In this Chapter, we have set out the key regulatory developments that have happened in the EU and across the globe in December 2024.
3.1 Sustainable Finance Disclosure Regulation (SFDR)
(a) Enforcement action update
The SFDR has been in force since 2021 and in this time there have been few enforcements by competent authorities. However, this is changing and we are seeing more enforcement actions from national competent authorities. In 2025, investment managers will need to make sure their fund- and entity-level disclosures are up to scratch as they face higher levels of scrutiny from regulators on SFDR than before. Read more here.
(b) The EU Platform on Sustainable Finance proposes for a new categorisation scheme for sustainable finance products under SFDR
On 17 December 2024, the EU Platform on Sustainable Finance (the Platform, an advisory body to the European Commission) published a briefing note outlining its recommendations to categorise sustainable finance products and other key considerations for the Commission to consider in its review of SFDR. The proposals recommend a product categorisation regime under SFDR to mitigate the fragmentation caused by (i) varying national labelling regimes and (ii) different interpretations of SFDR by National Competent Authorities, auditors and lawyers.
The briefing note recommends categorising products with the following sustainability strategies and also sets out minimum criteria and requirements for each of the categories:
(i) “Sustainable” – Contributions through taxonomy‑aligned investments or sustainable investments with no significant harmful activities or assets based on a more concise definition consistent with the EU Taxonomy.
(ii) “Transition” – Investments or portfolios supporting the transition to net zero and a sustainable economy, avoiding carbon lock‑ins, per the European Commission's recommendations on facilitating financing for the transition to a sustainable economy.
(iii) “ESG collection” - excluding significantly harmful investments / activities, investing in assets with better environmental and/or social criteria or applying various sustainability features.
These labels would replace the “de facto” labels: Article 8 and 9. All other products should be identified as unclassified products. In a departure from the current requirements, there would be minimum disclosure requirements for products which are unclassified products.
Of course, funds also need to ensure that they follow the European Securities and Markets Authority’s Guidelines on funds’ names using ESG or sustainability-related terms which include additional requirements for funds with “sustainability-”, “transition-”, “social-“, “impact-“, “governance-“, “environmental-” related terms in their name.
3.2 EU Taxonomy
(a) FAQs published
The European Commission has published a Draft Commission Notice in respect of the delegated acts to the EU Taxonomy. These are intended to clarify particular technical screening criteria in relation to (i) economic activities relating to the non-climate environmental objectives, which are contained in the Taxonomy Disclosures Delegated Act, (ii) the Do No Significant Harm criteria, (iii) interoperability and (iv) third-party verification.
The FAQs will be adopted once they are available in all relevant EU languages. Read more here.
(b) The French AMF publishes a study on the EU Taxonomy alignment reporting of financial institutions
On 10 December 2024, the French Autorité des marchés financiers (AMF) published a study on the EU Taxonomy reporting of financial institutions. The report reviews the first Taxonomy alignment reporting of seven banks and insurance companies.
The analysis presents an overview of the practices and main challenges in complying with the regulatory requirements and found the Taxonomy disclosures to be “dense and technical” but did acknowledge the complexities of reporting in alignment with the EU Taxonomy.
(c) EU Platform on Sustainable Finance publishes a draft report on the Activities and Technical Screening Criteria in the EU Taxonomy
On 8 January 2025, the EU Platform on Sustainable Finance (the Platform) published a draft report on the ‘Activities and Technical Screening Criteria (TSC) to be Updated or Included in the EU Taxonomy’ (the Report) prepared by the dedicated Platform subgroup, the Technical Working Group.
The Report addresses two key messages from industry in respect of the EU Taxonomy, the need to: (i) simplify the Do No Significant Harm (DNSH) criteria, particularly the compliance assessment and (ii) expand the range of economic activities included under the EU Taxonomy.
The report contains recommendations for the following activities/areas:
- review of criteria and analysis for the Climate Delegated Act adopted in 2021, including usability improvements and adjustments for consistency and scientific and technological developments;
- the development of new economic activities mandated by the European Commission in related to Climate Change Mitigation;
- potential expansions and revisions to the TSC of the economic activities included in the Climate Delegated Act adopted in 2021 with a focus on transitional activities. Not all of these activities were progressed as mandated due to lack of resources;
- recommendations on climate change adaptation activities, including those to be prioritised for inclusion in the EU Taxonomy in the future and DNSH criteria for (i) “adapted” activities which are already included in the EU Taxonomy but do not yet have DNSH criteria yet and (ii) newly proposed activities under the current mandate of the Platform.
The Report acknowledges that expansion of the EU Taxonomy will take significant time and resources to achieve and will need to be the subject of future mandates of the Platform.
The Platform invites stakeholders to provide feedback on the draft report by 5 February 2025.
3.3 Guidelines on funds’ names using ESG or sustainability-related terms: ESMA publishes first Q&As on application
On 13 December 2024, the European Securities and Markets Authority (ESMA) published its first Q&As giving guidance for the practical application of the Guidelines on funds’ names using ESG or sustainability-related terms (the Guidelines).
The Guidelines clarify questions it has been sent on the topics of (i) green bonds, (ii) meaningfully investing in sustainable investments (iii) and controversial weapons. It published two identical answers for each topic corresponding to UCITS and AIF.
3.4 EU ESG Ratings Regulation applies from 2 July 2026
On 27 November 2024, the European Council approved the ESG Ratings Regulation. The new rules aim to make rating activities in the EU more consistent and transparent. By way of reminder, the new rules set out a regulatory framework governing the activities of ESG ratings providers operating in the EU. It requires EU ESG ratings providers to apply for authorisation from ESMA and will require in-scope organisations to comply with general principles concerning governance and approach to rating methodologies as well as requirements to limit conflicts of interest and enhance independence and transparency.
The Regulation was published in the Official Journal on 12 December 2024, entered into force on 2 January 2025. It will apply from 2 July 2026.
3.5 Sustainability reporting
(a) EU CSRD: what does the future hold?
In late 2024, President Ursula von der Leyen announced that the European Commission is considering consolidating EU sustainable finance regulation by way of omnibus legislation. She confirmed that it will touch on the CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy (the triangle) and she confirmed that it was agreed in internal council that: “The content of the laws is good. We want to maintain it and we will maintain it. But the way we get there, the questions we are asking, the data points we are collecting – thousands of them - is too much often redundant, often overlapping. So it is our task to reduce the bureaucratic burden without changing the content of the law that we all want.”
Although it looked like simplification meant rationalising the rules and reducing the burden of reporting without affecting the substance, this is becoming less clear. It is also not clear to what extent the CSRD is up for renegotiation should the omnibus legislation go ahead. In fact, it is questionable whether such omnibus legislation would achieve simplification, given that the detail of the CSRD is contained within the European Sustainability Reporting Standards and the EU Taxonomy and CSDDD do not include onerous reporting requirements.
We expect more news of the omnibus legislation in February 2025 - but in the meantime, there have been many questions around the scope of the omnibus legislation and the practical implications for in-scope entities in and outside the EU.
On 3 January 2025, the German Chancellor, Olaf Scholz, wrote to Ursula von der Leyen suggesting that the Commission’s proposals to implement the simplification “must be implemented concretely”. Amongst his recommendations was a two-year delay to the application of the CSRD and the raising of the thresholds for turnover and number of employees. So watch this space for more updates on the proposed omnibus legislation.
(b) EU CSRD: implementation
On 27 November 2024, the Spanish Securities Market Commission (CNMV) and the Accounting and Audit Institute (ICAC) published a joint statement recommending that corporations publish their sustainability reports in line with the CSRD, despite the fact that the CSRD had not yet been transposed into Spanish law. Spain is currently in the process of transposing CSRD and published the Sustainability Report Bill on 15 November 2024. However, the joint statement by the CNMV and ICAC recommended that if the bill was not approved by 31 December 2024, entities falling in scope of the CSRD should publish a sustainability report if they are able to and subject to their auditors. (It appears that the bill has been pushed back to February.)
The joint statement also sets out where the Spanish implementation and the European Sustainability Reporting Standards diverge.
In its December infringement package, the Commission confirmed that it had sent a reasoned opinion to Sweden for failing to correctly transpose the new rules for the reporting of sustainability information introduced by the CSRD. The new rules are required to apply for financial years beginning on or after 1 January 2024, but Sweden has delayed the application of the requirements to apply to financial years beginning on or after 1 July 2024.
(c) European Commission adopts Delegated Regulation on regulatory technical standards under MiCA
On 17 December 2024, European Commission adopted the Delegated Regulation on regulatory technical standards which supplements the European regulation on Markets in Crypto-Assets (MiCA). The Delegated Regulation specifies the content, methodologies and presentation of information in white papers in relation to sustainability and the adverse impacts on the environment and climate.
The Delegated Regulation will be published in the Official Journal of the European Union and adopted 20 days later.
(d) ESMA consults on proposals to digitalise sustainability and financial disclosures
On 13 December 2024, ESMA published a Consultation Paper on how the European Single Electronic Format (ESEF) can be applied to sustainability reporting.
The proposals in the Consultation Paper aim to ease the burden associated with financial reporting. They also propose amendments to the Regulatory Technical Standards on the European Electronic Access Point.
The consultation is open until 31 March 2025 and feedback will be considered in Q2 2025. ESMA intends to publish a final report in Q3 2025.
(e) EFRAG releases Voluntary Sustainability Reporting Standard for non-listed SMEs
On 17 December 2024, the European Financial Reporting Advisory Group (EFRAG) board released the Voluntary Sustainability Reporting Standard (VSME) for non-listed micro-, small-, medium-sized undertakings (SMEs).
The VSME is designed for undertakings that do not fall within the mandatory scope of the CSRD, and is based on the European Commission’s SME Relief Package of September 2023. The VSME aims to provide a standardised set of information to replace the fragmented ESG data requests from SMEs.
EFRAG has stated that in 2025 it will release a series of support material and initiatives including guides and educational material, outreaches, awareness raising events and monitoring tools and platforms for SMEs.
(f) PCAF opens public consultation on its methods for measuring and reporting emissions associated with financial activities
The Partnership for Carbon Accounting Financials (PCAF) is a global partnership of financial institutions that work together to develop and implement a harmonised approach to assess and disclose the greenhouse gas emissions associated with their loans and investments.
On 3 December 2024, PCAF opened a public consultation on its newly developed methods on reporting and measuring greenhouse gas emissions associated with financial activities, that is Scope 3, category 15 emissions.
The PCAF consultation consists of two documents:
- the new guidance and methods for public consultation introduces new methods and guidance which fall under or support Part A of the Global GHG Accounting and Reporting Standard, including: use of proceeds accounting, securitised and structured products, sub-sovereign debt, financed avoided emissions inventory fluctuations and undrawn loan commitments; and
- the new methods for public consultation which presents two new lines of business under Part C of the Global GHG Accounting and Reporting Standard: project insurance and treaty insurance.
The public consultation will close on 18 February 2025.
(g) Swiss Government opens a consultation on amending the Ordinance on Climate Disclosures
On 6 December 2024, the Swiss Government opened a consultation to update its sustainability-related disclosure rules for companies. The proposal would amend the Switzerland’s Ordinance on Climate Disclosures. The proposals in the consultation paper also aim to expand the number of companies covered by mandatory sustainability reporting requirements, amending the current threshold of companies to 250 employees and CHF 26 million in total assets.
The consultation closes on 21 March 2025 and the amended Ordinance on Climate Disclosures is due to enter into force on 1 January 2026.
(h) Hong Kong publishes a roadmap on sustainability disclosure
On 10 December 2024, the Hong Kong’s government published a roadmap on sustainability disclosure. The roadmap outlines how the International Sustainability Standards Board requirements for sustainability reporting will be implemented. The aim of the publication is to provide a transparent and well-defined pathway on sustainability reporting for large publicly accountable entities.
All large-cap companies are to disclose against New Climate Requirements on a mandatory basis by 1 January 2026 and publicly accountable entities are to fully adopt the ISSB Standards by no later than 2028.
