Policy Digest: December 2025

INTERNATIONAL

PCAF launches updated GHG Accounting standard

The updated standard offers a clear reference point for financial institutions measuring GHG emissions across their portfolios. Enhancements to the Financed Emissions (Part A) and Insurance-Avoided Emissions (Part C) frameworks, along with new supplemental guidance on Financed Avoided Emissions and Forward-Looking Metrics, help address the complexities of assessing emissions across diverse financial instruments, including loans, investments, insurance products, bonds, and derivatives. Read more

TNFD releases guidance on nature-related transition and nature data value chain

In November 2025, TNFD released guidance on integrating nature into transition planning, illustrating how organizations can align with the goals and targets of the Kunming–Montreal Global Biodiversity Framework (GBF). The guidance calls for embedding nature-related risks into business strategy and adopting a structured approach to managing these risks through forward-looking strategies, actions, and disclosures. Disclosures, in particular, are essential to unlocking nature finance, as they provide investors with decision-useful information to support financing for nature-positive and net-zero projects and outcomes. In parallel, TNFD published a set of recommendations for enhancing the nature data value chain for financial market participants. The 8 recommendations focus on data quality, discoverability, and improving accessibility to nature-related data via a global data facility. Read More.

ISSB Update: Streamlined Scope 3 Reporting for the Finance Sector

The International Sustainability Standards Board (ISSB) has adopted targeted amendments to its IFRS S2 climate-related reporting standard to ease Scope 3 (Category 15) greenhouse gas emissions disclosure requirements for financial institutions. Under the updated guidance, banks and asset managers may limit Scope 3 reporting to financed emissions from direct loans, investments, or assets under management and are no longer required to include facilitated emissions from investment banking, insurance-underwriting-linked emissions, or derivatives. The amendments also provide flexibility on industry classification systems for disaggregated data and permit the use of jurisdiction-specific GHG measurement methods and Global Warming Potential values where required by local regulation. ISSB leadership states the changes aim to reduce implementation burden while preserving investor-useful climate information. Read more.

MDBs launch nature finance taxonomy

The new nature finance taxonomy is closely aligned with the GBF goals and targets to identify nature finance activities across the portfolio. This includes activities relating to the restoration and conservation of biodiversity or ecosystem services, reduction of the direct drivers of biodiversity or ecosystem services loss, integration of nature-based solutions or any plan to enable such activities. The Taxonomy provides a non-exhaustive list of activities and qualifying criteria for nature finance across a range of sectors. Additionally, it covers different ecosystem types and regions and is adapted to the development context in which MDBs operate. Read more

EUROPE

EFRAG releases updated ESRS framework

Throughout 2025, the Omnibus triggered significant debate over whether the EU's sustainability ambitions conflict with competitiveness and growth objectives. Key regulations, including the Corporate Sustainability Reporting Directive (CSRD), came under scrutiny, with strong calls for simplification and reduced red tape. As a result, the ESRS reporting framework has been streamlined to ease administrative and compliance burdens on reporting entities.

EFRAG has significantly streamlined the framework by cutting non-material datapoints by ~61% and removing all voluntary disclosures. Key enhancements include a stronger emphasis on 'fair presentation' tied to materiality, removal of the preference for direct value-chain data, and shorter standards with clearer guidance. The lighter framework introduces greater flexibility in narrative disclosures, phased-in provisions with transitional periods for 'Wave I' reporters, and improved interoperability with the ISSB standards. Read more

EU Reaches Deal to Streamline Sustainability Reporting and Due Diligence Rules

The EU Council and European Parliament reached a provisional agreement on 9 December 2025 to simplify corporate sustainability reporting and due diligence rules to enhance competitiveness while reducing compliance burdens for businesses. Under the deal, the Corporate Sustainability Reporting Directive (CSRD) will apply mainly to larger companies (e.g., those with at least 1,000 employees and €450 million in turnover), raising thresholds and limiting downstream reporting obligations. The Corporate Sustainability Due Diligence Directive (CSDDD) will similarly apply only to very large firms (e.g., over 5,000 employees and €1.5 billion turnover), with lighter requirements and more flexible risk-based assessments. The agreement also eliminates mandatory climate transition plans and introduces transition relief for companies already reporting, with formal approval by both institutions still pending. Read more.

EU Moves to Streamline SFDR Transparency Rules for Sustainable Finance

The European Commission has published a proposal on 20 November 2025 to simplify transparency obligations under the Sustainable Finance Disclosure Regulation (SFDR), aiming to make disclosures for sustainable financial products clearer and less burdensome for financial market participants. The revised framework would reduce complexity, streamline information for retail and institutional investors, and cut compliance costs for financial market participants, supporting better decision-making and strengthening the EU's sustainable finance sector. The proposal must now be negotiated and adopted by the European Parliament and Council, with the final regulation expected to take effect after the ordinary legislative procedure—potentially entering into force by late 2027 or 2028 following an 18-month transition period after publication in the Official Journal. Read more.

ISSA publishes FAQs: Relevance of ISSA 5000 to Assurance on Sustainability Reports in the EU

The FAQs explain how ISSA 5000 applies to sustainability assurance in the EU, particularly in relation to CSRD requirements. They outline why the standard is fit-for-purpose—highlighting the incorporation of materiality, scalability, and interoperability with global frameworks. ISSA 5000 also sets out the spectrum of assurance levels, from limited to reasonable, depending on what is required. Overall, it aims to strengthen trust in sustainability reporting by ensuring that assurance engagements are high-quality, consistent, and aligned with the ESRS. Read more

European Parliament adopts decision to delay and simplify EU Deforestation Regulation

The EUDR, originally set to take effect in late 2024, has faced multiple delays and is now expected to apply from the end of 2026 for large companies and mid-2027 for smaller operators, amid concerns over IT system readiness and compliance burden. The EUDR restricts the import and export of goods linked to deforestation globally.

Initially taking aim at products utilizing or producing products such as coffee, cocoa, rubber, timber, soy, palm oil, beef with high environmental impact, the regulation introduced compliance requirements including due diligence obligations to prohibit production on deforested land after 2020. While the Commission initially proposed simplification measures—such as streamlining reporting obligations and reducing requirements for micro and small operators—both the EU Parliament and Council have pushed for an additional one-year delay and a new review by April 2026, raising the possibility of further changes. Read more

EU Launches Environmental Omnibus to Boost Competitiveness and Reduce Red Tape

The European Commission published its Environmental Omnibus package on 10 December 2025, comprising six legislative proposals to simplify existing EU environmental laws across areas including industrial emissions, circular economy rules, environmental assessments, geospatial data, and administrative requirements, with the objective of reducing regulatory burdens and supporting sustainable competitiveness for EU businesses. These proposals now enter the ordinary legislative procedure and must be negotiated and adopted by the European Parliament and Council through 2026. Read more.

UNITED KINGDOM

Bank of England (BoE) enhances climate risk disclosure framework for banks and insurers

The updated supervisory statement outlines the PRA's expectations for firms to strengthen long-term resilience as climate risks intensify, taking a proportionate and practical approach. It sets supervisory expectations across governance, risk management, climate scenario analysis, data, and disclosures, with additional context for banking- and insurance-specific issues. The PRA expects firms to build internal capabilities, enhance board and senior management oversight, improve risk management frameworks, and ensure transparent methodologies informed by climate scenario analysis and high-quality data. Firms are also expected to align disclosures with evolving international standards to ensure consistent reporting of climate-related risks and opportunities. Read more

UK FCA publishes proposals for ESG ratings regulation

The UK FCA has launched a consultation on a new regime for regulatory oversight of UK-based ESG ratings providers, as well as foreign providers offering ratings in the UK. The framework builds on IOSCO's 2021 recommendations and incorporates ICMA's principles-based approach. It centers on: 1. proportionate governance, strong systems and controls; 2. transparent methodologies and data sources, high data quality and assurance; 3. conflict-of-interest mitigation; and 4. mechanisms for complaints handling and stakeholder engagement. The FCA is accepting feedback on the proposals until 31st March 2026. Read more

FRC issues new UK Stewardship Code 2026 Guidance

The Financial Reporting Council has issued holistic guidance to support implementation of the Stewardship Code. The new guidance extends beyond climate to include a dedicated principle (Principle 2) requiring signatories to demonstrate how identifying and managing climate and broader ESG risks—particularly those that are market-wide and systemic—contributes to the resilience and long-term health of the financial system. Read more

NORTH AMERICA

California Climate Law update: CARB Unveils Draft Regulations for California's Corporate Climate Reporting

The California Air Resources Board (CARB) on December 9, 2025, released initial proposed regulations to implement Senate Bills SB 253 and SB 261, which set out California's new corporate climate disclosure regime. Under SB 253 (the Climate Corporate Data Accountability Act), companies with over $1 billion in annual revenue doing business in California must publicly report Scope 1 and 2 greenhouse gas (GHG) emissions beginning in 2026, with Scope 3 emissions phased in later; the proposed rules include definitions of covered entities, revenue, and "doing business" in the state, and establish August 10, 2026 as the first reporting deadline. SB 261 requires climate-related financial risk reporting for companies with over $500 million in revenue, though enforcement was stayed by a court. The initial regulations also outline fee structures and procedural details, with further rulemaking anticipated to flesh out full reporting content, assurance and future deadlines; a public comment period runs through February 9, 2026, with a hearing scheduled for February 26, 2026. Read more.

Canada amends Greenwashing Law in 2025 Budget

The Canadian government has announced plans to remove references to international standards for substantiating environmental product and service claims. While the amendments may reduce ambiguity for Canadian businesses around legal implementation, the absence of replacement domestic standards could increase the risk of greenwashing. Read more

ASIA-PACIFIC

ASEAN Taxonomy Version 4

The updated ASEAN Taxonomy now covers all six objectives and the three enabling sectors under the expanded Plus Standard. Version 4 strengthens ASEAN's 2045 sustainability vision by providing a science-based, inclusive, and interoperable framework aligned with national and global taxonomies. It continues to serve as the region's recognized reference point for sustainable finance, supporting just transition through capacity-building and collaboration. Read more

Brunei Darussalam Central Bank launches Sustainable Finance Roadmap (SFR)

The Roadmap, themed "A Sustainable and Climate-Resilient Financial Sector," provides guidance to help the financial sector mobilize climate finance while supporting a just transition. It sets out two core objectives: 1. to reinforce the national sustainability agenda outlined in the Brunei Darussalam National Climate Change Policy (BNCCP), the Economic Blueprint, and the Financial Sector Blueprint (FSBP); and 2. to strengthen the financial sector's management of sustainability-related risks. Read more

Bangladesh Bank (BB) issues Guideline on Climate Risk Management for Banks and Finance Companies

The new guidance is a first step toward standardizing and formalizing climate-related disclosures across the financial sector. The BB has underscored the country's high vulnerability to climate risks, which threaten long-term financial stability by impairing asset quality and exacerbating traditional risks such as credit, market, liquidity, and operational risks. Under the guidance, banks must identify and assess climate risks—including physical and transition risks—on a semi-annual basis, manage these risks, and disclose climate-related risks and opportunities. Bangladesh Bank also notes the potential to strategically channel investment toward climate adaptation and mitigation. Notably, the guidance is aligned with global frameworks, including the ISSB Standards. Read more

Other News & Resources

• GRI releases Draft Human Rights Reporting Standards for Workforce Transparency. Read more
• GRI launches Integrity Matters Checklist. Read more
• IFRS to include Biodiversity, Ecosystems and Ecosystem Services (BEES) in 2024-2026 Work Plan. Read more
• GFI launches 'Transactions to Transitions Initiative'. Read more
• CPI launches Net-Zero Finance Tracker. Read more

Recent Publications

• Inside SFDR 2.0: What the Updated Framework Means for Market Participants. Read more.
• Read ESG Book's latest Sustainability Report here.

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