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On 16 January 2026, the European Commission issued a consultation on draft Delegated Regulations supplementing Regulation (EU) 2024/3005 (ESG Rating Regulation) with regard to:

  • Fees charged by the European Securities and Markets Authority (ESMA) to ESG rating providers. Article 42, paragraph 2, of the ESG Rating Regulation requires the European Commission (Commission) to adopt, by means of a delegated act, a Regulation to supplement that Regulation by  specifying the type of fees, the matters for which fees are due, the amount of the fees and the respective justification, the manner in which they are to be paid and, where applicable, the way in which ESMA is to reimburse the competent authorities in respect of any costs that they might incur when carrying out tasks pursuant to the Regulation, in particular as a result of any delegation of tasks pursuant to the ESG Rating Regulation. The draft Commission Delegated Regulation addresses all these points.
  • Rules of procedure on fines and periodic penalty payments imposed to ESG rating providers by ESMA. Article 39, paragraph 9, of the ESG Rating Regulation requires the Commission to adopt, by means of a delegated act, a Regulation on further rules of procedure for the exercise of ESMA’s power to impose fines or periodic penalty payments, including provisions on rights of defence, temporal provisions and the collection of fines or periodic penalty payments, and by adopting detailed rules on the limitation periods for the imposition and enforcement of fines and periodic penalty payments. The draft Commission Delegated Regulation addresses all these points.

The deadline for comments is 13 February 2026.

On 14 January 2026, the European Securities and Markets Authority (ESMA) issued a thematic note on sustainability-related claims, focusing on ESG strategies.

The thematic note contains four principles for making sustainability claims to ensure that all claims are clear, fair, and not misleading and thereby avoid the risk of greenwashing. The principles do not create new disclosure requirements but aim to remind market participants about their responsibility to make claims only to the extent that they are clear, fair and not misleading.

References to ESG strategies, notably to ESG integration and ESG exclusions are often made by market participants and widely referenced in marketing communications aimed at retail investors. The thematic note also focuses on the way these two types of ESG strategies are described, communicated to investors and includes observed market practices.

On 8 January 2026, the Joint Committee of the European Supervisory Authorities (ESAs) issued their Final Report on Joint Guidelines to ensure that consistency, long-term considerations and common standards for assessment methodologies are integrated into the stress testing of environmental, social and governance (ESG) risks pursuant to Article 100(4) of the Capital Requirements Directive IV (CRD IV) and Article 304c(3) of the Solvency II Directive.

The Joint Guidelines should be read in conjunction with the CRD IV and Solvency II Directive which sets out obligations to Member State competent authorities’ (NCAs), procedural rules and prudential assessment criteria on how NCAs perform supervisory stress tests, either as part of the relevant regulatory framework or as an ad hoc assessment.  The Joint Guidelines do not include a new requirement for NCAs to carry out ESG supervisory stress tests. Rather, the Joint Guidelines have two main objectives which are to:

  • Improve the legal certainty, clarity and transparency of the supervisory approval process with regard to the integration of ESG risks into NCAs stress testing frameworks and scenario analysis frameworks.
  • Ensure consistency, long-term considerations and common standards for assessment methodologies throughout the EU and across sectors

Next steps

The Joint Guidelines will be translated into the official languages of the EU and published on the websites of the ESAs. The deadline for NCAs to notify the respective ESA whether they comply or intend to comply with the Joint Guidelines will be two months after the publication of the official translations.

The Joint Guidelines apply from 1 January 2027.

On 18 December 2025, there was published on legislation.gov.uk The Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025 together with an explanatory memorandum.

This Order brings the provision of an ESG rating into regulation under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO), by making it a specified kind of activity, when that rating is likely to influence a decision to make an investment specified in Part 3 of the RAO.  The Order inserts a new Chapter 15F into the RAO. This chapter defines the scope of the new regulated activity (article 63U) and sets out a number of exclusions (articles 63V to 63Z5), including exclusions for regulated products and services, unregulated benchmarks, unregulated credit ratings, intra-group ratings, private use, ancillary non-commercial provision, public authorities, central banks and international organisations, accreditation or certification, regulatory or legal requirements, and proxy advice.

The Order also includes transitional and savings provisions to allow persons who are within scope of the new regulated activity and have applied for the relevant permission (including variation of pre-existing permission) to continue providing ESG ratings during a limited period following commencement, subject to appropriate conditions and FCA supervision.

ESG may have been overtaken on the board agenda in recent times by other threats perhaps perceived to be more pressing and against a wider economic and political backdrop in which many have been placing greater emphasis on growth and opportunity. This may have the effect of understating the level of risk posed to businesses by non-compliance with the growing number of ESG-specific legislative and regulatory requirements and a drive by activists and others to hold corporates to account with potentially significant financial and reputational consequences.

In our latest briefing we consider the litigation and regulatory threat level and what businesses can do to best protect themselves from adverse consequences.   

On 17 December 2025, the European Securities and Markets Authority (ESMA) issued its latest TRV Risk Analysis covering the impact of its guidelines on the use of ESG or sustainability related terms in fund names.

Based on nearly 1,000 shareholder notifications from the 25 largest EU managers with assets under management of EUR 7.5 trillion, ESMA observes that two thirds of the funds reacting to the guidelines changed their name and more than half updated their investment policy – mainly by introducing fossil-fuel related exclusions. The majority of name changes involved removing all ESG terms, with half of these funds adopting alternative terminology in their name.

ESMA also focuses on the impact of the Paris-Aligned Benchmark criteria excluding companies involved in fossil-fuel related activities. Its portfolio analysis of 4,000 EU funds using ESG terms in their names with EUR 2 trillion in assets under management shows that funds with higher fossil fuel exposures were more likely to remove ESG terminology, highlighting the role of portfolio composition in compliance choices.

Since the publication of the guidelines, ESMA finds that funds retaining ESG terms in their names have reduced their portfolio share of fossil-fuel holdings more than all other funds, suggesting efforts to green their portfolios. These results indicate that ESMA’s guidelines have driven convergence in the use of ESG terms by improving the alignment of fund names with their respective investment strategies.

On 1 December 2025, the Financial Conduct Authority (FCA) published Consultation Paper 25/34 (CP25/34) on its proposed approach to Environmental, Social, Governance (ESG) ratings regulation.

Overview

Following publication of draft legislation by HM Treasury to bring ESG ratings within the FCA’s regulatory perimeter, the FCA have set out in CP25/34 its approach to developing the ESG ratings regime.

The FCA explained that as this will be a newly regulated sector it proposes to apply many existing baseline rules to rating providers that apply to most other FCA-regulated firms and introduce tailored rules where existing requirements are either not appropriate or not proportionate to address the risks of harm.

Summary of the regime

The FCA are proposing to apply the following baseline standards to ratings providers:

  • Threshold Conditions (COND): The FCA explained that rating providers should familiarise themselves with the Threshold Conditions (TCs) and the guidance in COND to fully understand how the TCs apply to them.
  • Principles for Businesses (PRIN): In broad terms, the Principles for Businesses will apply to rating providers, except for Principle 12 (Consumer Duty).
  • Systems and Controls (SYSC): The FCA proposes to apply SYSC rules to rating providers that focus on robust governance arrangements, staff competence and suitability for their roles, adequate compliance arrangements and controls for countering financial crime, managing risks, outsourcing and record keeping. The FCA do propose to make some modifications to the requirements in SYSC including that it is not proposing to apply SYSC 10 on conflicts of interest to ratings providers, but to have bespoke rules, and to apply certain outsourcing requirements as rules rather than guidance.
  • Senior Managers and Certification Regime (SM&CR):  The FCA is proposing to apply the existing SM&CR framework to rating providers and classifying them as ‘Core Firms’ and that branches of overseas rating providers will be subject to the third country branch application of the regime. The FCA also explains that it is consulting on applying this regime in its current form but that the applicable requirements will be updated to reflect any revised SM&CR requirements currently being considered.
  • General Provisions (GEN): The FCA is proposing to apply GEN, which includes rules covering the administrative duties of firms, to ratings providers.

The FCA also set out that it does not propose to introduce bespoke prudential requirements to ratings providers, but to rely on the relevant TCs and Principle 4 (Financial Prudence).

The FCA are also proposing to apply tailored rules to rating providers, in relation to the following areas:

  • Transparency: The FCA set out that it plans to introduce clear minimum disclosure requirements for product lines and individual ratings, with some of the rules requiring that disclosures be made public, while others must be made to ESG rating users and rated entities – with the option for ESG rating providers to make those public. The FCA also set out general expectations on how disclosures must be made.
  • Governance and Systems and Controls: The FCA is proposing rules aimed at ensuring that firms have robust processes and effective systems across the ESG ratings process, to support high-quality ESG ratings, and highlights that these tailored rules build on the baseline standards set out above. The rules relate, in particular, to quality control and methodology, data quality and accuracy, record keeping and personal transactions.
  • Conflicts of interest: The FCA is proposing a bespoke regime for rating providers in relation to conflicts of interest, in particular setting out expectations for rating providers to have policies and procedures in place to identify, prevent, manage and, where appropriate, disclose conflicts of interest.
  • Stakeholder engagement, complaints and dispute resolution: The FCA is consulting on introducing a set of tailored rules requiring rating providers to have appropriate engagement with stakeholders and an effective and transparent complaints-management approach, and also that firms will need to publish their approach to engagement and their complaints-handling procedure. The FCA do not propose extending the Financial Ombudsman Service’s compulsory and voluntary jurisdiction for complaints relating to ESG ratings nor provide Financial Services Compensation Scheme coverage.

The FCA are also consulting on new perimeter guidance (PERG in the FCA Handbook) to help firms understand the scope of the activity, which will cover what qualifies as an ESG rating and what constitutes the regulated activity of providing an ESG rating.

Next steps

The FCA has asked for feedback to CP25/34 by 31 March 2026 and aims to finalise and publish its final rules in a Policy Statement by Q4 2026.

The authorisation gateway will open in June 2027 and firms in scope of the regulation must be authorised to carry out ESG rating activity after 29 June 2028.

On 27 October 2025, there was published on legislation.gov.uk a draft of the Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025 together with an explanatory memorandum.

The draft Order brings the provision of an Environmental, Social or Governance (ESG) rating into regulation under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) by making it a specified kind of activity, when that rating is likely to influence a decision to make an investment specified in Part 3 of the RAO. This will require providers of an ESG rating to be authorised and supervised by the Financial Conduct Authority (FCA).

The FCA has also issued a press release welcoming the draft legislation. It states that it intends to consult on its proposed rules before the end of the year.

On 15 October 2025, the European Securities and Markets Authority (ESMA) issued a Final Report containing draft technical standards under the Regulation on the transparency and integrity of Environmental, Social and Governance (ESG) rating activities (the ESG Regulation).

Background

The ESG Regulation was published in the Official Journal of the EU on 12 December 2024 and entered into force on 3 January 2025.

The ESG Regulation contains a number of empowerments for ESMA to deliver draft regulatory technical standards (RTS) in the areas of authorisation, recognition, separation of activities and disclosures.

ESMA launched a public consultation on the draft RTS in May 2025. The consultation closed on 20 June 2025.

Final Report

In the Final Report ESMA states that it has revised the draft RTS it consulted on to take into account the feedback received.

In particular, for the draft RTS on authorisation and recognition ESMA has either removed or simplified certain information requirements. For the draft RTS on separation of business, the requirement for a physical separation of staff remains but other requirements such as requirements for network segmentation have been clarified or removed when it was judged to be imposing excessive burden. For the draft RTS on disclosures certain elements have been revised to ensure they are practically achievable by ESG rating providers, while others have been removed when it was judged they did not provide sufficient added value for the burden that was imposed.

Next Steps

ESMA has submitted the draft RTS to the European Commission for adoption by means of a Commission Delegated Regulation.

The draft RTS will also be subject to non-objection by the European Parliament and Council.

On 6 August 2025, the European Banking Authority (EBA) published an opinion in the form of a no-action letter on the application of the provisions relating to disclosures on environmental, social and governance (ESG) risks.

Background

On 22 May 2025, the EBA issued a consultation paper on draft implementing technical standards (draft ITS) amending European Commission (Commission) Implementing Regulation (EU) 2024/3172. The proposals amend the Pillar 3 disclosures framework by incorporating the requirements set out in the Capital Requirements Regulation 3 (CRR 3) regarding ESG related risks, equity exposures and the aggregate exposure to shadow banking entities. The deadline for comments on the consultation paper is 22 August 2025.

The Commission’s Omnibus Package proposes substantive reforms in the areas of sustainable finance reporting, sustainability due diligence, and the EU Taxonomy. These legislative developments, particularly those related to the EU Taxonomy, have a direct impact on the structure and content of ESG risk-related disclosures contained in the draft ITS. However, there is some uncertainty as to how the final version of the Omnibus Package will look once agreed by the co-legislators and as such the EBA will only be in a position to finalise the draft ITS once there is certainty.

Opinion

In the Opinion the EBA makes certain recommendations to the Commission and Member State competent authorities. It provides that for the period starting from the reference date of 30 June 2025 until the draft ITS are adopted and enter into force to not prioritise the enforcement of the:

  • Disclosure of certain ESG disclosure templates (notably EU 6 to EU 10, and specific columns in Templates 1 and 4) of the Commission’s Implementing Regulation (EU) 2024/3172, for large institutions with listed securities.
  • Collection of templates EU 6 to 10, and specific columns in Templates 1 and 4 of the EBA Decision EBA/DC/498 of 6 July 2023, for large institutions with listed securities.
  • Disclosure of the corresponding ESG templates under the Commission’s Implementing Regulation (EU) 2024/3172 for all other institutions recently brought under the scope of Article 449a of the CRR.

Dashboard

The EBA has also published an updated version of its ESG risk dashboard. The ESG risk landscape across EU/EEA banks appears stable, thus reflecting the long-term horizon of climate-related risks and the gradual pace of change in banking portfolios.