Monthly Updates on Regulatory Developments in Environmental, Social, and Governance (ESG) within the Financial Services Sector

Monthly Updates on Regulatory Developments in Environmental, Social, and Governance (ESG) within the Financial Services Sector

The financial sector is witnessing a surge in regulatory activity aimed at combating greenwashing and promoting sustainable practices. Here are some of the latest developments:

The Financial Conduct Authority (FCA) in the UK has proposed new guidance on its anti-greenwashing rule, aiming to ensure transparency and accuracy in climate-related disclosures.

Meanwhile, the European Securities and Markets Authority (ESMA) has launched a consultation on the integration of sustainability preferences in the suitability assessment and product governance arrangements. This move is part of a broader effort to align financial products with the EU's sustainability objectives.

In a significant step, the International Court of Justice (ICJ) issued a judgment affirming states' obligations to protect the climate from greenhouse gas emissions. The ruling underscores the global consensus on the urgent need for action against climate change.

The European Commission has also been active, releasing a sustainable finance package and adopting the European Sustainability Reporting Standards (ESRS). Additionally, they have issued a call for evidence to support an impact assessment on the revision of the Sustainable Finance Disclosures Regulation (SFDR).

The European Commission has also adopted a recommendation for voluntary sustainability reporting for Small and Medium Enterprises (SMEs) in the EU. This move is expected to encourage more SMEs to disclose their environmental, social, and governance (ESG) performance.

The International Sustainability Standards Board (ISSB) has published its inaugural standards, providing a global baseline for climate-related and general sustainability disclosures.

On the other side of the world, the Australian government is developing Sustainability Reporting Standards and has authorized the Australian Sustainable Finance Institute to collaborate on sustainable finance initiatives in Australia.

The Office of NSW Anti-Slavery has released the first of three reports examining risks in the procurement of electric vehicles and EV charging infrastructure by NSW government agencies. This is part of an ongoing effort to ensure ethical and sustainable practices in public procurement.

In the UK, the FCA's multi-firm review of climate reporting in the UK highlighted progress in integrating climate change risks but noted challenges with data availability and reporting complexity.

The UK government will not pursue a UK Taxonomy and will focus on the delivery of its commitments on transition plans and the sustainability reporting standards.

In a legal battle, ClientEarth has attempted to judicially review a decision of the Financial Conduct Authority regarding the prospectus of a UK oil and gas company, Ithaca Energy plc. The outcome of this case could have implications for the role of fossil fuel companies in a sustainable future.

In a landmark case Pabai v Commonwealth of Australia, the Federal Court ruled that the government does not owe a duty of care to Torres Strait Islanders regarding climate change. This decision has sparked debates about the legal and moral responsibilities of governments towards climate change mitigation.

Lastly, the Prudential Regulation Authority's Consultation Paper on enhancing banks' and insurers' approaches to managing climate-related risks was discussed. The paper outlines proposed measures to strengthen financial institutions' ability to manage climate risks and supports the transition towards a low-carbon economy.

The UK Financial Conduct Authority's anti-greenwashing rule marked a year of active supervisory enforcement on 31 May 2025. The FCA has been actively enforcing the rule, issuing fines and warnings to firms found to be misrepresenting their sustainability credentials.

These regulatory developments underscore the growing global focus on sustainable finance and the need for transparency, accountability, and action in addressing climate change.