Climate and Energy: EU Policy and Regulation Update for 20 May 2026
May 20, 2026
As policy and regulatory landscapes evolve, this publication will provide insights to navigating emerging risks and opportunities in the energy transition. Read previous issues here.
Sustainability Omnibus Package/ Simplification measures
- European Commission publishes draft Delegated Act revising ESRS
- European Commission publishes draft Delegated Act setting out VSME
- European Central Bank publishes Good practices for climate and nature risk management and stress testing
- European Commission publishes draft Implementing Regulation on CBAM
- French H2A publishes Opinion on Wave 2 sustainability assurance providers
Sustainability Omnibus Package/ Simplification measures
6 May 2026 [EU] – European Commission publishes draft Delegated Act revising ESRS
The European Commission published a draft Delegated Regulation for consultation, revising and simplifying European Sustainability Reporting Standards (ESRS) [available here]. This draft is based on EFRAG’s technical advice, informed by a consultation on a draft published in July 2025 and submitted in final form in December 2025 [see further in our previous edition here and here].
The updated ESRS are expected to cut per‑company reporting costs by more than 30%, reduce mandatory datapoints by over 60%, and cut total datapoints by over 70% – with the Commission proposing targeted adjustments to the initial EFRAG draft, to further reduce burden. Key changes from EFRAG’s technical advice include the following:
- Materiality assessment: The new text specifies that undertakings are not expected to meet the specific information needs of each individual user. It introduces a clear definition of the concept of “informed assessment”. It specifies that undertakings “shall not” report information that is not material, except in certain clearly defined circumstances. It also introduces further discretion to the undertaking regarding the need to consider specific geographical contexts when carrying out the materiality assessment.
- Fair presentation: The proposed text clarifies that fair presentation applies to the overall sustainability statement and does not apply to each datapoint. It also states more clearly that the application of ESRS results in fair presentation.
- Omission of information: The proposed text draws from the Omnibus I Directive, allowing undertakings to omit information in certain circumstances, including information that could be seriously prejudicial to its commercial position. This omission allowance extends to subsequent reporting on anticipated financial effects.
- Greenhouse gas emissions: The proposed text allows undertakings to use either the financial control approach or the operational control approach when defining the reporting boundary to be applied for Greenhouse gas emission disclosures. Under EFRAG’s technical advice, undertakings would have needed to apply the financial control approach, and then the operational control approach if the former was insufficient to portray emissions from operated assets.
- Asset management: Undertakings that manage investments subject to a fiduciary duty on behalf of clients, without retaining risks or rewards of ownership, are no longer expected to assess impacts, risks, or opportunities related to those investments.
In addition to the above, the proposed text requires undertakings that report transition plans with targets that are not compatible with 1.5C target to be transparent about this, and limits the disclosure requirement to primary microplastics. The Commission also performed a number of technical modifications regarding due diligence to ensure better alignment with the Corporate Sustainability Due Diligence Directive (CSDDD).
The consultation closes on 3 June 2026, with the Commission planning for adoption in Q2 of 2026, following which it will submit the draft to the Parliament and Council for scrutiny under the no-objection procedure (two months, extendable by a further two). The ESRS Regulation will apply for financial years from 1 January 2027, although entities subject to reporting requirements starting in 2026 may choose to apply it.
6 May 2026 [EU] – European Commission publishes draft Delegated Act setting out VSME
The European Commission published a draft Delegated Regulation for consultation, supplementing the Accounting Directive (2013/34) by establishing sustainability reporting standards for voluntary use by undertakings protected by the value chain cap [available here, with a related Q&A available here].
The Commission is empowered by the Accounting Directive – as amended by the CSRD and the Omnibus I Directive – to adopt sustainability reporting standards for voluntary use for undertakings which have less than 1000 employees. The so-called “VSME” sets a “value chain cap”, meaning that undertakings in scope of the CSRD may not require information exceeding that to be disclosed pursuant to the voluntary standard, from out-of-scope entities (which have a statutory right to refuse to provide information exceeding those limits).
The proposed VSME standard builds on EFRAG’s December 2024 technical advice, which included a four-month public consultation and field-testing running from January 2024 to May 2024. Following further internal consultations, the Commission has updated the VSME standard by aligning the content with the revised set of ESRS, and clarifying the application of – and relevant datapoints under – the value chain cap.
The consultation closes on 3 June 2026, with the Commission planning for adoption in Q2 of 2026, following which it will submit the draft to the Parliament and Council for scrutiny under the no-objection procedure (two months, extendable by a further two). The VSME Regulation will apply for financial years from 1 January 2027, for the value chain reporting of undertakings that are subject to mandatory sustainability reporting, irrespective of their option to carry out sustainability reporting in accordance with the revised ESRS already for financial year 2026 on a voluntary basis. It also applies from the date of entry into force to undertakings that, on their balance sheet dates, do not exceed an average number of 1000 employees during the preceding financial year and that wish to report on sustainability on a voluntary basis.
European Union/International
8 May 2026 [International] – European Central Bank publishes Good practices for climate and nature risk management and stress testing
The European Central Bank (ECB) has published “Good practices for climate and nature-related risk management” [available here] and “Good practices for climate and nature-related risk stress testing” [available here], aimed at supporting banks to close gaps in their risk management frameworks and address vulnerabilities in the evolving risk environment.
In recent years, all banks under ECB supervision have implemented the foundational architecture to identify, quantify and manage the risks from the ongoing climate and nature crises. However, the methods used for measuring physical and nature-related risks are still new, and risks are likely being underestimated.
In the updated good practices compendium, the ECB reviews several areas, in which it considers banks to be struggling. This includes advice and good practices regarding:
- Prudential transition planning, which supports banks in understanding how different plausible transition pathways can affect their risk profiles, ensuring they remain resilient over the medium to long term. Good practices here include (i) transition finance to support clients on their decarbonization pathways, (ii) client engagement to manage physical risks, with the client-specific approach considered more effective than blanket approaches, or (iii) strategic pricing and profitability steering for specific sectors involving transition technologies.
- Scenario analysis and stress testing, with banks encouraged to improve estimation methodologies and broaden their risk management toolkit. Good practices here include (i) transition risk modelling at the counterparty level, i.e., assessing transition risks at the individual client level rather than relying solely on broad sectoral assumptions, or (ii) assessing acute physical risks with more granularity, through mapping exposures to the exact geographical locations of individual buildings or assets.
- Nature-related risks, for which most banks have performed materiality assessment, but do not yet systematically link these to risk management actions. Good practices here include (i) using the broad range of public tools and datasets covered in the ECB document, which range from general nature indicators to more targeted indicators, (ii) proactive client engagement and due diligence, as well as (iii) integrating nature-related risks into the bank’s internal capital adequacy assessment processes.
The ECB specified that the “Good practices” do not describe or establish new legal or regulatory requirements and as such are not a prerequisite for banks’ compliance with the applicable legal framework.
13 May 2026 [EU] – European Commission publishes draft Implementing Regulation on CBAM
The European Commission launched a consultation on a draft Implementing Regulation laying down rules for the application of the carbon border adjustment mechanism (CBAM Regulation 2023/956) [available here].
Under the CBAM Regulation, EU importers of in-scope goods must buy carbon certificates corresponding to the carbon price that would have been paid had the goods been produced in the EU.
The draft Implementing Regulation sets out rules for (i) the conversion of the carbon price paid in a third country into a corresponding reduction in the number of CBAM certificates to be surrendered, (ii) the evidence of payment of that carbon price, as well as (iii) the qualifications of the independent person and conditions to ascertain its independence and qualifications.
The consultation closes on 10 June 2026 and the Implementing Regulation will apply from 1 January 2026.
France
11 May 2026 [France] – French H2A publishes Opinion on Wave 2 sustainability assurance providers
The governing body of the French accounting profession (the Haute Autorité de l’Audit – H2A) published an Opinion [available here, in French only], concerning the obligations of sustainability assurance providers appointed by Wave 2 entities under the Corporate Sustainability Reporting Directive (CSRD).
The Opinion addresses the consequences of the postponement of mandatory sustainability reporting obligations introduced through the EU “Stop the Clock” Directive of 3 April 2025 and implemented in France through the DDADUE Law of 30 April 2025. The postponement suspended, for the 2025 and 2026 financial years, the obligation for Wave 2 entities to publish sustainability information. Before that suspension entered into force, a number of affected entities had already appointed statutory auditors or independent third-party organizations (OTIs) to verify their sustainability disclosures.
H2A examined the relevant provisions of the French Commercial Code and concluded that the obligation of a statutory auditor to issue an opinion on an entity’s compliance with sustainability reporting requirements exists only where the entity is itself legally required to publish sustainability information. H2A applied the same reasoning to OTIs, notwithstanding differences in the drafting of the relevant statutory provisions.
Accordingly, and subject to the interpretation of the competent courts, H2A considers that where a Wave 2 entity is no longer legally required to publish sustainability information, the assurance provider appointed solely for that purpose is not required to perform assurance procedures, issue an opinion, or prepare a report. However, entities remain free to voluntarily comply with CSRD reporting obligations.