Climate and Energy: EU Policy and Regulation Update for 15 July 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/Simplification Measures

• EFRAG publishes Exposure Draft of ESRS for Third Country Groups
• European Commission adopts revised ESRS and VSME

European Union/International

• EBA publishes POG Guidelines for ESG retail banking products
• EFRAG publishes 2026 State of Play Report
• ESAs publish Discussion Paper and Consultation Papers on selected elements of the Taxonomy Disclosures Delegated Act
• ESMA publishes Statement on publication or distribution of ESG ratings by third parties
• ECB starts applying climate risk factors in its collateral framework
• ESMA publishes new Q&As on ESG Ratings Regulation

France

• French Climate Council issues Annual Report, setting out climate policy recommendations 

Sustainability Omnibus/ Simplification measures

1 July 2026 [EU] – EFRAG publishes Exposure Draft of ESRS for Third Country Groups

The European Financial Reporting Advisory Group (EFRAG) has approved an Exposure Draft for the European Sustainability Reporting Standards (ESRS) for Third Country Groups, during its 1 July 2026 Sustainability Reporting Board (SRB) meeting [all materials available here].

EFRAG is tasked by the Commission with developing sustainability reporting standards under the CSRD, including ESRS for non-EU undertakings and groups. EFRAG has clarified in a separate publication [available here] that the standard, formerly referred to as non-EU Sustainability Reporting Standards (N-ESRS) will now be referred to as ESRS for Third Country Groups (ESRS-TC).

The ESRS-TC will consist of 12 standards, i.e., two general cross-cutting standards, five environmental standards, four social standards and one governance standard. These will follow the ESRS’s approach to fair presentation, users of information, value chain and transitional reliefs – with a focus however on impacts rather than double materiality.

The Exposure Draft sets out two options with respect to the reporting scope:

• Global approach: Impacts are reported at the global level across all sustainability topics;
• Mixed approach: Climate-related impacts are reported globally, while reporting on all other topics is limited to EU-related impacts, provided that those impacts are managed accordingly (e.g., separate segments or products). EU-related impacts would be required to include both: (i) customer-based impacts (arising from products/services sold or provided in the EU market) and (ii) location-based impacts (arising from activities conducted within the EU).

The SRB vote report [available here] highlights dissensions with respect to the “mixed approach” application of the ESRS-TC, with dissenting SRB members noting that: (i) this approach has an unclear legal basis, (ii) it would be difficult to separate EU related impacts from global impacts, (iii) it could give rise to significant limitations for external assurance, (iv) it could undermine the level playing field of EU companies with their peers, (v) it could lead to a loss of relevant information, (vi) it could open the door to greenwashing, and that (vii) sustainability is a holistic issue and ESRS-TC should adopt an equally comprehensive approach.

Due to these concerns, the SRB only approved the draft on the condition that its position on the mixed approach is formally communicated to the EU Commissioner and clearly outlined in the draft for public feedback.

The draft is expected to be published for public consultation on 23 July 2026, with the consultation period running until mid-October 2026. EFRAG would then submit its technical advice to the European Commission in January 2027, with the ESRS-TC expected to be adopted by the Commission as a delegated act in mid-2027.

3 July 2026 [EU] – European Commission adopts revised ESRS and VSME

The European Commission has adopted revised European Sustainability Reporting Standards (ESRS) and a voluntary reporting standard for smaller companies (VSME), through delegated acts under the Directive 2013/34/EU (the Accounting Directive).

The revised ESRS [available here, with annexes available here] aim at simplifying ESRS for entities in scope of the CSRD. They take into account EFRAG’s December 2025 technical advice and were subject to consultation in draft form in May 2026 [see further here and here, in our previous editions]. Key amendments are detailed below:

• Materiality and materiality assessment: Undertakings “shall not” report information that is not material, except in certain clearly defined circumstances (rather than “not being required to” report such information). In addition, a new provision emphasizes that the “top-down” approach to materiality assessment allows the undertaking to avoid assessing the materiality of each individual impact, risk or opportunity.
• Omission of information: The text integrates new provisions derived from the Omnibus I Directive that allow undertakings to omit certain information in certain circumstances, including information that could be seriously prejudicial to the commercial position of the undertaking. This omission allowance extends to subsequent reporting on anticipated financial effects.
• Greenhouse gas emissions: Undertakings may use either the financial control approach or the operational control approach when defining the reporting boundary to be applied for Greenhouse gas emission disclosures.
• Fair presentation: The fair presentation principle shall apply to the overall sustainability statement and does not apply to each datapoint – with the application of ESRS resulting in fair presentation.
• Anticipated financial effects: The reporting of anticipated financial effects can be updated in the future in light of new information without this constituting a reporting “error”.
• Climate transition plans: The text requires undertakings that report transition plans with targets that are not compatible with 1.5C target to be transparent about this.
• Asset management activities: Financial institutions that manage investments subject to a fiduciary duty on behalf of clients shall not disclose information in relation to those investments in their sustainability statement.

The VSME [available here, with annexes available here] sets out voluntary standards for companies that do not exceed 1,000 employees on average during the financial year. The final standard builds on EFRAG’s December 2024 technical advice and was subject to consultation in draft form in May 2026 [see further here, in our previous edition].

The 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).

Both Delegated Acts will now be transmitted to the European Parliament and the Council of the EU for scrutiny. The measures will apply once the scrutiny period of 2 months, which can be prolonged by a further 2 months, is over. Following this:

• The revised 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.
• The VSME will apply for financial years from 1 January 2027 for CSRD in-scope entities that are undertaking value chain reporting. For protected entities that wish to report on a voluntary basis, it will apply from the date of entry into force. 

European Union/International

30 June 2026 [EU] – EBA publishes POG Guidelines for ESG retail banking products

The European Banking Authority (EBA) published revised Guidelines on product oversight and governance (POG) for retail banking products, clarifying requirements for products with ESG features whenever offered and sold to consumers, and addressing greenwashing risks [final report available here].

The Guidelines, initially published in 2016, aim to ensure that financial institutions apply robust standards when manufacturing and/or distributing ESG-related retail products, with a view to reducing the risk of consumers being misled or sold products that do not meet their needs.

The EBA made targeted amendments clarifying how firms should address ESG considerations and greenwashing risks throughout the product lifecycle, particularly where such products are marketed to consumers. The adjustments relate to the subject matter, the manufacturer’s internal control functions, the target market, distribution channels, information for distributors, and information and support for the manufacturer’s arrangements.

In addition, the Guidelines include non-substantive updates to reflect changes introduced since the first version, remove outdated provisions, and ensure overall consistency with the current regulatory framework.

The revised Guidelines will apply from 11 January 2027.

1 July 2026 [EU] – EFRAG publishes 2026 State of Play Report

The European Financial Reporting Advisory Group (EFRAG) published its 2026 edition of the State of Play Report, providing an assessment of sustainability reporting practice, based on 905 assured sustainability statements prepared under the European Sustainability Reporting Standards (ESRS) in 2025 [final report available here].

First published in 2025, the Report examines how preparers have approached their second year of CSRD reporting, drawing on a baseline of FY2025 sustainability statements subject to assurance by a third-party in accordance with the ESRS. The statements are assessed against a structured set of 18 questions spanning the full breadth of the ESRS cross-cutting, environmental, social, and governance standards.

The EFRAG noted that reporting practices remained broadly stable in the second year of ESRS application, and that 82% of companies updated their Double Materiality Assessment (DMA) compared with FY2024, while 67% adopted a hybrid approach, combining top-down and bottom-up methodologies. Main practice observations include the following:

• The share of companies disclosing a Climate Transition Plan increased from 55% to 69%, while 57% report near- and long-term decarbonization targets aligned with a 1.5°C pathway; and
• Reporting continues to mature, with the average sustainability statement decreasing from 115 to 95 pages, suggesting increased familiarity with the ESRS framework while sustainability disclosures continue to represent around one-third of annual reports.

1 July 2026 [EU] – ESAs publish Discussion Paper and Consultation Papers on selected elements of the Taxonomy Disclosures Delegated Act

The European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (ESMA) (together, the “ESAs”) have published materials on selected key performance indicators (KPIs) and other aspects of the Disclosures Delegated Act (Delegated Regulation (EU) 2021/2178) under the Taxonomy Regulation (Regulation (EU) 2020/852).

The papers follow a request from the European Commission in March 2026, inviting the ESAs to develop technical advice to inform the review of the Disclosures Delegated Act [see further here, in our previous edition]:

• The EBA published a Discussion Paper [available here], covering the following issues: (i) limiting the “fees and commissions” KPI to capital markets-related activities, (ii) connecting the “trading book” KPI to market liquidity, (iii) narrowing the “other services” KPI of investment firms and (iv) aligning the grandfathering rules with the approach under the EU Green Bond Standard.
• EIOPA published a Consultation Paper [available here] on its proposals about the current underwriting KPI for insurance and reinsurance undertakings. In particular, EIOPA proposes to introduce “quick fix” changes by narrowing the denominator in the Taxonomy and Eligibility ratios to Taxonomy-eligible Lines of Business and rename it to Adaptation Underwriting KPI as a short-term solution to improve transparency and accuracy of the disclosure.
• ESMA published a Consultation Paper [available here], suggesting simplifications to the Taxonomy disclosure framework for non-financial undertakings and asset managers. In particular, ESMA proposes a revision of the operational expenditure KPI, to address its operational complexity.

The ESAs will also jointly consider horizontal topics of common interest (e.g., developing rules for disclosing taxonomy KPIs at group level and for subsidiary disclosures).

The ESAs will hold public hearings on 16 July 2026 (for the EBA and EIOPA) and 22 July 2026 (for ESMA). Public consultation is opened until 12 August 2026, with finalized advice expected by October 2026. The European Commission then aims to adopt any amendments to the Disclosures Delegated Act in the first quarter of 2027, which would enter into force in the third quarter of 2027.

1-9 July 2026 [EU] – ESMA publishes Statement on publication or distribution of ESG ratings by third parties

On 1 July 2026, the European Securities and Markets Authority (ESMA) published a statement [available here] on the publication or distribution of ESG ratings by third parties between 2 July 2026 and the authorization, recognition or registration of ESG rating providers under Regulation 2024/3005 (the ESG Ratings Regulation).

The ESG Ratings Regulation introduces a common regulatory approach to enhance the integrity, transparency, comparability, responsibility, reliability, good governance and independence of ESG rating activities. It requires ESG rating providers who are issuing and publishing or distributing ESG ratings in the Union to apply to ESMA for authorization. It also exempts ESG ratings issued by an “authorized ESG rating provider” where ratings are published or distributed by a third party.

The Statement clarifies the regime for third parties that publish or distribute ESG ratings issued by existing, but unauthorized, ESG rating providers:

• Existing ESG rating providers (other than small ESG rating providers) who wish to continue operating in the EU must notify ESMA of their intention to apply for authorization by 2 August 2026 and apply for authorization no later than 2 November 2026;
• Small ESG rating providers wishing to continue operating in the EU must notify ESMA by 2 November 2026 of their intention to benefit from the temporary regime.
• From 2 July 2026, third parties may continue publishing or distributing the ESG ratings of ESG rating providers until ESMA has adopted a decision to grant or refuse the application for authorization or recognition, or to register the notifier as a small ESG rating provider.

On 9 July 2026, ESMA published a list of firms that have notified it of their intention to continue operating in the EU [available here].

9 July 2026 [EU] – ECB starts applying climate risk factors in its collateral framework

The European Central Bank (ECB) announced it had started applying a new “climate factor” in its collateral framework on 15 June 2026 [announcement available here], meaning uncertainties related to climate change are now an additional consideration in assessing how much banks can borrow when they use corporate bonds as collateral.

In July 2025, the ECB had said it would adapt its collateral framework to address climate-related transition risks [see further here, in our previous edition], following stress tests performed on the Eurosystem balance sheet, which had outlined the impact of climate change-related uncertainties on the value of financial assets.

The newly incorporated climate factors are designed to complement existing risk control measures, notably collateral haircuts, by addressing the risk that abrupt climate transition developments may reduce the market value of corporate bonds beyond what is reflected in historical data. Under the framework:

• Climate factors apply to corporate bonds used as collateral in ECB lending operations;
• Issuers with greater exposure to climate transition uncertainty are subject to larger valuation adjustments, reducing the amount banks may borrow against the same collateral; and
• The assessment focuses on market value sensitivity to transition shocks, rather than default risk, and therefore complements traditional credit ratings and probabilities of default.

The ECB applies a forward-looking methodology rather than relying solely on historical data. The calibration is based on an uncertainty score combining three elements: (i) the climate stressor, (ii) the issuer’s exposure, and (iii) its vulnerability to transition risks.

According to the ECB, the immediate operational impact on banks is expected to be limited, given the current low level of refinancing operations and the relatively limited use of corporate bonds as collateral. The Governing Council will regularly review the scope and calibration of the climate factors to reflect improvements in climate data, developments in the regulatory framework and advances in climate risk assessment methodologies.

10 July 2026 [EU] – ESMA publishes new Q&As on ESG Ratings Regulation

The European Securities and Markets Authority (ESMA) published new Q&As on Regulation 2024/3005 (the ESG Ratings Regulation) [available here]. The Q&As relate to:

• The type of consulting activities relevant for the purposes of the separation of business principle;
• The application and scope of the obligation to notify the rated item or the issuer at least two working days from the first issuance of the ESG rating;
• The access to the dataset granted when an ESG rating provider notifies an issuer or rated item for the purposes of a fact-checking review;
• The notifications of rated items without a designated point of contact;
• The obligation for an ESG rating provider to consider issuer feedback;
• The types of ESG ratings that are used for internal purposes or in-house financial services; and
• The exemption applicable to second-party opinion providers producing and using ESG ratings.

France

9 July 2026 [France] – French Climate Council issues Annual Report, setting out climate policy recommendations

The Haut Conseil pour le Climat (HCC), an independent government advisory body, published its annual report, under the title “Climate risks: France faces its responsibilities” [full report available here, in French only], highlighting the urgent need to scale up climate policies to protect the French population from climate change and dependence on fossil fuels.

The report concludes that current adaptation and mitigation efforts remain insufficient to address the scale of climate-related risks and calls for a more systematic integration of climate considerations into public decision-making. To that effect, the HCC sets 11 general principles and 82 recommendations.

From a sustainable finance perspective, the HCC recommends that climate adaptation be incorporated into public and private investment decisions, with greater consideration given to long-term climate resilience in infrastructure, land-use planning, and financing strategies. The report emphasizes the need to align financial and budgetary decisions with France’s climate objectives and adaptation priorities, while improving the assessment of climate-related risks in public policies.

The HCC also calls for stronger governance of climate policy, including more consistent monitoring of climate risks, clearer accountability across public authorities, and improved coordination between national and local actors. It stresses that climate considerations should be integrated across sectoral policies rather than addressed through standalone adaptation measures.