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Insights
22 January 2025

Corporate sustainability in 2025 – another year of regulation!?

By Christopher Jones, Partner

Building on the momentum of 2024, the regulatory landscape in 2025 continues to advance a global shift toward greater transparency and accountability in sustainability performance. Despite persistent economic and political headwinds, a range of new obligations – or opportunities, depending on your sentiment – are heading towards corporates, across many jurisdictions.

Both the UK and the EU are introducing a host of regulatory updates and directives that require a redefinition of corporate approaches to sustainability governance, and disclosure. These frameworks will demand much more from businesses, promising enhanced long-term resilience in return.

‘Companies will either view these shifts as the burden of additional compliance or the opportunity for transformation.‘

Regulatory disclosure for UK listed companies

The UK’s Sustainability Reporting Standards (UK SRS) will enter consultations in the first quarter. Following global IFRS guidelines, these standards aim to unify sustainability reporting for UK listed businesses, offering investors a reliable benchmark. The standards will be formed of the two IFRS standards (IFRS S1 and IFRS S2) issued by the International Sustainability Standards Board (ISSB) in June 2023, which incorporate and build from the recommendations of the Task Force on Climate-related Financial Disclosures. The UK Sustainability Reporting Standards are currently available for voluntary use by UK companies and the next step will be to incorporate them within UK legislation.

‘Those that have already adopted TCFD and voluntary standards like SASB will be well placed for these new regulatory requirements. Those that have not will be on a steep learning curve.’

Mandatory sustainability disclosure for private and public European businesses

Meanwhile, the EU’s Corporate Sustainability Reporting Directive (CSRD) represents a global first in mandatory sustainability reporting obligations, applying to a wider range of companies (listed and private), including non-EU firms with over €150 million in EU revenue. The first reports, covering the financial year 2024, will be due in 2025.

‘With many EU Member States lagging in the directive’s transposition, a number of businesses may get caught out, fuelling calls from some quarters for a delay in adoption.‘

The EU Taxonomy continues to provide a standardised framework for defining sustainable economic activities, with its intent to guide investments towards net-zero goals. The UK is following suit with its own Green Taxonomy, with consultations ongoing until February 2025. Businesses participating in shaping this framework should help to enhance sustainable finance goals and mitigate current levels of greenwashing.

The EU’s CSDDD (or CS3D), effective since July 2024, requires large companies to identify and mitigate human rights and environmental risks across global value chains. While the directive’s obligations won’t apply until 2027, it will likely merge with other sustainability regulations (CSRD).

ESG ratings agency regulation

Efforts to regulate ESG ratings are gaining traction. The EU adopted an approach in late 2024 aimed at improving transparency and consistency, while the UK is finalising its own framework, expected to be implemented in 2025.

‘Ratings providers will likely begin to align their methodologies with the new regulatory requirements to build much-needed corporate (if not investor) confidence.’

Carbon border taxes

The EU’s CBAM, operational since October 2023, phases in obligations for importers of carbon-intensive goods like cement and steel. By January 2026, importers must register as CBAM declarants to continue operations. Meanwhile, the UK’s CBAM is set to launch in 2027. Businesses should assess their supply chains and emissions to prepare for these cross-border carbon pricing mechanisms, which aim to prevent carbon leakage and level the playing field in trade competitiveness.

‘If implemented correctly, CBAM could be a game changer for international trade. But many think this carbon mechanism will be as leaky as a sieve.’

Biodiversity disclosure

Hot on the heels of the better known TCFD, the TNFD’s disclosure recommendations focus on helping businesses manage their nature-related dependencies. A consultation on these recommendations, open until early 2025, offers a chance for companies to shape the framework while incorporating biodiversity considerations into their ESG strategies.

‘Many believe that there are far more tangible benefits to biodiversity restoration in supply chains, than climate change measures as they are local rather than global.’

In related areas, European markets are preparing for the EU Deforestation Regulation (EUDR). Initially, slated for late 2024, has been delayed to December 2025 for large companies and June 2026 for SMEs. This regulation mandates businesses to ensure products like cattle, coffee, and wood sold in the EU are deforestation-free.

UK Corporate governance changes

Changes to the UK Corporate Governance Code take effect in January 2025, introducing annual reporting on risk management and internal controls. Additionally, the Audit Reform and Corporate Governance Bill, expected by late 2025, aims to enhance accountability with the long-awaited establishment of the Audit, Reporting and Governance Authority (ARGA) – to replace the Financial Reporting Council (FRC).

International sustainability disclosure standards

Whilst adoption timelines vary, over 30 jurisdictions have either adopted or are – like the UK – in the process of adopting the ISSB standards for sustainability reporting, including Japan, Singapore, Australia, Canada, Brazil and Hong Kong.

‘Collectively, these jurisdictions represent approximately 57% of global GDP, over 40% of global market capitalisation, and more than half of global greenhouse gas emissions.’

In this transformative year of political and economic upheaval, whether corporates can thrive or merely survive in this evolving ESG ecosystem will be interesting.

Get in touch to find out more

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