ESG Watch: a busy end to 2025

In our previous update, we highlighted the launch of three interconnected consultations on proposed UK Sustainability Reporting Standards (UK SRS), transition planning, and assurance of sustainability reporting. (For more information, see our article: UK Government consults on new sustainability reporting standards, transition planning, and sustainability assurance.) 

The UK Government is analysing responses and aims to publish finalised versions of UK SRS S1 (general requirements) and UK SRS S2 (climate-related disclosures) for voluntary use in early 2026. 

Subsequently, the Government and the Financial Conduct Authority (FCA) will consider whether to introduce mandatory requirements for certain UK entities to report against the standards, with the FCA set to consult shortly on amendments to the UK Listing Rules. 

Our view: 

Large and listed organisations should prepare for the likelihood that mandatory reporting in line with UK SRS will be phased in from 2026 onwards. This includes: 

• Assessing readiness to comply with UK SRS, benchmarking current reporting processes and internal capabilities against the draft standards, and developing a roadmap for ensuring swift and effective alignment. 
• Performing or updating materiality assessment to identify and prioritise strategically significant sustainability risks and opportunities (preferably following a best practice double materiality approach, even though this is not required by UK SRS). 
• Strengthening governance and oversight to ensure that insights from materiality assessment are fully integrated into decision-making. 
• Enhancing data management and internal controls to ensure reporting of consistent, reliable and auditable information. 

Our previous update also highlighted a July 2025 report by the Joint Committee on Human Rights (JCHR), following its inquiry into forced labour in UK supply chains.

On 16 October 2025, the Government published its response to the 'JCHR's recommendations, confirming that it is considering legislative options for strengthening section 54 of the Modern Slavery Act, including reporting requirements, the turnover threshold, and penalties for non-compliance.

It also emphasised the launch of a review of the UK's approach to responsible business conduct, as part of its Trade Strategy. This includes potential introduction of mandatory human rights and environmental due diligence measures, and a "failure to prevent" obligation in relation to forced labour and other human rights abuses.

Our view:

Organisations should factor possible future legislation into their scenario planning, considering the implications of:

• Obligations to assess, prevent, mitigate and remediate actual/potential negative impacts of business activities on human rights and the environment, in line with UN Guiding Principles and OECD Guidelines.
• The possibility of a UK ban on importing/selling goods linked to forced labour, potentially modelled on the EU Forced Labour Products Regulation.
• A private right of action for people harmed by forced labour. Per the "adequate procedures" defence in relation to bribery and corruption, and fraud (including greenwashing), this would shift the onus onto companies to demonstrate reasonable systems to prevent such abuses.

Introducing the most significant overhaul of UK employment law in decades, the Employment Rights Act received Royal Assent on 18 December 2025. Key changes include:

• A six-month qualifying period for unfair dismissal protection (replacing the previously signalled day-one model)
• Extensive new rights for zero-hours and low-hours workers
• Modernised trade union access and recognition processes
• Strengthened pregnancy and family-leave protections
• Expanded collective redundancy duties
• New constraints on "fire and rehire" practices
• Extended time limits for many claims from three to six months

Our view:

The Act's ambition depends critically on secondary legislation to operationalise its aim of rebalancing employment rights with labour market flexibility. Employers should consider taking the following steps as soon as possible to prepare for new laws:

• Conduct comprehensive compliance audits, reviewing all current employment practices against known requirements and anticipated obligations.
• Provide evidence-based contributions to ongoing consultations on zero-hours workers calculation mechanics, reasonable notice thresholds, union access timelines, and sectoral exemptions.
• Review and restructure zero-hours and low-hours arrangements, including auditing contracts to understand potential guaranteed hours obligations, and assessing whether current HR systems can track reference periods, calculate averages, and generate compliant offers within statutory deadlines.
• Prepare for enhanced union access and recognition, and develop strategies for responding to access requests within compressed statutory timelines.
• Map multi-site operations for redundancy aggregation and implement tracking systems to monitor dismissals across the organisation over rolling 90-day periods.
• Review any planned business restructuring, geographic consolidation, or contract variation programmes against "fire and rehire" constraints.

In our previous update, we highlighted the continued political wrangling surrounding the first EU Omnibus simplification package.

On 9 December 2025, European Parliament, Council of the EU and European Commission negotiators finally reached provisional agreement on amendments to the Corporate Sustainability Reporting Directive (CSRD). On 16 December, the Parliament adopted final text on first reading, and formal adoption by the Council is expected in February 2026.

Key changes agreed are as follows:

• The CSRD will only be applicable to:
  • EU undertakings and non-EU issuers that (on an individual or group basis) exceed €450 million turnover and an average of more than 1,000 employees during the financial year, which will be required to report from 2028, for financial years starting on or after 1 January 2027.
  • Non-EU ultimate parent companies of groups that exceed €450 million turnover generated in the EU and have an EU subsidiary/branch with net turnover of more than €200 million, which will be required to report from 2029, for financial years starting on or after 1 January 2028.
• A review clause allows for the possibility of extending the scope of the CSRD in future.
• Financial holding undertakings are exempted, provided they do not involve themselves in the management of subsidiary undertakings, and the business models and operations of those subsidiaries are independent.
• The value chain cap is extended to organisations with fewer than 1,000 employees. Such undertakings may decline requests to provide information to reporting entities beyond what is specified in voluntary standards (to be adopted by delegated act).
• In addition to a radical reduction of mandatory datapoints in European Sustainability Reporting Standards ESRS), to be reported if material, development of sector-specific reporting standards has been abandoned. Instead, the Commission will be able to develop specific guidance on applying the ESRS, reflecting the sustainability matters most likely to be material across different sectors.

Our view:

While the EU hits the brakes on the CSRD, China is stepping on the gas with its own Corporate Sustainability Disclosure Standards (CSDS), which are similarly rooted in a double materiality approach to evaluating sustainability-related impacts, dependencies, risks and opportunities (see our article: Leading the sustainability transition: is the balance of power shifting from the EU to China?).

This is indicative of two very different directions of travel – the former prioritising burden reduction and competitiveness within the current global economic system, while the latter prioritises policy alignment and future competitiveness in recognition of escalating systemic risks.

In our opinion, the latter view will ultimately win out, which is why we continue to recommend double materiality assessment to clients, even if their businesses are no longer (or never were) in scope of the CSRD.

Done right, double materiality assessment isn't just part of the reporting process. It's a critical strategic tool, providing insights into where a business is exposed to risk, lacks resilience and needs to transform.

Decisions reached on 9 and 16 December 2025 also finalise amendments to be made to the Corporate Sustainability Due Diligence Directive (CSDDD). Additionally, agreement has been reached on targeted revisions to the Deforestation Free Products Regulation (EUDR), which were subsequently published in the Official Journal of the European Union on 23 December.

In relation to the CSDDD:

• The CSDDD will only be applicable to:
  • EU undertakings that (on an individual or group basis) exceed €1.5 billion turnover and an average of more than 5,000 employees during the financial year.
  • Non-EU undertakings that (on an individual or group basis) exceed €1.5 billion turnover generated in the EU.
  • EU and non-EU undertakings that (on an individual or group basis) have entered into franchising or licensing agreements in the EU, where turnover exceeds €275 million and royalties are more than €75 million.
• In all cases, in-scope undertakings are required to comply with the CSDDD by 26 July 2029, and to publish required disclosures by 1 January 2030.
• As per the CSRD, a review clause allows for the possibility of extending the scope of the CSDDD in future.
• The obligation for companies to adopt and put into effect a climate transition plan is removed entirely. However, undertakings in scope of the CSRD will still need to report publicly on their plan, if they have one.
• A risk-based approach to human rights and environmental due diligence is retained. Undertakings are required to conduct a scoping exercise, based on reasonably available information, to identify where adverse impacts in their chain of activities are most likely to occur, and to follow up with in-depth assessments where the most serious risks are identified.
• When conducting in-depth assessments, undertakings must limit information requests made of business partners with fewer than 5,000 employees to situations where that information cannot be reasonably obtained by other means.
• While undertakings need to assess and update their due diligence measures whenever there are reasonable grounds to believe they are no longer adequate or effective, the interval between regular periodic assessments is extended from one year to five years.
• Where attempts to prevent or mitigate an adverse impact have proven unsuccessful, the obligation to terminate business relationships as a last resort is replaced with a requirement to suspend the relationship until the impact is addressed.
• The requirement for a harmonised civil liability regime is removed, leaving civil liability at the discretion of individual member states.
• Penalties for non-compliance are to be capped at 3% of the undertaking's net worldwide turnover.

In relation to the EUDR:

• Application of the regulation has been postponed by another year to 30 December 2026 at the earliest, with a further six-month cushion for micro and small enterprises.
• Certain printed products (such as books and newspapers) have been removed from the scope of the regulation.
• Large and medium-sized undertakings that are "primary operators" (i.e., those that place regulated commodities/derived products on the EU market for the first time) remain obligated to carry out full due diligence and submit due diligence statements, as set out in the regulation.
• Micro and small primary operators (satisfying at least two of: fewer than 50 employees; less than €10 million turnover; and less than €5 million net assets) are effectively exempted from core due diligence requirements, needing only to submit a one-off simplified declaration.
• Amendments introduce a new category of market participant – "downstream operators" – referring to those who place products on the market that have been manufactured using commodities already placed on the market by primary operators (e.g., a chocolate maker using cocoa already covered by a due diligence statement or simplified declaration).
• Downstream operators and "traders" (others involved in a transfer of ownership en route between operators and end-users) will not be required to conduct full due diligence. Rather, they must collect and retain for five years information about the operator who supplied them, the reference numbers of associated due diligence statements or declaration identifiers, and details of other downstream operators and traders whom they have supplied.
• Amendments also introduce an obligation for the EU Commission to conduct a review of opportunities to further simplify the regulation and present a report by 30 April 2026.

Our view:

Three simple truths deserve to be remembered:

1. Studies show that up to 90% of a company's sustainability impacts originate in their supply chain.
2. Linked to our comments above on the strategic value of double materiality, robust human rights and environmental due diligence is integral to impact materiality assessment.
3. Drawing heavily on the due diligence steps set out in OECD Guidelines, what the CSDDD sought to make mandatory is already long-established voluntary best practice.

Taken together, these points underline why the narrowing of the CSDDD's scope, and postponement and "simplification" of the EUDR, do little to diminish the underlying rationale for robust due diligence processes.

Contrary to the dominant political narrative right now, they point to approaching due diligence not as a regulatory burden, but as an essential tool of good governance, anticipatory risk management, and strategic decision-making.

Those that embed proportionate, risk-based due diligence into governance and strategy are better placed to anticipate disruption, protect value, and navigate a future defined by escalating systemic risks.

The first case to directly link death, injury and property damage in the Global South to the actions of a fossil fuel major in the Global North, a group of more than 100 Filipinos are seeking financial compensation from Shell for the destruction wrought by Super Typhoon Odette in 2021.

The claim, filed at the Royal Court of Justice on 9 December 2025, alleges that Shell's activities have materially contributed to climate change, which significantly intensified the likelihood and severity of the typhoon. Claimants also contend that Shell:

• Has had knowledge of the dangers of climate change, and its contributions to it, since the 1960s;
• Has continued to expand oil and gas investments, despite clear guidance that development of new fields is incompatible with Paris Agreement targets; and
• Has promoted or engaged in communications and lobbying designed to undermine the scientific consensus on the causes and effects of climate change.

The claimants are seeking damages for property damage, personal injury, bereavement, psychological trauma and loss of earnings, as well as further relief in relation to the violation of their constitutional right to a balanced ecology.

Our view:

As highlighted in our previous update, the International Court of Justice's advisory opinion on climate change has strengthened the global consensus that the law can recognise causal links between greenhouse gas emissions and consequent climate harms. The case of Lliuya v. RWE has also confirmed that a company can, in principle, be held liable for climate harms abroad, in a manner reflective of its contribution to global emissions.

Together with new research, which can now directly attribute individual extreme weather events to climate change, and emissions to specific fossil fuel companies, this case could be hugely consequential.

The potential liabilities for fossil fuel companies are massive, too. It has been estimated that climate damages attributable to the 25 largest oil and gas companies exceed US$20 trillion.

On 14 November 2025, the English High Court handed down judgment in relation to liability for the collapse of the Fundão Dam in Brazil in 2015, which killed 19 people and caused widespread environmental damage (see our full article: Mariana Dam case decided: BHP found liable for Fundão Dam collapse in Brazil).

Originally issued in late 2018, the claim was brought on behalf of more than 600,000 individuals, businesses and municipalities in Brazil. They seek compensation from BHP Group (UK) Limited and BHP Group Limited (BHP) in England on the basis that: Samarco (the Brazilian company that owned and operated the dam) was a joint venture between BHP and Vale (another Brazilian mining company); and BHP was headquartered in the UK at the time of the dam's collapse.

The court found in favour of the claimants on the bases that:

Together with Vale, BHP was directly and/or indirectly responsible for the activity of Samarco and therefore held to be a "polluter" under the Brazilian Environmental Law, which imposes strict liability.

BHP was liable by reason of its own fault (i.e., negligence) under Article 186 of the Brazilian Civil Code.

Having addressed liability, the second phase of the case will establish the quantum of damages (estimated to be up to £36 billion) and has been scheduled for October 2026.

Our view:

This landmark decision offers important guidance (and warnings) for multinational organisations with subsidiary operations in Brazil: 

• Parent companies are not necessarily insulated from liability for environmental damage caused by the acts or omissions of their subsidiaries in Brazil, especially where they remain instrumental in risk management and decision-making.
• Parent companies with oversight responsibilities must act on known risks. Failure to do so can give rise to parent company liability. 
• English courts will apply foreign environmental law where access to justice is limited in the jurisdiction where the damage occurred. 
• English courts are also able to manage and adjudicate complex group tort actions involving hundreds of thousands of claimants, proving England and Wales as a viable forum for large-scale group action disputes.

Thought to be the largest single piece of group litigation ever brought in the UK, with an estimated claims value of up to £36 billion, the outcome will also be welcomed by third-party funders. Whereas a loss would have deterred funding for similar mass tort claims, success signals the viability of such claims in the English courts.