Q3 2025 marked a pivotal quarter for global sustainability reporting and ESG regulation.
Europe led the momentum with significant simplifications to the European Sustainability Reporting Standards (ESRS) and clarifications to the Sustainable Finance Disclosure Regulation (SFDR), both aiming to streamline reporting, enhance comparability, and reduce burdens on businesses. The European Commission’s “quick-fix” and EFRAG’s exposure drafts signal a recalibration of the EU’s sustainability architecture — emphasizing proportionality, cost-effectiveness, and improved data usability.
In North America, focus remained on implementation and litigation. The California Air Resources Board (CARB) continued rolling out climate disclosure laws (SB 253 and SB 261), even as legal challenges progressed, while the U.S. SEC defended its climate disclosure rules in court.
The Asia-Pacific region showed strong regulatory acceleration. Japan unveiled its roadmap for phased adoption of SSBJ standards aligned with IFRS S1/S2, and India’s Parliamentary Committee proposed establishing a dedicated ESG regulatory authority to oversee reporting and anti-greenwashing enforcement.
In the United Kingdom, the government decided not to proceed with a Green Taxonomy but instead focused on strengthening disclosure frameworks through the Financial Conduct Authority (FCA) review and consultation on UK Sustainability Reporting Standards (S1 and S2), aligned closely with the ISSB.
Among voluntary frameworks, the ISSB refined its climate disclosure requirements (IFRS S2), while GRI launched consultations on updated labour standards and a new Textiles & Apparel sector standard. The SBTi introduced its Net-Zero Standard for Financial Institutions, expanding climate alignment to the finance sector. Notably, the TNFD, together with Oxford University and Global Canopy, published a landmark evidence review confirming the financial materiality of nature-related risks.
Overall, these developments highlight a clear global shift toward simplification, interoperability, and implementation, helping businesses prepare for the next stage of mandatory sustainability reporting.
Key regulatory updates by region
Europe
🗓️ July 2025
- ESRS ‘quick fix’ for large reporters: On 11 July 2025 the European Commission issued a quick‑fix amendment to the European Sustainability Reporting Standards (ESRS) for companies already reporting for financial year 2024. The amendment allows these companies to omit disclosing the anticipated financial effects of sustainability related risks and opportunities for FY 2025 and FY 2026, giving them the same phase‑in relief previously available only to smaller companies.
- Simplification of the ESRS: EFRAG published simplified ESRS exposure drafts on 31 July 2025. The drafts dramatically reduced requirements such as:
- Mandatory data points are cut by 57 %,
- total disclosures by 68 %, and the length of the standards by 55 %,
- voluntary disclosures are removed, and double materiality assessments are streamlined.
- Large issuers get a two‑year reprieve from detailed financial effects disclosures, reducing short‑term reporting burdens while the ESRS are being simplified.
🗓️ August 2025
- SFDR clarifications: On 4 Aug 2025, the European Supervisory Authorities updated their SFDR Q&A. Key clarifications included:
- Pre‑contractual templates no longer require the minimum percentages of environmental and social investments (X and Y) to add up to the total (Z); companies must simply explain their methodology.
- Periodic reporting on top investments does not need a specific calculation method; entities should refer to sectoral legislation for determining market value.
- Definitions of water usage and water intensity are aligned to the European Sustainability Reporting Standards (ESRS), and energy consumption per square metre is based on the “useful internal floor area” under the EU’s energy performance directive.
- These clarifications reduce ambiguity for fund managers, particularly around minimum investment proportions, top investment disclosures and environmental metrics.
- A survey on cost‑benefit analysis of a simplified ESRS launched by EFRAG on 8 Aug 2025 invites stakeholders to submit feedback by 12 Sept 2025.
- Franco‑German & EU simplification joint statements: The European Banking Authority and European Securities and Markets Authority issued a no‑action letter and updated ESG risk dashboard on 5 Aug 2025; the European Central Bank (ECB) sent a letter on 15 Aug 2025 urging balance in amending CSRD/CSDDD and warning against data gaps. Germany and France released a joint statement on 29 Aug 2025 advocating for further simplifications to EU sustainable finance legislation and cautioning against over‑regulation.
🗓️ September 2025
- Final negotiations on ESRS simplification: Throughout September the Council, Parliament and Commission began trilogue negotiations on the simplified ESRS and the “Omnibus I” package, taking into account feedback from the EFRAG public consultation and the cost‑benefit analysis (results expected in late 2025).
North America
🗓️ July 2025
- SEC status report to Eighth Circuit: On 23 July 2025, the U.S. Securities and Exchange Commission (SEC) filed a status report in ongoing litigation over its climate‑disclosure rules, stating it would not reconsider the rules and urging the Eighth Circuit to lift the stay and proceed. SEC Commissioner Caroline Crenshaw issued a statement criticising the majority for failing to follow proper rule‑reconsideration procedures.
- California Air Resources Board (CARB) implementation of SB 253/261: On 9 July 2025, CARB released FAQs explaining the rulemaking process and key concepts for SB 253/261 implementation. The FAQs clarify that SB 253 requires companies doing business in California with revenue >$1 billion to disclose Scope 1 and 2 emissions from 2026 and Scope 3 emissions from 2027; SB 261 requires companies with revenue >$500 million to report climate‑related financial risks by 1 Jan 2026. The FAQs also explain the definition of “doing business in California” based on state tax rules and invite stakeholder input.
🗓️ August 2025
- California SB 253/SB 261 litigation: On 13 Aug 2025, a U.S. District Court declined to halt California’s climate corporate accountability laws (SB 253 and SB 261) pending a First Amendment challenge. The court scheduled a hearing for 15 Sept 2025 and left the laws in force.
🗓️ September 2025
- CARB draft guidance and checklist: On 2 Sept 2025, CARB published draft guidance and a draft checklist for climate‑related financial risk reports under SB 261. It provides a suggested outline for reporting, including governance, strategy, risk management and metrics in line with TCFD.
- Eighth Circuit order: On 12 Sept 2025, the Eighth Circuit held the SEC climate disclosure case in abeyance until the Commission decides whether to defend or reconsider the rule.
Asia-Pacific
🗓️ July 2025
- Japan roadmap for statutory sustainability reporting: On 17 July 2025, the Financial Services Agency’s working group released a roadmap for integrating the Sustainability Standards Board of Japan (SSBJ) standards (aligned with IFRS S1 and S2) into statutory reporting. The roadmap proposes that Prime Market companies with market capitalisation >¥3 trillion must adopt SSBJ standards in FY ending March 2027 (with assurance from FY 2028), companies with ¥1–3 trillion adopt in FY 2028 (assurance FY 2029), and adoption for smaller companies (¥0.5–1 trillion) will be considered later.
🗓️ August 2025
- India Parliamentary Committee Recommendations: On 18 Aug 2025, India’s Parliamentary Standing Committee on Finance released a report recommending enhancements to corporate social responsibility (CSR) and ESG regulations. It proposes establishing a dedicated ESG oversight body within the Ministry of Corporate Affairs to monitor disclosures, imposing penalties for greenwashing, requiring boards to establish ESG committees, and amending the Companies Act to include ESG oversight in directors’ fiduciary duties. The committee also highlights gaps in enforcement of existing CSR provisions (Section 135 of the Companies Act).
United Kingdom (UK)
🗓️ July 2025
- UK green taxonomy shelved: On 15 July 2025, the HM Treasury announced that it would not pursue a UK Green Taxonomy, instead focusing on other sustainable‑finance policies such as transition‑plan requirements.
🗓️ August 2025
- UK Financial Conduct Authority (FCA) review of climate reporting: On August 6, 2025, the Financial Conduct Authority (FCA) published the findings of its multi-firm review on climate reporting by asset managers, life insurers, and regulated pension providers. Following the review, the FCA announced plans to "streamline and enhance" its sustainability reporting framework. The regulator's next steps include:
- Simplify disclosure requirements and ease unnecessary burdens on firms.
- Maintain good outcomes for clients and consumers and improve the decision-usefulness of reporting, building on the work of SDR to improve trust and reduce greenwashing.
- Promote international alignment and help maintain the UK’s position as a global leader in sustainable finance.
🗓️ September 2025
- Consultation on UK Sustainability Reporting Standards (UK SRS): The UK government launched a consultation on UK versions of IFRS S1 and S2 (UK SRS S1 and S2) with feedback due by 17 Sept 2025. The exposure drafts adopt ISSB standards as a baseline with minor amendments. After consultation, final UK SRS will be published for voluntary use; the government and FCA will then consider mandatory application.
Voluntary frameworks updates
Global Reporting Initiative (GRI)
🗓️ July 2025
- Public consultation on labour standards: On 1 July 2025, GRI launched a public consultation to revise its standards on workforce diversity and inclusion and on non‑discrimination and equal opportunity.
- Diversity and Inclusion (to update GRI 405): includes disclosures and metrics to increase transparency on how diversity and inclusion policies are embedded in organizational strategies and operations, including management oversight and accountability.
- Non-Discrimination and Equal Opportunity (to update GRI 406): spans the causes of both direct and indirect discrimination, requiring a detailed breakdown of recorded incidents, and includes opportunities for vulnerable and under-represented groups.
- Subject to GSSB approval, the finalized and updated Labor Standards will start to publish from mid-2026.
- Sector Standard for Textiles & Apparel: GRI opened public consultation on its draft sector standard for Textiles and Apparel from 15 July to 28 Sept 2025. The standard identifies sector‑specific impacts across supply chains, guiding companies on material topics such as labour rights, water use and chemical management.
🗓️ September 2025
- Sector Standard for Textiles & Apparel: Stakeholder feedback period closed; final standards will be prepared for publication in Q2 2026.
International Sustainability Standards Board (ISSB)
🗓️ July 2025
- ISSB consultation on SASB standards: On 3 July 2025, the ISSB released two exposure drafts proposing amendments to the SASB Standards and related updates to the Industry-based Guidance for IFRS S2. These revisions include a comprehensive review of nine priority industries (eight from Extractives & Minerals Processing and one from Processed Foods), alignment of metrics across 41 industries on topics such as Water Management and Workforce Health & Safety, and updates to maintain consistency with IFRS S2 climate-related disclosures..
🗓️ September 2025
- ISSB September board meeting decisions: The ISSB met on 25 September 2025 to review feedback on proposed targeted amendments to IFRS S2 Climate-related Disclosures, aimed at addressing application challenges related to greenhouse gas (GHG) emissions reporting.The final amendments to IFRS S2 are expected to be issued by the end of 2025. Key decisions taken are:
- Scope 3 Category 15 GHG Emissions: The ISSB confirmed relief from measuring and disclosing Category 15 emissions beyond financed emissions, with added requirements to explain and disclose excluded financial activities and to report totals and subtotals for financed emissions.
- Industry Classification (GICS): The ISSB agreed to adopt a less prescriptive approach, allowing entities to select an appropriate industry-classification system that supports comparability and useful disclosure of climate-related transition risks.
- Jurisdictional Relief: Entities may use alternative GHG measurement standards or Global Warming Potential (GWP) values if required by jurisdictional authorities or exchanges.
- Effective Date & Transition: Amendments will apply for annual periods beginning on or after 1 January 2027, with early application permitted.
Science-Based Targets initiative (SBTi)
🗓️ July 2025
- Net‑Zero Standard for Financial Institutions: On 22 July 2025, the SBTi published its Net‑Zero Standard for Financial Institutions. The standard provides science‑based guidance for banks, asset owners and asset managers to align portfolios with a 1.5 °C trajectory. Key innovations include expanding coverage across asset classes, improving transparency of financed emissions, allowing institutions to focus on aligning their clients’ net‑zero pathways rather than solely on emissions reductions, and requiring policies to address fossil‑fuel financing and deforestation.
Science Based Targets Network (SBTN)
🗓️ September 2025
- Climate Week NYC announcements: At Climate Week NYC (week of 23 Sept 2025), SBTN released a September 2025 newsletter. Key announcements are:
- Validation milestones: Companies such as Arla and GSK validated their materiality assessments and targets using SBTN methods, allowing earlier recognition of progress
- Ocean target pilot: The Danish Pelagic Producers Organisation, Musholm, Orkla Foods Sweden, Seatopia and Waitrose began piloting the first ocean science‑based targets for the seafood sector.
- Accelerated pathways: SBTN launched accelerated pathways, a flexible approach enabling companies to prioritise areas where they have the most traction while maintaining scientific rigour.
Taskforce on Nature‑related Financial Disclosures (TNFD)
🗓️ August 2025
- Evidence review on financial effects of nature‑related risks: The TNFD, in collaboration with the University of Oxford’s Resilient Planet Finance Lab and Global Canopy, released a report synthesizing evidence on the financial materiality of nature-related risks for corporates and financial institutions. Drawing from over 600 pieces of evidence from 360 sources, the report examines how business dependencies and impacts on nature can lead to financially material outcomes such as changes in cash flow, cost of capital, and access to finance. Key findings:
- While nature-related risks are not yet consistently assessed or disclosed as financially material, there is substantial evidence of their financial relevance.
- The report calls for better data availability, integrated risk assessment methods, and wider use of scenario analysis to strengthen financial resilience.
- It also identifies gaps in company-level evidence and provides recommendations for corporates, financial institutions, regulators, and data providers to improve the understanding and management of nature-related financial risks.
Impact on companies & investors
- Reporting relief vs. data depth: The EU’s phased disclosure timeline offers short-term relief but increases the need for robust data systems.
- Regulatory litigation risk: U.S. legal challenges highlight the importance of flexible, adaptive compliance frameworks.
- Interoperability trend: ISSB, SSBJ, and UK SRS are converging toward a unified sustainability reporting ecosystem.
- Investor expectations: Investors increasingly demand integrated financial and sustainability insights, including climate and nature dependencies.
Looking ahead to Q4 2025
The final quarter of 2025 is expected to bring critical convergence in global ESG standards:
- Europe: Final adoption of the simplified ESRS and Omnibus I package is anticipated, setting the tone for 2026 reporting cycles.
- ISSB: Expected to issue final amendments to IFRS S2 by year-end, improving clarity on Scope 3 disclosures and industry classification
- EFRAG and EC feedback: Results from the EFRAG cost-benefit analysis will shape future EU sustainability reporting policy and simplification direction.
- UK & Japan: Consultations on UK SRS and Japan’s SSBJ roadmap may solidify national reporting mandates for 2026 onward.
- Nature and biodiversity focus: The TNFD is expected to release implementation guidance and further tools for nature-related financial disclosures.
Together, these milestones will continue shaping how businesses report and manage sustainability-related risks — setting the foundation for a more connected, comparable, and actionable global ESG disclosure ecosystem in 2026.
