Climate and Energy: EU Policy and Regulation Update for 29 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

• European Commission publishes proposals to simplify EU ETS
• EFRAG publishes ESRS-40a Exposure Draft for certain non-EU undertaking

European Union/International

• ECB publishes Working Paper on Climate regulation, firm emissions, and green takeovers
• EBA and EIOPA publish materials from public hearings on certain Taxonomy KPIs and other aspects of the Disclosures Delegated Act
• EBA publishes draft technical package of its reporting and disclosure framework, covering Pillar 3 ESG disclosures
• ECB announces it will extend the use of climate factors in Eurosystem collateral framework to non-financial corporate credit claims
• EFRAG publishes comment letter on ISSB consultation on SASB Standards

France

• French Insurance regulator publishes study on adaptation and prevention measures in the non-life insurance sector in response to the rise of climate change claims
• TotalEnergies to appeal decision mandating inclusion of Scope 3 emissions in its vigilance plan

Sustainability Omnibus/Simplification measures

17 July 2026 [EU] – European Commission publishes proposals to simplify EU ETS

The European Commission published a legislative package containing its proposals to modernize the EU Emissions Trading System (EU ETS), aimed at preserving the EU ETS as the EU’s principal market-based decarbonization instrument while reinforcing its role as an “investment engine” for industrial decarbonization, through greater investment support, increased market predictability, and targeted simplification.

The package consists of (i) a proposal for a Directive amending the main EU ETS Directive and the Market Stability Reserve (MSR) Decision as regards driving competitiveness and cost-effective decarbonization [available here], (ii) a proposal for a Regulation amending the main EU ETS Directive as regards revised benchmark values for the heat and fuel benchmarks for the period from 2026 to 2030 [available here] and (iii) a proposal for a Regulation amending sector specific regulations on monitoring, reporting and verification (MRV) for the maritime sector [available here]. Supporting documents include a Q&A [available here].

One key item of the proposals concerns the revision of the emissions cap trajectory from 2031 onwards through updated linear reduction factors. Under the current framework, the cap is lowered annually by an amount equivalent to 4.3% of emissions in the ETS sector in 2013, a figure that was set to rise to 4.4% in 2027. but would now be reduced to 3.7% from 2031, and further to 1.7% from 2036, resulting in the ETS cap reaching zero in 2048 at the earliest, rather than 2039 under the current trajectory.

The revisions to the EU ETS Directive and MSR Decision also include (i) the introduction of a mechanism to allow the potential use of high-integrity international carbon credits from 2036 (subject to a 2% limit), (ii) the establishment of an Industrial Decarbonization Bank from 2028, which will steer EUR 100 billion from EU ETS revenue to fund industrial decarbonization projects, and (iii) an increase in the number of allowances to remain in the MSR, in order to improve market stability and liquidity as the emissions cap declines.

The review further proposes significant changes to the free allocation regime, which would continue beyond 2030 but become conditional on operators adopting “Invest in EU Decarbonization Plans” and reinvesting an amount equivalent to the value of their free allowances into decarbonization activities within the EU. It would also extend benchmark-based free allocation for sectors exposed to carbon leakage that are not covered by the Carbon Border Adjustment Mechanism (CBAM), slow the phase-out of free allocation for CBAM sectors until 2038, and increase free allocation through revised benchmark values for the 2026–2030 period.

The Chair of the European Parliament’s Committee on the Environment, Climate and Food Safety (ENVI) commented on the proposals [full press release available here] characterizing the EU ETS as a central pillar of EU climate and industrial policy, while indicating that the legislative proposals would now be subject to parliamentary scrutiny and amendment.

23 July 2026 [EU] – EFRAG publishes ESRS-40a Exposure Draft for certain non-EU undertakings 

The European Financial Reporting Advisory Group (EFRAG) launched a public consultation on the Exposure Draft of the European Sustainability Reporting Standards (ESRS) for Certain Non-EU Undertakings, now entitled “ESRS-40a” [available here]. The proposed standard would apply to approximately 1,200 third-country undertakings with significant activities in the EU that meet the reporting thresholds under Article 40a of the Accounting Directive (down from approximately 10,000 undertakings pre-Omnibus).

The Exposure Draft is largely aligned with the structure of the revised ESRS and comprises cross-cutting general requirements and disclosures, together with topical standards covering climate change, pollution, water, biodiversity and ecosystems, resource use and circular economy, own workforce, workers in the value chain, affected communities, consumers and end-users, and business conduct.

The draft provides that reporting should be based on an impact materiality assessment and, for certain sustainability topics other than climate change, introduces an option allowing reporting to focus on EU-related impacts where these can be meaningfully identified. It also includes transitional provisions, reporting reliefs, and disclosure requirements relating to governance, strategy, policies, actions, metrics and targets.

The draft reflects the “mixed approach” requested by the European Commission, under which 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). EFRAG’s Sustainability Reporting Board (SRB) had previously expressed concerns regarding this approach [see further here, in our previous edition].

EFRAG invites stakeholders to submit their comments by 31 October 2026. Supporting consultation materials include a mark-up version of the draft [here], a Basis for Conclusions document [here] and a Log of Amendments [here].

Following the consultation, EFRAG intends to finalize its technical advice for submission to the European Commission in January 2027. The Commission is expected to conduct its own public consultation before adopting the delegated act. According to EFRAG’s current timetable, the first sustainability reports prepared under ESRS-40a would cover financial year 2028 and be published in 2029.

European Union/International

13 July 2026 [EU] – ECB publishes Working Paper on Climate regulation, firm emissions, and green takeovers

The European Central Bank (ECB) published a study as part of its Working Paper series, analyzing the responses of firms to the “unexpected tightening of the EU Emissions Trading System” (EU ETS) [full paper available here]. The paper is based on firm-level data covering over 2,200 EU ETS-regulated firms between 2013 and 2023, and assesses the impact of higher carbon prices on emissions, operational performance, and M&A activity.

The authors found that firms with relatively high emissions intensity reduced emissions more than lower-emitting peers within the same industry following the tightening of the EU ETS. The reductions were achieved without a corresponding decline in operating revenue, suggesting that firms improved emissions efficiency rather than reducing output. The effect was more pronounced among power producers than manufacturing firms.

The paper also examines whether firms adjusted their acquisition strategies in response to stronger carbon price signals. While the overall level of M&A activity did not increase, emissions-intensive manufacturing firms became more likely to acquire companies with environmentally focused businesses or technologies.

The paper concludes that a stronger and more credible carbon price under the EU ETS contributed to emissions reductions while maintaining economic activity. It also suggests that acquisitions of lower-emission businesses and technologies may represent an important adjustment mechanism for emissions-intensive manufacturing firms responding to climate regulation.

24 July 2026 [EU] – EBA and EIOPA publish materials from public hearings on certain Taxonomy KPIs and other aspects of the Disclosures Delegated Act

The European Banking Authority (EBA) and European Insurance and Occupational Pensions Authority (EIOPA) published slide decks from their public hearings on their Discussion and Consultation Papers regarding 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 slide decks [available here for the EBA, and here for EIOPA] summarize the current requirements and options under consideration for each KPI, along with issue-specific assessments, preliminary advice and specific expectations of feedback.

Both public hearings took place on 16 July 2026, with public consultations open until 12 August 2026, and 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.

24 July 2026 [EU] – EBA publishes draft technical package of its reporting and disclosure framework, covering Pillar 3 ESG disclosures

The European Banking Authority (EBA) published a draft technical package for version 4.4 of its reporting and disclosure framework and invited stakeholders to provide feedback ahead of its final publication, scheduled for September 2026 [full package available here].

The draft package is intended to give reporting institutions additional time to prepare for upcoming reporting changes and includes updated validation rules, the Data Point Model (DPM), XBRL taxonomies and a new glossary. Stakeholders are invited to submit comments on the draft package and glossary by 24 August 2026.

It further introduces the following new reporting requirements:

• Amendments to the ITS on Pillar 3 disclosures on ESG risks, equity and shadow banking exposures;
• New IFRS 18-aligned templates in Supervisory Financial Reporting (FINREP) framework;
• The integration of FRTB-related disclosure templates into the DPM;
• Technical amendments to DPM and taxonomy related to Resolution Planning, MREL decisions and Pillar 3 disclosure templates; and
• Templates for the DPM and taxonomy to Anti Money Laundering Authority-Eligibility templates.

The EBA notes that this publication represents the first phase of the 4.4 release. A second phase (version 4.4.1) will incorporate the remaining elements of the EBA’s consultation on the proposed simplification of supervisory reporting, published in April 2026 [see further here, in our previous edition].

24 July 2026 [EU] – ECB announces it will extend the use of climate factors in Eurosystem collateral framework to non-financial corporate credit claims

The Governing Council of the European Central Bank (ECB) announced its decision to extend the use of climate factors in the Eurosystem collateral framework to certain eligible credit claims whose debtor is a non-financial corporation [full press release available here].

The measure is intended to strengthen the Eurosystem’s risk management framework by reflecting the potential impact of climate-related transition risks on the value of collateral accepted in monetary policy operations. It builds on the climate factor introduced for marketable debt instruments issued by non-financial corporations, which became effective in June 2026.

Under the updated framework, the climate factor applied to eligible credit claims will be determined using an asset-level uncertainty score that reflects: (i) sector-specific transition stress derived from the Eurosystem’s climate stress tests, (ii) the debtor’s exposure to climate transition risks, and (iii) the residual maturity of the credit claim.

The ECB indicated that implementation is expected no earlier than the end of 2027, with climate factor values to be updated annually.

27 July 2026 [EU] – EFRAG publishes comment letter on ISSB consultation on SASB Standards

The European Financial Reporting Advisory Group (EFRAG) has published its final comment letter in response to the International Sustainability Standards Board’s (ISSB) consultation on proposed amendments to the Sustainability Accounting Standards Board (SASB) Standards and the related industry-based guidance supporting IFRS S2 [letter available here].

EFRAG welcomes the ISSB’s efforts to enhance the SASB Standards and improve the consistency and decision-usefulness of sustainability disclosures, but calls for further adjustments to support practical implementation and interoperability with the European Sustainability Reporting Standards (ESRS).

In particular, EFRAG recommends clarifying that entities “may”, rather than “shall”, refer to and consider the SASB Standards when identifying sustainability-related risks and opportunities, emphasizing that the standards should serve as non-mandatory guidance rather than create additional reporting obligations.

EFRAG also calls for closer alignment between the SASB Standards and the ESRS, greater consistency with the principles underpinning IFRS S1 and IFRS S2, and further consideration of the proportionality and feasibility of certain proposed metrics, particularly where data availability or reporting burden may present challenges.

France

23 July 2026 [France] – French Insurance regulator publishes study on adaptation and prevention measures in the non-life insurance sector in response to the rise of climate change claims

The French Autorité de Contrôle Prudentiel et de Résolution (ACPR) published the results of a study on climate risk management practices among a panel of nine major non-life insurers [full study available here, in French only].

The review assessed measures adopted by insurers to address the expected increase in climate-related claims, including changes to reserving, underwriting and pricing practices. It forms part of the ACPR’s broader work on climate-related financial risks under the Solvency II framework, which requires insurers to consider sustainability risks in the management of both assets and liabilities.

The study found that most insurers have established operational governance arrangements for climate risk, with involvement from senior management and boards. The ACPR emphasizes the value of using ad hoc committees of the board of directors or teams specializing in climate risk to raise awareness among governance bodies and promote the integration of these risks into the organization’s strategy.

In this context, the ORSA (Own Risk and Solvency Assessment) process is identified as a key tool for integrating climate-related claims projections into governance and strategic decision-making, particularly when aligned with the risk appetite framework. Some insurers therefore define and monitor a “climate budget” corresponding to the projected cost of losses linked to climate change.

However, the ACPR observes that risk prevention measures recommended by insurers and implemented by policyholders are still only rarely reflected in underwriting and pricing decisions in the retail market. In mainland France, the ACPR notes that very few insurers exclude products and/or areas considered high-risk.

Overall, the review identifies examples of good practice while encouraging insurers to further strengthen governance, adaptation measures and prevention strategies in response to increasing climate-related claims.

27 July 2026 [France] – TotalEnergies to appeal decision mandating inclusion of Scope 3 emissions in its vigilance plan

TotalEnergies has announced it would appeal the Paris Judicial Court’s judgment of 25 June 2026 in the proceedings brought by certain associations under the French Duty of Vigilance Law. The appeal follows the Court’s decision requiring the company to update its vigilance plan to address climate risks associated with the use of its products, i.e., Scope 3 emissions [see further here, in our previous edition].

In its press release [available here] TotalEnergies indicated that climate change, as a global phenomenon, falls outside the scope of the French Duty of Vigilance Law. In addition, the company notes that the legislation is intended to address risks arising from a company’s own activities, those of its subsidiaries, suppliers and subcontractors, rather than the activities of customers, over which companies do not have control. It further comments that the European Corporate Sustainability Due Diligence Directive (CSDDD) does not include customers’ activities within its scope.