporating Australian-specific policy, physical-risk and regulatory context. The guidance is voluntary and does not create an obligation to prepare a transition plan or inform mandatory disclosures under the Australian ISSB-aligned sustainability reporting standard AASB S2. The guidance articulates what the Australian Treasury considers good practice and may inform investor, lender and stakeholder expectations over time.

ISSB consults on practice statement on nature-related disclosures

On 22 October 2026, the International Sustainability Standards Board (ISSB) published a consultation on an Exposure Draft of its practice statement on nature-related disclosures. It also published Accompanying Guidance and its Basis for Conclusions as well as a snapshot summarising the Exposure Draft and an FAQs document.

The Exposure Draft builds on the existing requirements in IFRS S1 (sustainability disclosures) and S2 (climate disclosures) to specify how companies can provide decision-useful disclosures on sustainability-related risks and opportunities (SROs) relating to nature and it is intended to be applied when reporting under S1 and S2. The Exposure Draft also builds on the Taskforce for Nature-related Financial Disclosure (TNFD) framework, recommendations, metrics and guidance.

The Exposure Draft proposes additional nature-related disclosures on:

• How a company is responding or plans to respond to Nature-related risks and opportunities (NROs).
• The resilience of its strategy and business model to uncertainties arising from nature-related risks informed by a nature-related scenario analysis.
• The amount and percentage of assets or business activities vulnerable to nature-related risks and those aligned with nature-related opportunities.
• Metrics associated with the disclosure topics in the SASB Standards (and in the EU sustainability reporting standards (ESRS) or the TNFD if desired).
• Any nature-related targets the company has set.

It also proposes reporting entities make a statement regarding their compliance with the practice statement where all of its requirements are met as well as proportionality mechanisms and transitional reliefs aligned with those in IFRS S2.

The consultation closes on 19 February 2027. Feedback is sought on both the form and content of the Exposure Draft. The ISSB also intends to publish information mapping the TNFD's recommendations with the requirements of the Exposure Draft.

Raising the Bar on Supply Chain Compliance: preparing for Modern Slavery Act reform

On 30 June 2026 the UK Government introduced proposed amendments to section 54 of the MSA within the Immigration and Asylum Bill, which is currently before the House of Commons. Wider legislative reform is expected later this parliamentary term. The amendments to section 54 MSA introduce three principal changes:

• mandatory due diligence disclosures with enhanced approval requirements;
• a strengthened governance and sign-off process; and
• a new financial penalties regime.

The maximum penalty under the new regime would be the greater of 1% of the organization's total turnover, being the global turnover of the organization and any of its subsidiary undertakings – including those operating wholly outside the UK (for private sector organizations), or total budget (for public sector bodies); or £1 million.

EU Deforestation Regulation: preparing for compliance

The EU Deforestation Regulation (EUDR) applies to large and medium-sized operators and traders from 30 December 2026 and to micro and small operators from 30 June 2027. It imposes due diligence, traceability and deforestation-free requirements on seven commodity groups: cattle, cocoa, coffee, oil palm, rubber, soya and wood, and on derived products.

Transitional rules apply to timber and timber products previously covered by the EU Timber Regulation, which continues to apply to certain timber until 31 December 2029.

Fines for breach of the requirements will be set at a maximum of 4% of an entity's total annual EU-wide turnover.

Preparations for compliance include:

• Determining your role in the supply chain (operator, downstream operator or trader) and mapping your product portfolio against Annex I.
• Engaging suppliers to secure the necessary data and documentation, and ensuring that in-scope commodities are physically segregated from those of unknown origin.
• Establishing or updating due diligence systems, including information collection, risk assessment and risk mitigation procedures.
• Registration in the EUDR Information System for operators, non-SME downstream operators and traders.

New EU Greenwashing Rules: What companies need to know

The EU's Empowering Consumers for the Green Transition Directive (Directive (EU) 2024/825, EmpCo Directive) amends the Unfair Commercial Practices Directive (UCPD) and the Consumer Rights Directive (CRD) to tackle greenwashing and misleading sustainability claims. Implementing measures were due to be applied from 27 September 2026. Key aspects of the new requirements include:

• New per se bans – The EmpCo Directive prohibits a range of greenwashing practices outright. These include making generic environmental claims (such as "green", "eco-friendly" or "climate friendly") without demonstrating recognised excellent environmental performance, and claiming that a product has a neutral, reduced or positive climate impact based on offsetting greenhouse gas emissions.
• Stricter rules for forward-looking claims –Environmental claims about future performance (such as net-zero commitments) must be backed by clear, objective, publicly available and verifiable commitments in a detailed implementation plan. An independent third-party expert must verify that plan regularly.
• Sustainability label controls –Sustainability labels may only be displayed if they are based on a certification scheme established by public authorities or which otherwise meets specified transparency and third-party monitoring criteria.
• Broad scope beyond consumer goods –The EmpCo Directive applies to all B2C commercial practices concerning a "product" i.e. a "good or service". This captures not only consumer goods but all range of services, e.g. tourism, hospitality, transport, energy, rental, banking and finance, healthcare etc.

Australia's greenwashing regulatory landscape: ASIC and the ACCC stay focused

• Over the last year, ASIC and the ACCC have secured civil penalties for greenwashing in the $8m - $13m range against investment companies, superannuation trustees, and consumer product manufacturers.
• In 2026, both regulators are pursuing further greenwashing proceedings, with a focus on not just the 'saying' of a representation but also on the 'doing', directing regulatory attention to alleged failures in governance and compliance with statutory duties.
• Scrutiny of alleged greenwashing also extends beyond the regulators. The Senate inquiry report into greenwashing (due June 2026) may be a precursor to legislative reform, and is likely to reinforce public interest in testing environmental and sustainability claims through private litigation.

Court orders Fiducian to pay $7.3 million penalty for ESG fund failures

The Supreme Court of New South Wales has ordered Fiducian Investment Management Services Limited (FIMS) to pay a $7.3 million civil penalty for breaching its duty of care and diligence as a responsible entity and for making statements liable to mislead the public about the ESG credentials of its 'Diversified Social Aspirations Fund'. This is ASIC's fourth greenwashing civil penalty outcome and the first against the operator of a managed fund for failures in governance, compliance and oversight of ESG claims.

EU General Court requires clearer methane-slip thresholds under EU Taxonomy

On 30 September 2026, the EU General Court handed down its judgment in Case T-449/24, Dryade and Others v Commission, partially annulling the Commission refusal to review certain EU Taxonomy technical screening criteria (TSCs) relating to methane-slip emissions from shipping. Three environmental NGOs had challenged the Commission's rejection of their request for internal review under the EU Aarhus rules. Although most of their challenge was unsuccessful, the Court upheld their argument that the Commission erred in finding that no threshold or limit for methane-slip emissions needed to be specified.

The issue centred on Article 19(1)(k) of the Taxonomy Regulation, which requires TSCs to be easy to use and framed in a way that facilitates verification of compliance. For gas-fuelled ships, the relevant TSCs require the use of "state-of-the-art measures and technologies to mitigate methane slippage emissions", but do not themselves set a methane-slip emissions threshold or expressly refer to rules containing one. The NGOs argued that, without a definition of that expression or a methane-slip emissions threshold, the TSCs would be difficult to use and compliance would be difficult to verify.

The General Court held that a formal definition of "state-of-the-art measures and technologies to mitigate methane slippage emissions" was not necessary, given that the relevant technologies are well described in the literature. However, it did find a contradiction in the Commission's reasoning: while characterising the safeguard as qualitative, the Commission acknowledged that compliance would be verified by reference to methane-slip emissions thresholds under the FuelEU Maritime Regulation.

The General Court held that, where verification of compliance with a TSC depends on meeting a specific emissions threshold, the criterion must either contain that threshold or expressly refer to a standard or set of rules in which it can be found. The TSCs did neither, so compliance could not be easily verified as required under Article 19(1)(k) of the Taxonomy Regulation. The Court also rejected the Commission's reliance on the broader regulatory context to fill the gap, not least because that framework may change.

The judgment therefore provides an important indication for the design of future Taxonomy criteria: where compliance depends on a quantitative benchmark, that benchmark must be specified in the TSC, directly or by express cross-reference. The Court annulled the Commission's refusal of internal review only insofar as it concerned the finding that a methane-slip threshold or limit was unnecessary; it did not directly annul the TSCs themselves. The judgment remains open to appeal.