Policy Digest: July 2026
In the midst of a heatwave, policymakers continued to shape the future of global sustainability reporting, advancing standards, timelines, and regulatory frameworks aimed at reducing fragmentation across international markets. Key developments include:
- Omnibus I Directive reaches its final stages: EU lawmakers are nearing completion of the Omnibus I package, finalizing amendments to the EU Sustainable Finance Framework in line with its simplification mandate. The European Commission adopted revised European Sustainability Reporting Standards (ESRS), reducing the overall number of reporting requirements, alongside a draft voluntary standard (VS) for companies outside the scope of the Corporate Sustainability Reporting Directive (CSRD) with fewer than 1,000 employees. The Taxonomy Simplification Measure was adopted, increasing flexibility for reporting non-material activities, and providing clearer guidance on the application of technical screening criteria. In parallel, the EBA Pillar 3 disclosure framework was adopted, reducing excessive disclosure requirements, introducing proportionality in reporting, and including large and small and non-complex institutions in scope from 2026. For asset managers, the final SFDR 2.0 product categories introduce mandatory Principal Adverse Impact (PAI) disclosures for Transition and Sustainable categories, while allowing limited fossil fuel investments within the Transition category. Although Omnibus I was intended to reduce reporting burdens, the volume of concurrent regulatory and supervisory initiatives continues to create uncertainty through evolving technical requirements, underscoring the ongoing complexity of the EU's sustainable finance framework despite its stated simplification objectives.
- Human rights, due diligence, and deforestation remain in focus: Jurisdictions around the world continued to strengthen supply chain and due diligence requirements. The EU launched a consultation on draft guidance for the Corporate Sustainability Due Diligence Directive (CSDDD), reflecting its revised scope and introducing practical concepts and definitions to support implementation. In the UK, new mandatory supply chain due diligence requirements were introduced for businesses with annual revenue exceeding £1 million that are linked to forest-risk commodities such as soy, palm oil, cocoa, and rubber, promoting greater alignment with the EU's approach. Meanwhile, China introduced a security- and sovereignty-focused due diligence framework aimed at strengthening supply chain risk assessment and mitigation.
- Climate risk integration accelerates for banks: Climate risk integration is becoming embedded across the European and UK banking sectors. The European Banking Authority (EBA) published its draft methodology for the 2027 EU-wide climate stress test, featuring streamlined reporting templates and a greater focus on transition and physical climate risks for systemically important banks. The European Central Bank (ECB) also began incorporating a climate factor into the valuation of eligible marketable collateral, initially applying it to selected corporate assets based on issuer-specific climate risk assessments. In the UK, the Bank of England (BoE) introduced a new transition risk collateral framework that integrates transition risk into the valuation of corporate bonds accepted in its market operations.
- Global climate and emissions reporting continues to evolve: California postponed the reporting deadline for Scope 1 and Scope 2 emissions under SB 253 until November 2026 while launching a public consultation to clarify key reporting concepts. Adopting a "climate-first" approach, New Zealand published a roadmap for incorporating IFRS S2 into its national reporting framework. At the global level, the Science Based Targets initiative (SBTi) released its landmark Corporate Net-Zero Standard, providing companies with a harmonized framework for emissions accounting, credible target setting, and target validation from 2026 onwards, helping establish a more consistent global baseline for corporate climate action.
Collectively, these developments demonstrate that while policymakers continue to pursue regulatory simplification and greater global alignment, organizations must still navigate an increasingly dynamic and technically complex sustainability reporting landscape.
International
SBTi releases Corporate Net Zero Standard
The Science Based Targets initiative (SBTi) has launched Version 2.0 of its Corporate Net-Zero Standard, introducing updated guidance and tools while allowing companies to continue using the current Version 1.3.1 framework during a defined transition period. Companies setting targets between 2026 and 2028 may continue to use Version 1.3.1, while benefiting from flexibilities and enhancements introduced under Version 2.0, including the option to set combined Scope 1 and Scope 2 targets. Version 1.3.1 will remain available for target setting until 31 January 2028, while target validation under Version 2.0 is expected to begin in Q1 2027. The SBTi will provide further guidance and resources to support companies in understanding and applying the new Standard, whether they are updating existing targets or setting science-based targets for the first time. Read more
ISO publishes Net Zero Aligned Organizations Standard - ISO 14060
The draft international standard is intended to serve as a common framework for monitoring credible and verifiable progress towards net-zero goals. It establishes a globally recognized reference point that supports interoperability by translating best practices in climate reporting and transition planning into a consistent framework, providing businesses, investors, and regulators with greater market confidence. In June 2026, the ISO also published the ISO 32212 standard for financial institutions– providing a global framework for net-zero transition planning. ISO 32212 supports the integration of climate-related risks, opportunities, and transition objectives into lending, investment, insurance, and capital market activities. Together, these standards create a pathway towards greater international alignment, reduced fragmentation, and more credible implementation of net-zero commitments across global markets. Read more
Europe
European Commission adopts ‘simplified’ ESRS and draft VS
On 3 July 2026, the European Commission adopted the simplified European Sustainability Reporting Standards (ESRS), marking the final stage of the Omnibus I legislative package, which sought to streamline and simplify sustainability reporting requirements under the EU's Corporate Sustainability Reporting Directive (CSRD).The simplified ESRS reduces the overall number of reporting datapoints by approximately 70% and introduces a more flexible reporting framework. Wave 1 companies (those with more than 1,000 employees and over €450 million in turnover) may choose to adopt the simplified standards, continue reporting under the existing ESRS, or apply a hybrid approach during the transition period. First published as draft standards in May 2026, the revised ESRS also strengthens interoperability with the ISSB Standards by allowing companies to prepare greenhouse gas inventories using either the financial control or operational control approach. In addition, the standards enhance transparency by requiring companies to disclose transition plans regardless of whether they are aligned with the Paris Agreement. The simplified ESRS further embeds the principle of fair representation, reinforcing the need for balanced and transparent disclosure of sustainability-related risks, opportunities, and impacts to improve the availability of decision-useful information for investors. The standards also introduce mandatory disclosures on anticipated financial effects, which companies will begin reporting from 2031. These disclosures will provide the financial sector with more forward-looking information to assess clients' exposure and resilience to climate-related financial risks, supporting more informed risk management and capital allocation decisions.
In parallel, the European Commission adopted a draft Voluntary Sustainability Reporting Standard (VS), establishing a single, proportionate reporting framework for companies outside the scope of the CSRD. Following the Omnibus reforms, this is expected to cover up to 90% of the companies originally within the CSRD's scope, positioning the VS as a potential global baseline for voluntary sustainability reporting. The standard is designed to help smaller companies respond efficiently to sustainability information requests from larger companies, financial institutions, and other business partners, while reducing unnecessary reporting burdens. It also introduces a value chain cap, preventing companies subject to the CSRD from requesting sustainability information from value chain partners beyond what is required under the voluntary standard, thereby providing greater clarity on reporting boundaries. The VS builds on the original Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME), developed for companies with fewer than 250 employees. The Commission made only limited amendments, stating that the framework remains proportionate for undertakings with up to 1,000 employees following the Omnibus recalibration of reporting obligations. Both the revised ESRS and the draft Voluntary Sustainability Reporting Standard will now be submitted to the European Parliament and the Council for scrutiny. The measures will enter into force after the initial two-month scrutiny period, unless extended by a further two months. Read more
EU adopts Taxonomy Simplification Measure
The European Commission has adopted a package of amendments to simplify the implementation of the EU Taxonomy Regulation, introducing streamlined reporting templates, fewer mandatory data points, greater flexibility for reporting non-material activities, and clearer guidance on the application of technical screening criteria. The measures build on the Omnibus simplification agenda by aiming to reduce administrative burden and improve reporting consistency for both financial and non-financial undertakings. However, the simplification effort is tempered by the simultaneous launch of separate consultations by the European Supervisory Authorities (ESMA, EBA and EIOPA), each proposing additional sector-specific amendments to Taxonomy reporting. While intended to further reduce reporting burden, the parallel initiatives require firms to navigate multiple consultations and evolving technical requirements, highlighting the continued complexity of the EU's sustainable finance regulatory framework despite its stated simplification objectives.
European Council publishes position on SFDR 2.0 categories
The Council has agreed its position on the SFDR and supported the use of the new proposed categories: ‘Sustainable’, ‘Transition’ and ‘ESG Basics’. Key changes include mandatory PAI disclosures for Sustainable and Transition products, using at least three indicators set by the European Commission and a pathway for fossil fuel companies to qualify for the Transition category if they direct at least 20% capex to taxonomy-aligned activities with a clear, time-bound emissions-reduction strategy. Read more
EBA finalizes Pillar 3 disclosure requirements
The European Banking Authority has released finalized draft standards that simplify ESG disclosure requirements for large banks while extending ESG reporting obligations to smaller institutions for the first time. The revised framework introduces tiered reporting requirements based on institution size, aiming to reduce compliance burdens while maintaining transparency on environmental, social, and governance risks. Under the new rules, large listed banks will see ESG reporting datapoints cut by 37%, while small and non-complex institutions will report significantly fewer metrics through a simplified regime. The standards also require banks to disclose exposure to fossil fuel sectors and explain how ESG risks are integrated into strategy and risk management, with the draft now set to be submitted to the European Commission for adoption. The amendments to the EBA Pillar 3 ESG disclosure framework were set in motion following the European Commission's Omnibus I simplification package and the subsequent revision of the European Sustainability Reporting Standards (ESRS). Recognising that banks' climate and sustainability disclosures rely heavily on information reported by counterparties under the CSRD, the European Banking Authority (EBA) has proposed targeted amendments to its Pillar 3 framework to preserve consistency with the revised ESRS while reducing unnecessary reporting burdens. The changes simplify selected disclosure templates, introduce greater proportionality, and ensure that prudential ESG disclosures remain aligned with the evolving EU sustainability reporting framework. Read more
EBA releases 2027 EU-wide climate stress test draft methodology
The European Banking Authority (EBA) has launched a consultation on the draft methodology, templates and guidance for the 2027 EU-wide Stress Test, introducing a simplified framework designed to reduce reporting burden while strengthening climate risk integration. The revised methodology cuts required data points by 55% by relying more extensively on harmonised supervisory reporting, while maintaining a constrained bottom-up approach supplemented by supervisory top-down elements. For the first time, climate risks will be formally embedded within the EU-wide exercise through macroeconomic and climate scenarios developed jointly with the European Central Bank (ECB) and the European Systemic Risk Board (ESRB). The stress test will cover 63 banks across the EU and Norway, representing approximately 75% of the EU banking sector, with results continuing to inform the Supervisory Review and Evaluation Process (SREP) and bank-specific supervisory expectations. The consultation closes on 10 July 2026, with the final methodology expected ahead of the launch of the exercise in 2027. Read more
European Commission launches consultation on CSDDD Guidelines
The European Commission has launched a consultation on draft guidelines for the Corporate Sustainability Due Diligence Directive (CSDDD) to support companies in implementing the new due diligence obligations. The guidelines provide practical clarification on key concepts including risk-based due diligence, stakeholder engagement, identifying and prioritising adverse impacts, remediation measures, and climate transition plans. The consultation forms part of the Commission's broader efforts to ensure consistent implementation of the CSDDD across Member States ahead of the Directive's phased application. Read more
EU lawmakers vote to expand products covered by CBAM
The European Parliament has voted to expand the list of products subject to the Carbon Border Adjustment Mechanism (CBAM) by calling for the inclusion of additional downstream goods beyond the current scope of carbon-intensive sectors. The proposal aims to reduce the risk of carbon leakage shifting to processed products and strengthen the effectiveness of the EU's carbon pricing framework. While the expansion is not yet final, the vote signals the Parliament's support for broadening CBAM coverage as part of the EU's wider climate and industrial policy agenda. Read more
ECB introduces climate risk factor into collateral framework
The European Central Bank (ECB) has announced that it will begin incorporating climate risk considerations into its collateral framework by applying a climate factor to the valuation of marketable assets pledged as collateral. The measure is designed to better reflect the financial risks associated with climate change on the Eurosystem's balance sheet and complements the ECB's broader strategy to integrate climate-related risks into monetary policy operations. The climate factor will initially apply to certain corporate assets and will be calibrated using issuer-specific climate risk assessments. Read more
United Kingdom
Bank of England incorporates climate transition risk into collateral framework
The Bank of England has updated its collateral eligibility framework to incorporate climate transition risk factors into the valuation of corporate bonds accepted as collateral in its market operations. The revised methodology adjusts collateral valuations to reflect issuers' exposure to transition-related risks, marking the first time climate considerations have been embedded directly within the Bank's collateral framework. The measure forms part of the Bank's wider strategy to strengthen climate risk management across the UK financial system. Read more
UK to consult on mandatory deforestation due diligence rules
The UK Department for Environment, Food & Rural Affairs (DEFRA) has announced plans to introduce mandatory supply chain due diligence requirements aimed at reducing the import of commodities linked to illegal deforestation. The proposed framework is expected to align closely with the EU Deforestation Regulation (EUDR), helping businesses comply with comparable due diligence expectations across jurisdictions. A public consultation on the legislation is expected to be launched later in 2026. Read more
North America
Canada proposes standalone forced labour import regime
Canada has introduced Bill C-35, proposing a new legislative framework to prohibit the importation of goods produced wholly or in part through forced labour. The bill would replace the existing prohibition under the Customs Tariff with a dedicated legal regime, strengthening Canada's approach to preventing forced labour from entering domestic supply chains. Under the proposed legislation, importers of goods identified as high risk would be required to meet enhanced due diligence and information requirements to demonstrate that their products are free from forced labour. Goods that fail to meet these requirements could be prohibited from entering the Canadian market, thereby taking aim at importer accountability while promoting proactive supply chain due diligence. The proposal aligns Canada more closely with emerging global supply chain due diligence regimes, including the EU Forced Labour Regulation and similar measures in the United States such as the Uyghur Forced Labor Prevention Act (UFPA). If adopted, Bill C-35 will require companies importing into Canada to strengthen supplier oversight, improve supply chain traceability, and maintain robust documentation to demonstrate compliance, further raising expectations for responsible sourcing across global value chains. Read more
Canadian Taxonomy to include oil and gas activities
Canada has launched a public consultation on its long-awaited Sustainable Finance Taxonomy, proposing a classification system that would, for the first time, include certain oil and gas-related activities alongside green and transition investments. In a departure from many existing taxonomies, the draft framework introduces an additional "abatement" category, allowing emissions-reduction projects within emissions-intensive sectors—including oil and gas—to qualify where they demonstrably reduce greenhouse gas emissions and support Canada's legislated net-zero by 2050 objective. The proposed taxonomy is intended to provide a common framework for identifying credible climate-related investments, improving transparency, reducing greenwashing risks, and mobilising private capital towards the energy transition. Critics argue that the inclusion of fossil fuel-related activities could undermine the taxonomy's credibility and international comparability. The public consultation remains open until 13 August 2026, after which feedback will inform the development of Canada's final sustainable finance taxonomy. Read more
California delays deadline for first climate reports
The California Air Resources Board (CARB) has extended the deadline for in-scope companies to report their Scope 1 and Scope 2 greenhouse gas (GHG) emissions under California SB 253 to 10 November 2026. The extension provides companies with an additional three months to prepare their first reports, allowing more time to improve data quality, validate emissions inventories, and strengthen reporting processes. On 21 July 2026, CARB will host a virtual public workshop to provide an update on the regulatory framework for Scope 1 and Scope 2 GHG emissions reporting requirements for 2027 and beyond, including proposed assurance requirements. The workshop will also outline CARB's proposed approach to Scope 3 emissions reporting, which is expected to begin in 2027. Although California's landmark climate disclosure legislation currently remains unenforceable, it is expected to cover more than 4,000 companies. As a result, it has the potential to significantly expand the pool of companies voluntarily disclosing climate information, strengthening market confidence, improving the availability of decision-useful climate data for global investors, and supporting greater alignment with international reporting frameworks such as the ISSB and ESRS. Read more
Asia-Pacific
New Zealand publishes ‘climate first’ IFRS S2 aligned standards
The XRB has published a draft roadmap proposing the issuance of a new climate reporting standard, NZ IFRS S2 Climate-related Disclosures, which would align New Zealand's sustainability reporting framework with the international baseline by adopting IFRS S2 Climate-related Disclosures. The roadmap outlines a phased transition from the existing Aotearoa New Zealand Climate Standards (NZ CS) to the new standard, with implementation expected following consultation and legislative amendments. New Zealand joins 40+ jurisdictions worldwide in adopting and implementing the ISSB standards, promoting a harmonized, global sustainability reporting landscape. Read more
China enacts new industrial and supply chain security law
China has introduced its own due diligence legislation, mirroring similar frameworks emerging globally, including the EU's Corporate Sustainability Due Diligence Directive (CSDDD), with a focus on addressing industrial and supply chain security risks. The national framework establishes provisions to strengthen the security and resilience of China's industrial and supply chains through several measures, including mechanisms for supply chain risk assessment and the proactive identification and management of potential threats. The law also authorizes competent authorities to investigate supply chain security incidents and adopt appropriate mitigation measures where necessary. Notably, Article 13 safeguards China's sovereignty by expressly prohibiting the collection of sensitive information relating to industrial and supply chains where such activities would contravene applicable Chinese laws, including export control regulations and other national security-related legislation. It further provides the statutory basis for China to adopt countermeasures against foreign entities or actions deemed to threaten the security of its industrial or supply chains. Read more
Other News & Resources
- NGFS releases new climate change and monetary policy strategy guide for central banks. Read more
- UK Government publishes Biodiversity Net Gain for NSIPs - Gain Statements and Guidance. Read more
- ESMA publishes initial list of ratings providers that have notified to continue to operate in the EU, including ESG Book, EthiFinance. Read more
