Sustainable Finance Regulatory Update | Q4 2025

Q4 2025 reinforced a clear regulatory inflection point in sustainable finance. Across major jurisdictions, a sense of "realism" pervades with the emphasis shifting decisively from framework expansion to simplification and consolidation. In Europe, the Commission’s proposed SFDR reform and the Parliament’s Omnibus rollback signal a recalibration of ambition in favour of usability and competitiveness, while supervisory focus is tightening through the finalisation of ESG ratings rules. The UK moved in parallel, launching a formal consultation to bring ESG ratings providers into the FCA perimeter. In the US and Canada, climate and greenwashing regimes remain operationally significant but procedurally unsettled, while Asia-Pacific regulators continued steady convergence with ISSB standards.

Taken together, Q4 developments point less to regulatory retreat than to a re-ordering of priorities: fewer datapoints, clearer categorisation, stronger governance expectations, and more explicit accountability for claims and methodologies.

Landscape Snapshot (Jul–Sep 2025)

EU

The European Commission tabled a major SFDR overhaul (simplification + shift in product categorisation), while the Parliament moved ahead on an Omnibus rollback of CSRD/CSDDD scope and timing.

ESMA published its final draft RTS under the ESG Ratings Regulation, setting the compliance architecture for rating providers’ authorisation, governance, conflicts and disclosures.

UK

The FCA launched CP25/34 on bringing ESG ratings providers into its perimeter, closely tracking IOSCO-style principles but with UK-specific conduct and governance expectations.

US & Canada

California climate laws remain the operational centre of gravity, but SB-261 enforcement was temporarily paused (injunction) and CARB’s SB-253 rulemaking continues to drift, increasing near-term planning uncertainty.

APAC

Japan’s SSBJ continued its ISSB-alignment programme (including new exposure drafts on GHG disclosure amendments), while Australia reinforced its ISSB-aligned implementation approach through AASB climate reporting updates.

Europe

SFDR reform proposal (Nov 2025)

The European Commission published proposed amendments intended to simplify and “retail-proof” SFDR disclosures, reducing complexity and compliance burden while improving usability for end investors. Strategically, this looks like a pivot away from SFDR as a disclosure regime (via Articles 6/8/9 market practice) towards a more explicit product categorisation logic.

What does this mean for investment firms and their data?

Expect re-mapping work: product classification logic, revised templates/data points, and re-calibration of how PAIs/DNSH are used to evidence product claims under the new structure.

ESRS simplification package crystallises (Nov–Dec 2025)

EFRAG published a Draft Simplified ESRS package and, in early December, submitted its technical advice to the Commission, signalling a material cut in datapoints and a clearer proportionality pathway.

How does this impact portfolio reporting? 

ESRS datapack availability/standardisation remains the dependency, but simplification increases the odds of (i) higher issuer compliance rates and (ii) more stable, decision-useful metrics for investors over time.

Omnibus momentum: Parliament approves rollback direction

The European Parliament approved a deal to scale back elements of the EU corporate sustainability rule set, with final Member State approval expected in early 2026. Practically, this reinforces a near-term shift from “expansion” to competitiveness-driven simplification, with knock-on effects for investor data timeliness and coverage expectations.

United Kingdom

FCA CP25/34 - ESG ratings regulation consultation (Dec 2025)

The FCA launched CP25/34 proposing a UK regime to improve transparency, governance and conflicts management in ESG ratings. The FCA frames this as bringing ratings providers into a familiar supervisory perimeter (baseline conduct + tailored requirements), with consultation running into 2026.

What does this mean for the market?

Expect dual-track compliance planning for global providers (EU + UK), and rising expectations on documented methodologies, governance controls, and complaint/feedback processes.

United States & Canada

California: SB-261 enforcement paused; SB-253 rulemaking uncertainty (Q4 2025)

California remains central, but two Q4 signals matter for planning:

• SB-261: an injunction temporarily pauses enforcement, putting the 1 Jan 2026 first reporting deadline into uncertainty.

• SB-253: CARB timelines have continued to slip (including fee and broader proposed regulations), extending the pre-rulemaking period.

  
  

What do investors need to know?

Keep building your data pipelines (Scope 1–3 and climate risk processes), but plan for shifting procedural milestones and potential sequencing changes.

Canada: Anti-greenwashing remains a live supervisory risk

Canada’s anti-greenwashing framework is now an established compliance constraint for fund marketing and corporate claims. The practical message remains: claims must be specific, supportable, and verifiable and firms should treat substantiation as an evidence file, not a narrative.

Asia-Pacific

Japan: SSBJ continues ISSB alignment; GHG disclosure amendments in focus

Japan’s SSBJ issued new exposure drafts addressing proposed amendments to GHG emissions disclosures, demonstrating continued convergence with ISSB direction of travel.

Australia: Mandatory climate reporting implementation clarifications (Oct 2025)

Australia’s AASB published an implementation update reinforcing that AASB S1/S2 are ISSB-aligned (with limited modifications) and setting expectations around application and consistency with Australian legislative settings.

Selected Key Dates

15 October 2025 

ESMA Final Report: draft RTS under EU ESG Ratings Regulation published.

20-21 November 2025

European Commission publishes SFDR improvement/simplification proposal.

1 December 2025

FCA CP25/34 published (consultation opens).

31 March 2026

FCA CP25/34 consultation closes.

Our take

Q4 confirms a shift from regulatory build-out to regulatory consolidation. The direction is not deregulation, but simplification paired with sharper supervisory expectations. SFDR reform will likely force product re-classification and supporting data re-engineering, while ESRS simplification improves the odds of more consistent and usable issuer disclosures over time. In parallel, EU and UK ESG ratings regimes are converging on higher standards for governance, methodology and conflicts, raising the compliance bar for data and ratings providers.

For investors and firms, the key challenge is sequencing rather than scope. Core data capabilities, particularly around climate and claim substantiation, remain essential, but flexibility on timing and implementation is increasing. Those best positioned for 2026 will be able to adjust quickly to simplified regimes while maintaining discipline in how sustainability data is used, governed and defended in investment and product decisions.