ESG Watch: Simpler standards, sharper risk

Unless exempt, BNG rules require developers in England to deliver at least a 10 per cent net gain in biodiversity compared to the existing site. They can do this through on-site or off-site enhancements, or (as a last resort) by buying statutory biodiversity credits.

15 April 2026 saw publication of the Government's responses to two separate consultations launched in May 2025, respectively addressing how to improve implementation of BNG for minor, medium and brownfield developments, and the application of BNG to NSIPs.

In the former case, the key development is a new exemption for all developments with a site area of 0.2 hectares or less. This means that the smallest developments, where the cost and administrative burden is proportionately highest, will no longer need to deliver BNG.

In the latter case, the headline is that mandatory BNG will apply to all NSIP applications made on or after 2 November 2026. Two statutory instruments have since followed — one on 7 May 2026 to bring the relevant NSIP provisions into force and another on 29 May 2026 to extend the biodiversity gain site register, so that it can support NSIP delivery as well as ordinary planning permission.

Also in June, Defra published a collection of specific biodiversity gain statements, setting out the BNG requirements for airports, data centres, energy, geological disposal, hazardous waste, national networks, ports, wastewater and water resources.

Our view

For mainstream developments, clients should not yet assume that the proposed sub-0.2-hectare exemption or any future brownfield residential carve-out will apply to live projects. Unless and until the legislation changes, schemes should continue to be planned, priced and programmed against the current regime.

For big infrastructure developments, however, the message is more immediate. BNG for NSIPs is now moving from policy into delivery, and 2 November 2026 should be treated as a real preparation deadline. Promoters with likely Development Consent Orders on or after that date should now be reviewing ecology baselines, land requirements, off-site options, legal delivery structures and internal governance.

As covered in the previous edition, pressure has been mounting on the Government to revive the FRC scheme first promised in the Environment Act 2021.

On 23 June 2026, during London Climate Action Week, UK Nature Minister Mary Creagh announced the Government's intention to finally move forward with the introduction of new supply chain due diligence measures. Key points from a new policy paper include that:

• The Government will consult in 2026 on regulations to introduce the FRC scheme and strengthen the existing illegal timber regime. It aims to deliver the necessary secondary legislation in 2027.
• Businesses in Great Britain with an annual turnover of over £1 million, and that use FRCs and wood products, will be required to carry out due diligence to ensure these are produced in compliance with local laws.
• These requirements are intended to apply to wood, cattle, cocoa, coffee, palm oil, rubber, soy, and specified derived products (e.g., chocolate and furniture).
• Businesses that use these products will need to establish a due diligence system, report on their activity, and hold geolocation data about the origins of the specific products.

Our view

With the EUDR set to apply in Northern Ireland from 30 December 2026, the Government is clearly keen to establish greater coherence across the UK internal market and to remove barriers to trade with the EU.

While critical differences remain (e.g., EUDR requirements apply irrespective of whether deforestation is legal under producer country laws), policy proposals are obviously designed to strengthen regulatory alignment.

For example, this is the first indication we have seen that the Government proposes to integrate the existing GB illegal timber regime into the broader FRC regime. It is also the first time we have seen coffee and rubber on the list of regulated commodities.

Other changes to scope are notable, too. Previous proposals applied a £50 million turnover threshold and offered an exemption from due diligence requirements to companies whose annual usage of regulated commodities did not exceed 500 tonnes.

By contrast, the new policy lowers the turnover threshold substantially to £1 million and removes the de minimis use exemption entirely. This means that companies that have considered themselves out of scope of a future FRC regime may need to reassess.

Under pressure to firm up future MEES for commercial buildings, on 18 June 2026 the Government published an interim response to consultations launched in 2019 and 2021. Signalling a more targeted approach than previously envisioned, it is proposed that:

• All privately rented commercial buildings over 1,000 square metres in England and Wales will need to achieve a minimum Energy Performance Certificate (EPC) rating of B from 2031
• Buildings below the 1,000 square metre threshold will continue to be subject to the current minimum standard of EPC E
• A previously proposed interim target for commercial buildings to achieve an EPC C rating by 2027 will not be taken forward, giving landlords and tenants more time to make improvements in a way that suits their buildings and lease agreements
• Existing flexibility mechanisms, including the seven-year payback test and exemptions, will remain in place, ensuring that only improvements that are practical, affordable and cost-effective will be required.

Our view

Analysis published earlier this year found that 81 per cent of commercial buildings in major English cities are still below EPC B, with industry bodies blaming prolonged uncertainty about MEES as a key factor holding back investment and delaying upgrades to building stock.

Although more detailed proposals are still to come, and changes will only take effect following secondary legislation, the Government's interim response provides a much-needed regulatory signal.

For landlords, investors and lenders with exposure to commercial buildings over 1,000 square metres, the priority should now shift from regulatory monitoring to portfolio planning. If the proposed changes are enacted, sub-B-rated properties will move from being merely less attractive in the market to being unlawful to continue letting from 2031, unless they are upgraded or fall within an exemption.

Although exempted from the target of reaching EPC B by 2031, owners of sub-1,000 square metres properties should be mindful that a legally compliant property can still become unlettable in practice. A minimum performance rating of EPC E does not stop occupiers, purchasers and lenders from seeking a higher standard, where poorly performing stock carries obvious energy cost, retrofit, or obsolescence risks.

On 4 May 2026, the European Commission published its simplification review of the EUDR, as required by the December 2025 amending regulation (see ESG Watch: a busy end to 2025).

Alongside a report trumpeting a 75 per cent reduction in compliance costs for companies compared to the original EUDR, the review package also included updated guidance and FAQs, and a draft delegated act on product scope.

The latter does include some further changes to the regulation, with soluble coffee and certain palm oil derivatives added to in-scope products in Annex 1, and others such as leather and re-treaded tyres removed. It is also proposed that product samples, certain packing materials, and used and second-hand products are explicitly carved out, acknowledging the disproportionate burden of carrying out due diligence for such products.

Most notable, however, is what hasn't changed. Save for the minor changes to derived products described above, seven core commodities remain the basis of the regulation — cattle, wood, cocoa, soy, palm oil, coffee, and rubber. Deadlines are unaffected too, with application dates remaining 30 December 2026 for large/medium-sized operators and 30 June 2027 for micro/small operators.

Our view

The May 2026 review package does not materially alter core due diligence obligations; rather it clarifies how the EUDR regime is expected to work in practice. Companies that have been waiting for clearer guidance should now be able to move from scoping and system design into operational implementation, reviewing scope adjustments and using updated guidance and FAQs as an opportunity to validate their approach.

On 6 May 2026, the European Commission published two draft delegated acts for consultation, respectively containing the revised ESRS and a voluntary reporting standard for companies outside the mandatory scope of the Corporate Sustainability Reporting Directive.

Regarding revised ESRS, these:

• Are based on technical advice provided by the European Financial Reporting Advisory Group (EFRAG) in December 2025, with some additional modifications made by the Commission.
• Are expected to reduce reporting costs per company by around a third, having cut mandatory data points by more than 60 per cent and total data points by more than 70 per cent.

Regarding voluntary ESRS, these:

• Are based on EFRAG's 2024 voluntary SME (VSME) standard, with only minimal changes to ensure alignment with the revised ESRS.
• Provide a simpler, standardised framework that supports voluntary reporting by businesses not subject to mandatory reporting requirements and caps the information that companies may request from smaller undertakings (with fewer than 1,000 employees) in their value chain.

The Commission has indicated that it will adopt both delegated acts as soon as possible. Once in force, the revised ESRS will apply to reporting for financial years starting on or after 1 January 2027, as will voluntary standards for the purposes of value chain reporting.

In another related development, materials published by EFRAG in June indicate that work has also resumed on the ESRS for third-country ultimate parent companies (N-ESRS). A consultation draft is expected in July 2026.

Our view

For EU undertakings and non-EU issuers required to report from 2028 (for financial years starting on or after 1 January 2027), the key task is to reassess reporting processes against the revised ESRS standards. Those that are already subject to mandatory reporting under the existing regime for FY26 have the option to apply the revised ESRS early and should assess the potential benefits of doing so.

Non-EU ultimate parent companies of groups that exceed €450 million EU turnover, and that have an EU subsidiary/branch with net turnover of more than €200 million, should watch out for the N-ESRS consultation draft.

If they have not already, they should also be thinking carefully about their proposed approach to reporting. Will they apply the global N-ESRS approach, reporting impacts at the global level across all topics? Will they apply the mixed approach, with its option to limit the scope of reporting to EU-related impacts only for topics other than climate? Or will they choose instead to apply the full revised ESRS, including double materiality, thereby exempting EU subsidiaries from their own reporting obligations?

On 11 June 2026, the SBTi published the long-awaited update to its Corporate Net-Zero Standard. Billed as a major shift from supporting target setting to driving implementation, key changes include the following:

• One size no longer fits all: CNZS V2 introduces two company categories (A and B), based on size and geography. For Category B companies (including SMEs in lower-income countries), certain requirements are optional, e.g., Scope 3 target setting, assurance of target base year data, and transition plan disclosure.
• Changes to target setting: CNZS V2 separates targets for Scopes 1, 2 and 3, with new methodologies for each. For example, Scope 3 target setting shifts to a significance-based approach, requiring coverage of all categories that represent more than 5 per cent of total Scope 3 emissions.
• Introduction of an explicit implementation hierarchy: CNZS V2 moves beyond defining what a target should be, into specifying what credible delivery looks like — prioritising direct action to reduce value chain emissions before relying on sector-level interventions.
• Performance assessed on a best-efforts basis: even if targets are not achieved, companies can remain within the SBTi framework and progress to the next target cycle, provided that they are demonstrably utilising all decarbonisation levers available to them, and are transparently disclosing implementation barriers and mitigation actions.
• Formal recognition of carbon credits: a new Ongoing Emissions Responsibility framework will enable companies to gain recognition for efforts to address ongoing emissions as they progress toward validated net-zero targets. The highest level of recognition requires supporting verified mitigation outcomes that cover 100 per cent of ongoing Scope 1, 2 and 3 emissions, and applying a carbon price of at least US$80 per tonne of CO2 equivalent.
• Mandatory transition plans: CNZS V2 makes developing and maintaining a transition plan a formal criterion for target validation and specifies required content. All companies are required to have a transition plan that is approved by the company's highest governing body, aligned with corporate strategy, and reviewed at least every five years. Category A companies must also disclose their plan within 15 months of target validation.

Our view

CNZS V2 takes effect from 1 February 2027 and becomes mandatory for all new target submissions from 1 February 2028. Meanwhile, the existing standard (V1.3.1) remains open for target validation until 31 January 2028, allowing for a smooth transition.

Companies with existing validated targets do not need to move to V2 straight away. Subject to the mandatory five-year review cycle, those targets remain valid for their full timeframe — time that should be used to identify and address any gaps versus V2 specifications, in readiness for the next target cycle.

For companies without existing validated targets, the transition window creates a tactical choice. Those already close to submission may prefer to proceed under V1.3.1, particularly where they have built their target architecture around the existing rules. But companies at an earlier stage should consider whether it is more efficient to prepare directly for V2.

In any event, the practical priority is to use the transition window deliberately, including to:

• Determine whether the business is Category A or B and what obligations apply;
• Review the quality and assurance-readiness of emissions data;
• Assess if current Scope 1, 2 and 3 targets need to be reformulated; and
• Develop an SBTi-aligned transition plan.

On 26 May 2026, the TISFD reached a significant milestone with the release of a beta version of its disclosure framework, which sets out conceptual foundations and a first draft of disclosure recommendations.

Those 12 recommendations map to the same four pillar framework introduced and adopted by the previous Taskforces on Climate- and Nature-related Financial Disclosures (TCFD and TNFD):

• Governance: the processes, controls and procedures used by an entity to monitor, manage and oversee, people-related impacts, dependencies, risks and opportunities;
• Strategy: the interaction between people-related impacts, dependencies, risks and opportunities and the entity’s business model and strategy, and related financial effects;
• Impact and risk management: the processes used to identify, assess, prioritise and monitor people-related impacts, dependencies, risks and opportunities; and
• Metrics and targets: the metrics and targets used to assess and manage people-related impacts, dependencies, risks and opportunities.

Further iterations are to follow, including with an initial set of recommended metrics and targets, and guidance to help organisations integrate identification and assessment of impacts, dependencies, risks and opportunities across people, nature and climate. A final version of the framework is expected in late 2027.

Our view

Although only a beta version, publication of the TISFD's conceptual foundations and initial disclosure recommendations is an important development. Critically, it amplifies the need to treat intensifying inequality as a systemic risk to business resilience, not only affecting people's wellbeing, but also impacting social and economic stability.

For companies, the practical message is that where TCFD and TNFD have gone before, TISFD is destined to follow. Likely to become a reference point for future regulation, due diligence expectations, and reporting practice, boards should already be interrogating company-specific and system-level exposures arising from inequality-related pressures, and integrating insights into governance, strategy, and risk management.

Back in 2020, a coalition including Notre Affaire à Tous, Sherpa, France Nature Environnement and the City of Paris filed a lawsuit against TotalEnergies under France’s Duty of Vigilance Law. They argue that the company has failed to properly identify and address its climate-related impacts, including the greenhouse gas (GHG) emissions that arise from the use of the oil and gas products it sells.

On 25 June 2026, after years of argument over jurisdiction and admissibility, the Paris Judicial Court issued its first merits judgment. Finding that "the extraction, refining and subsequent placing on the market of a barrel of oil inevitably leads to its combustion," TotalEnergies was ordered to include Scope 3 emissions in its risk mapping and related vigilance measures.

The company now has six months to develop a revised vigilance plan explaining how it will tackle the environmental and human rights impacts associated with those emissions. Referring the case for further proceedings in January 2027, the Court has indicated that it will assess whether those measures are sufficient once the updated plan is published.

Our view

The reasoning that Scope 3 emissions are an inevitable consequence of oil production draws parallels with the UK Supreme Court's decision in Finch v Surrey County Council and points to the wider significance of both judgments.

They indicate that courts are increasingly unwilling to accept arguments that impacts downstream of direct operations are beyond a company's control. Although hitherto stopping short of imposing specific emissions reduction targets, or compelling companies to cease oil and gas exploration, they nonetheless require boards to properly integrate downstream impacts into their decision-making.

This takes Scope 3 emissions beyond reporting territory and into the realm of legal risk, governance, and justiciable due diligence. They must be identified, assessed and addressed with the expectation that courts, regulators and stakeholders will not only scrutinise disclosures, but also how those disclosures inform strategic choices.

In 2021, a case brought by Milieudefensie (Friends of the Earth Netherlands) against Shell plc made legal history. It established that, under Dutch law, companies have a duty of care to reduce GHG emissions in line with the Paris Agreement and resulted in Shell being ordered to cut group-wide emissions by 45 per cent by 2030 compared to 2019 levels.

Although that specific target was overturned at appeal, Shell's obligation to limit carbon emissions and mitigate the risks of catastrophic climate change was confirmed. The judgment also stated that it was "plausible" that keeping the Paris Agreement goals in reach will require "limiting the supply of fossil fuels" and therefore “Shell's planned investments in new oil and gas fields may be at odds with this." 

Pulling further on that thread, Milieudefensie initiated a second climate lawsuit against Shell on 21 April 2026, which:

• Seeks an order requiring Shell to cease development of new oil and gas fields, including preventing the transfer of undeveloped fields to third parties;
• Seeks binding emissions reduction obligations for Shell’s Scope 1, 2, and 3 emissions, with reduction targets for 2035, 2040, and 2050;
• Requests that Shell be prohibited from meeting its reduction targets through carbon offsets or by divesting emitting assets.

Our view

This is not simply a rerun of the first Shell litigation. Whereas the first case ultimately revolved around whether companies, not just states, have a duty to reduce emissions in line with the Paris Agreement, this new case zeroes in on whether new fossil fuel production is compatible with that duty.

The new claim appears designed to respond to a weakness from the first case — the appeal court's reticence to impose a specific percentage reduction on one company, given arguments about substitution and whether reduced Shell supply would simply be replaced by competitors.

Instead, the claim targets a specific category of future corporate conduct — the bringing of new oil and gas fields into production. If successful, the most important implication would be that companies' duty to reduce emissions would extend to capital allocation. No longer just a question of whether they have set science-based targets, alignment with the Paris Agreement would become a live constraint on approving new fossil fuel projects.

Greenpeace Netherlands has taken the first step towards legal action against JBS. On 30 April 2026, its lawyers sent a letter to JBS's Dutch parent company, JBS N.V., setting out multiple alleged breaches of Dutch law and its duty of care, which requires companies to act in accordance with international human rights law.

Taking advantage of new legislation that allows access to data held by Dutch companies for the purpose of bringing litigation, the letter demanded disclosure within three weeks of any assessments relating to the climate, nature and human rights impacts of JBS' historic operations and its planned US$6 billion expansion, which includes major investment in Nigeria.

Failure to comply entitles Greenpeace to seek the required information in the form of documents and from senior JBS figures under oath. This raises the prospect of JBS's owners, the Batista brothers, being forced to testify in Dutch court.

Our view

Greenpeace’s action against JBS is significant because it seeks to take the Dutch corporate duty of care theory developed in the Milieudefensie v Shell litigation (see above) and apply it to agribusiness.

Just as Milieudefensie's second Shell case asks whether a duty to mitigate climate change can be translated into a concrete prohibition or constraint on new fossil fuel production, this matter essentially asks whether a duty to avoid climate, biodiversity and human rights harms can constrain the expansion of industrial agriculture.

As such, this could be a significant test case for the next frontier of climate litigation — moving beyond fossil fuels to address the impact of other systemically high-impact sectors.

Confirmed in a press announcement on 16 June 2026, McDonald's Germany has been banned from making unsubstantiated claims about its future environmental performance.

According to a judgment handed down earlier that month by the Munich I Regional Court, the business must "refrain from advertising that it is committed to the goal of becoming climate neutral worldwide in its restaurants and in its supply chain by 2050." If that ban is infringed, the company could be fined up to €250,000 and its managers could also face up to six months in jail.

The case was brought by Deutsche Umwelthilfe (DUH) who accused the fast-food chain of making grandiose claims on its website without providing any clear detail as to how the stated target would be achieved. Although McDonald's did amend those claims following a warning from DUH, they refused to pledge not to repeat such conduct in future, prompting the activists to take the company to court.

Our view

This is a timely reminder of the EU Empowering Consumers for the Green Transition (ECGT) Directive and the 12 new banned and automatically unfair practices it has added to the Unfair Commercial Practices Directive.

In addition to making claims about future environmental performance without a clear, detailed and realistic implementation plan, these include making generic claims (e.g., eco-friendly) that are not backed by relevant performance and claims based on offsetting.

Alongside the failure to prevent fraud (FTPF) offence in the UK, which has transformed greenwashing from a primarily regulatory risk into a potentially criminal matter (see: How does the failure to prevent fraud raise the stakes on greenwashing?), this amplifies the need for companies to establish robust procedures for ensuring that sustainability claims are clear, accurate and backed by evidence.