Sustainable Finance Regulatory Update | Q1 2026

In the first quarter of 2026 we saw regulatory proposals became law. The Omnibus Directive's formal adoption in February settled months of political negotiation, contracting the mandatory CSRD and CSDDD reporting populations and carrying direct consequences for the data coverage institutional investors have been planning against. SFDR 2.0 entered the legislative process in earnest, and the UK finalised its sustainability reporting standards while opening consultation on mandatory implementation.

Beyond Europe, the picture is one of accelerating divergence. The US federal retreat from climate disclosure is now complete at SEC level, relocating the effective compliance bar for internationally active firms to Brussels, London, and a growing cluster of APAC and Latin American jurisdictions where mandatory ISSB-aligned reporting is no longer anticipated, it is live. For asset managers with global portfolios, Q1 2026 is less a moment of simplification than of structural reorientation: fewer mandatory reporters in the EU, more everywhere else, and a landscape that rewards those who mapped their data dependencies before the rules landed.

Landscape Snapshot (Jul–Sep 2025)

EU

The Omnibus Directive was formally adopted by the Council on 24 February and published in the Official Journal on 26 February, entering into force on 18 March 2026. CSRD scope shrinks to companies with 1,000+ employees and €450m+ turnover; CSDDD threshold rises to 5,000 employees and €1.5bn turnover. SFDR 2.0 enters the EU legislative process with trilogue negotiations expected later in the year.

As for the EU Taxonomy, the revised Climate Delegated Act entered into force in Q1 2026, introducing simplification measures applicable retroactively from 1 January 2026. A delegated act on the simplified ESRS is expected to follow in Q2.

UK

DBT published the final UK Sustainability Reporting Standards (UK SRS S1 and S2) on 25 February. The FCA’s CP26/5, proposing mandatory UK SRS-aligned reporting for listed companies from 1 January 2027, closed for consultation on 20 March 2026.

US

Federal rollback continues: the SEC has formally withdrawn its climate disclosure rules. California’s SB 253 and SB 261 remain in legal uncertainty, with CARB timelines still drifting. State-level momentum provides the only near-term operative framework.

APAC

First ISSB-aligned reports are being issued in 2026 across Australia, Hong Kong, Singapore, and Malaysia. Japan confirmed voluntary adoption of SSBJ standards from April 2026 (FY2026), with mandatory phases from 2027. China’s listed companies in key indices are required to disclose sustainability metrics in 2026.

Latin America

Brazil and Mexico entered mandatory ISSB-aligned reporting in 2026. CVM Resolution 193 requires listed companies to report under IFRS S1 and S2 from 1 January 2026; Mexico's CNBV resolution mandates first reports for FY2025, submitted in 2026. Chile follows under Norm 461. A formalised IFRS Foundation–IDB regional partnership is supporting implementation across the broader region.

Africa

Regulatory momentum is building, but fragmented. Eight jurisdictions, including Kenya, Nigeria, Ghana, and Tanzania, have committed to IFRS S2 adoption on phased timelines running to 2028. South Africa retains the continent's most comprehensive framework.

Europe

Omnibus Directive: formally adopted and published (Feb 2026)

After two years of political negotiation, the Sustainability Omnibus Directive was formally adopted by the EU Council on 24 February 2026 and published in the Official Journal the same day, entering into force on 18 March 2026. The headline outcome is that the CSRD scope is cut to companies with more than 1,000 employees and €450m in turnover, reducing the population of reporting entities by roughly 80% compared to the original directive. The CSDDD bar is raised even more dramatically - to 5,000 employees and €1.5bn global turnover -removing the mandatory climate transition plan requirement. Member States have 12 months to transpose the CSRD amendments and must transpose CSDDD changes by July 2028.

What does this mean for investment firms and their data?

The data coverage implications are material. A significantly smaller corporate reporting universe means investor-facing datasets, particularly for Scope 3 and value chain metrics, will shrink before they grow. Firms relying on CSRD, sourced data for portfolio disclosures (EU Taxonomy alignment, PAIs, SFDR product-level reporting) need to revisit their data sourcing strategies now. Voluntary reporting via the VSME standard (ESRS equivalent for SMEs, expected via delegated act in June 2026) will partially fill the gap, but reliability and coverage will vary.

Revised EU Taxonomy Climate Delegated Act enters into force (Q1 2026)

Originally adopted by the Commission on 4 July 2025 and subject to a six-month parliamentary scrutiny period, the revised Climate Delegated Act entered into force in early Q1 2026. Simplification measures apply retroactively from 1 January 2026, covering FY2025 reporting, though companies may opt to apply changes from FY2026 instead. A separate delegated act on the simplified ESRS is expected in Q2 2026, following EFRAG’s submission of its technical advice in December 2025.

How does this impact portfolio reporting? 

The retroactive applicability creates a near-term implementation question for firms in their FY2025 reporting cycle, which will need to determine whether to apply new or legacy criteria. The simplified ESRS delegated act in Q2 will be the next key data checkpoint; alignment between simplified standards and investor-facing taxonomy disclosure requirements is still being worked out.

SFDR 2.0: legislative process underway

The core architecture is now fixed regardless of trilogues; a categorisation-based logic with 70% thresholds, binding exclusions, and product-level PAI obligations replacing the entity-level PAI statement. Entity-level PAI disclosures are to be removed. Firms launching new funds today are already operating within the planning horizon of the new rules. Data processes, particularly around transition-related metrics and new exclusion screening, take 12–18 months to build. Start now.

And how will this effect business?

The core architecture is now fixed regardless of trilogues; a categorisation-based logic with 70% thresholds, binding exclusions, and product-level PAI obligations replacing the entity-level PAI statement. Entity-level PAI disclosures are to be removed. Firms launching new funds today are already operating within the planning horizon of the new rules. Data processes, particularly around transition-related metrics and new exclusion screening, take 12–18 months to build. Start now.

United Kingdom

UK SRS finalised and FCA CP26/5 consultation closes (Jan–Mar 2026)

Two significant milestones landed in Q1. On 25 February, the Department for Business and Trade (DBT) published the final UK Sustainability Reporting Standards - UK SRS S1 (general sustainability) and UK SRS S2 (climate), available immediately for voluntary use. These closely track IFRS S1 and S2, with minor UK-specific amendments, including the removal of the IFRS S1 first-year publication deferral. On 30 January, the FCA published CP26/5 proposing to replace TCFD-aligned listing rules with mandatory UK SRS-aligned reporting for in-scope listed issuers from 1 January 2027. The consultation closed on 20 March 2026, with a final policy statement expected in autumn 2026.

The proposed framework includes:

• Mandatory UK SRS S2 (climate) reporting, with a one-year compliance or explain transitional relief for Scope 3 emissions.

• Comply-or-explain UK SRS S1 (broader sustainability) disclosures, with a two-year transitional relief.

• A required statement on whether a climate transition plan exists and where it can be found (though mandatory transition plans are subject to a separate government consultation expected in 2026).

What does this mean for the market?

The UK is carving out a notably clear trajectory amid global fragmentation. The TCFD-to-UK SRS handover is effectively a ‘lift and drop’ but with higher expectations: financially quantified scenario analysis, full Scope 3 visibility, and explicit transition plan disclosure. Firms currently reporting under TCFD-aligned rules should gap-analyse against UK SRS S2 promptly, given the proposed 1 January 2027 start date.

SDR: minor amendments and updated FRC Stewardship Code

Minor amendments to the SDR rules took effect in December 2025 (via Handbook Notice 136 following CP25/24), with the FCA’s updated page reflecting changes as of 27 February 2026. From 1 January 2026, the FRC’s revised Stewardship Code came into effect, incorporating ‘sustainable’ into its definition of stewardship - a move the FCA has confirmed does not conflict with SDR naming and marketing rules. Entity-level SDR disclosures for firms with more than £5bn AUM are due by 2 December 2026.

So what for the market?

With SDR labelling and naming rules now fully operational and entity-level deadlines approaching, the SDR compliance window is closing. Firms yet to complete their label-eligibility assessments or product disclosure frameworks need to accelerate. The interplay between SDR, UK SRS, and the forthcoming extension to portfolio management products remains a watch point for 2026.

United States

SEC formally withdraws climate disclosure rules (Q1 2026)

Following the Trump administration’s executive orders targeting federal sustainability requirements, the SEC has moved to formally withdraw its March 2024 climate-related disclosure rules. The rollback marks a decisive break from the federal-level trajectory of the previous administration. Anti-ESG pressure continues to intensify across federal agencies, with asset managers and data providers now expected to navigate a bifurcated environment: one shaped by state requirements and international client expectations, the other by federal regulatory retreat.

What do firms need to know?

US-listed firms with significant EU investor bases or EU-domiciled subsidiaries remain subject to CSRD and SFDR obligations regardless of federal direction. The effective compliance bar for internationally active firms is not set in Washington; it is set in Brussels, London, and increasingly in APAC capitals. Fragmentation, not harmonisation, is the working assumption for 2026.

California: SB 253 and SB 261 still in legal flux

California remains the operative US climate reporting framework, but both laws continue to face procedural delay. The Ninth Circuit’s injunction on SB 261 enforcement is still in place, keeping the first reporting deadline uncertain, while CARB’s SB 253 rulemaking timelines have continued to slip. In-scope firms are building data pipelines (Scope 1–3 and climate risk processes) but planning against shifting milestones rather than a fixed calendar.

How can firms respond?

Keep building. The data infrastructure requirements do not change with procedural slippage, and California’s legislative intent remains intact. First reporting will happen. The question is when, not whether.

Asia-Pacific

Australia, Hong Kong, and Singapore: first ISSB-aligned reports in 2026

2026 marks the first live reporting year for multiple APAC jurisdictions under ISSB-aligned frameworks. Australia’s Group 1 entities (large listed companies) are reporting under AASB S1/S2 for periods from July 2024 onwards, with Group 2 commencing from July 2026. Singapore’s listed companies are making mandatory ISSB-aligned climate disclosures (Scope 1 and 2) from FY2025, with large non-listed companies joining from FY2027. Hong Kong is progressing its phased ISSB-aligned requirements for HKEX-listed issuers through to 2028, building on the Scope 1 and 2 GHG requirements introduced from 1 January 2025. Malaysia and Sri Lanka are also issuing first ISSB-aligned reports in 2026.

What does this mean?

APAC is becoming a genuinely live data environment. For asset managers with Asia-Pacific holdings, the combination of Scope 1/2 GHG data and phased Scope 3 requirements across these jurisdictions materially improves portfolio-level climate data coverage, at least for listed equity exposures. Expect coverage to improve faster here than in the EU, where Omnibus scope cuts will delay CSRD-sourced data expansion.

Japan: voluntary SSBJ adoption from April 2026

Japan confirmed that SSBJ standards (aligned with IFRS S1 and S2) will be available for voluntary adoption from FY2026 (starting April 2026). Mandatory phases are expected from 2027 for Prime List companies. The SSBJ has structured its standards as a split of IFRS S1 into a universal standard and a general disclosure standard, reflecting the practical needs of Japanese issuers moving from a narrative-focused legacy framework.

How will this impact investors?

Japan’s Prime List houses some of the world’s largest companies by market cap. Voluntary adoption in 2026, followed by mandatory phases from 2027 means Japan’s ISSB-aligned data pipeline is real and near-term. Firms managing Japan exposure should begin baseline mapping against SSBJ requirements now.

China: first mandatory sustainability disclosures from key index constituents

From 2026, companies listed on the SSE 180, STAR 50, SZSE 100, and ChiNext indices are required to publish sustainability disclosures, following guidelines issued by China’s three major exchanges in 2024. The reports cover governance, strategy, risk management, and metrics and targets. Notably, China is developing its own disclosure framework with double materiality elements (unlike the single financial materiality of ISSB), reflecting its domestic carbon neutrality agenda and industrial transition priorities.

What does this practically mean?

China’s mandatory regime covers a strategically important but methodologically distinct universe. Investors with Chinese holdings should expect to work with domestic standards rather than ISSB equivalents, at least in the near term. Data comparability across APAC will remain uneven for several years.

Latin America

Brazil and Mexico: mandatory ISSB-aligned reporting goes live in 2026

2026 marks the first mandatory reporting year for two of Latin America's largest capital markets. In Brazil, CVM Resolution 193 requires listed companies and certain regulated entities to report in line with IFRS S1 and S2 from 1 January 2026, following a voluntary phase since 2024. Assurance requirements are phased: limited assurance applies for reports covering FY2025, with reasonable assurance required from FY2026 onwards. In Mexico, the CNBV's January 2025 resolution requires securities issuers to prepare IFRS S1 and S2-aligned sustainability reports for FY2025, submitted in 2026, with limited assurance from 2027 and reasonable assurance from 2028. Chile is also advancing mandatory ISSB application for listed entities in 2026 under Norm 461, which had already embedded TCFD and SASB requirements. Colombia remains at voluntary alignment stage, with capacity-building underway through the IFRS Foundation–IDB regional partnership.

What does this signal?

Latin America is transitioning from a voluntary to a mandatory data environment faster than many market participants expected. Brazil and Mexico together represent the bulk of regional market capitalisation, meaning ISSB-aligned portfolio data coverage for LatAm listed equity exposure will improve materially from 2026. The phased assurance requirements are the key quality watch point; limited assurance in year one means data reliability will take time to stabilise.

IFRS Foundation–IDB regional partnership formalised

The IFRS Foundation and the Inter-American Development Bank formalised a regional partnership to accelerate ISSB adoption across Latin America and the Caribbean, with a mandate to support both regulatory alignment and private sector implementation. The partnership is particularly relevant for jurisdictions with thinner institutional capacity, where the gap between regulatory intent and operational readiness is widest.

And what does this mean for investors?

The partnership signals coordinated political will at the regional level. For asset managers building data pipelines for LatAm exposure, the direction of travel is clear, but implementation quality will vary significantly by country and by issuer size for several years.

Africa

ISSB adoption commitments across sub-Saharan Africa but enforcement remains the gap

Eight African jurisdictions - Ghana, Kenya, Nigeria, Rwanda, Tanzania, Uganda, Zambia, and Zimbabwe - have formally committed to adopting IFRS S2. Tanzania mandates it for public interest entities from January 2025; Kenya targets the same group by January 2027; Nigeria's roadmap requires listed companies to adopt by 2028. South Africa retains the continent's most comprehensive sustainable finance framework, with active prudential, disclosure, and green bond policy across categories, and its Prudential Authority has issued guidance on financed emissions aligned with PCAF methodology. At the regional level, more than 25 African central banks and supervisors now participate in the NGFS, embedding climate risk into the prudential supervision agenda.

What does this signify?

The commitment layer is real and expanding. The constraint is not intent — it is enforcement and data infrastructure. Most African climate-related financial policies remain voluntary in practice, and institutional capacity gaps mean the gap between what is mandated and what is reported will persist for several years. For asset managers with African market exposure, financed emissions data will remain heavily estimated in the near term. The PCAF December 2025 update, which introduced dedicated SME and agriculture methodologies, is directly relevant to closing that gap.

South Africa: transition risk and the coal exposure challenge

South Africa sits at the sharpest end of the transition risk debate on the continent. Its economy remains structurally dependent on coal - both for domestic energy and export revenues - placing it alongside Algeria, Egypt, Nigeria, and Angola as the African markets most exposed to stranded asset risk as global decarbonisation accelerates. The Prudential Authority's climate risk disclosure guidance and the country's green finance taxonomy provide the regulatory scaffolding, but the scale of transition financing required dwarfs available domestic capital.

How will this impact investors?

South Africa's transition exposure is a material portfolio risk consideration for any manager with emerging market debt or equity allocations to the continent. The regulatory framework is relatively sophisticated; the financing gap is not. Blended finance and development bank intermediation remain the primary mechanisms for mobilising transition capital at the scale required.

Selected Key Dates

2026 (FY2025 reports)

Mexico: first ISSB-aligned sustainability reports due for securities issuers under CNBV resolution, covering FY2025 data. Limited assurance is required from 2027.

1 Jan 2026

Brazil: mandatory ISSB-aligned reporting enters into force for listed companies and certain regulated entities under CVM Resolution 193.

5 Jan 2026

DBT letter to FCA confirming UK SRS S1 and S2 to be finalised in February 2026.

30 Jan 2026

FCA publishes CP26/5: consultation on UK SRS-aligned mandatory reporting for listed issuers.

24 Feb 2026

EU Council formally adopts the Omnibus Directive.

25 Feb 2026

DBT publishes final UK SRS S1 and S2 (available for voluntary use).

26 Feb 2026

Omnibus Directive published in the Official Journal of the EU.

18 Mar 2026

Omnibus Directive enters into force. Member States have 12 months to transpose CSRD provisions.

20 Mar 2026

FCA CP26/5 consultation closes.

Apr 2026 (FY2026)

Japan: SSBJ standards available for voluntary adoption by Prime List companies.

Q2 2026

EU: simplified ESRS delegated act expected; four-week call for feedback anticipated.

Jun 2026

EU: VSME delegated act (voluntary sustainability standard for SMEs) expected.

2 Dec 2026

UK SDR: entity-level disclosure deadline for firms with AUM >£5bn.

Autumn 2026

FCA: CP26/5 final policy statement expected; CP25/34 (ESG Ratings) policy statement also anticipated.

1 Jan 2027

UK: proposed mandatory UK SRS reporting comes into force for in-scope listed issuers.