Key news in this edition:
- UK moves to regulate ESG ratings under the Financial Conduct Authority
- Brazil’s sustainable taxonomy comes into force
- European Commission proposes amendments to the SFDR
Editorial
In the last month, we have seen Brazil advance its sustainable finance agenda by implementing a national taxonomy to classify environmentally and socially responsible activities. Meanwhile, in the United States, legal challenges to California’s climate disclosure laws continue to reveal ongoing tensions between corporate rights and environmental regulation. In Europe, the EU refined its Carbon Border Adjustment Mechanism to ease burdens on smaller importers while sustaining pressure on major emitters, and the European Commission’s proposed revisions to the SFDR aim to simplify disclosures and curb greenwashing. In the UK, ESG ratings providers will now be regulated by the Financial Conduct Authority, the UK’s financial watchdog, reinforcing the country’s commitment to transparency and sustainable finance integrity.
Brazil’s sustainable taxonomy comes into force
On 3 November, Brazil’s government formally brought into effect the Brazilian sustainable taxonomy, a national framework designed to classify sustainable economic activities, guide capital flows, curb greenwashing, and support priority climate and development goals under the Ministry of Finance’s Ecological Transformation Plan.
Brazil’s sustainable taxonomy plan is a classification system that defines the technical and legal criteria for identifying which investments can be considered environmentally and socially sustainable. Brazil’s taxonomy framework is intentionally broad, spanning several high-impact sectors such as agriculture and energy.
While initially operating on a voluntary basis, the taxonomy will become mandatory in January 2026. Several key market regulators, including the National Monetary Council and Central Bank of Brazil, are set to further define the taxonomy’s rules, and companies and financial institutions will be expected to use the taxonomy for disclosures and lending purposes.
So what?
Brazil’s sustainable taxonomy represents a strategic shift in the country’s approach to sustainable finance. For investors, it provides a clear framework to identify credible and sustainable assets while reducing greenwashing, and for companies, it can be seen as a call to align with evolving global sustainability standards to avoid losing access to existing financial standing.
[Contributor: Jeea Bakhshi]
US court of appeals pauses law requiring California companies to report climate-related financial risk
In November, the 9th US Circuit Court of Appeals paused the implementation of a law requiring large companies doing business in the state of California to report financial risks associated with climate change. The law, first signed in 2023 and originally set to come into effect in January 2026, would require companies making over USD 500 million annually – about 4,100 companies – to report on these risks on a biennial basis and present plans to address them. The court agreed to pause the law’s implementation following a request from the US Chamber of Commerce (‘CoC’), arguing that the legislation would violate the first amendment rights of affected companies, a claim rejected by the California Air Resources Board, a government agency seeking to reduce carbon emissions.
However, the court left in place a second piece of legislation requiring the disclosure of carbon emissions by companies making over USD 1 billion annually, which would include around 2,600 companies. These laws would constitute a significant step in increasing transparency around greenhouse gas emissions; however, the CoC stated its intent to continue its appeal against both pieces of legislation, claiming they would create increased compliance costs.
So what?
These decisions underscore the ongoing tension between corporate interests and state-level efforts to regulate climate accountability, and reflect the broader uncertainty surrounding the extent of state authority to mandate environmental transparency in the US. As policies continue to evolve, we will witness the shifting balance between environmental regulatory ambitions and corporate rights.
[Contributor: James Breen McDaid]
Changes to the EU’s Carbon Border Adjustment Mechanism
On 20 October, the EU adopted changes to the Carbon Border Adjustment Mechanism (‘CBAM’) – introduced as part of the “Omnibus I” legislative initiatives – which outlined an annual import threshold to effectively exempt low-volume importers, or those bringing in less than 50 tonnes of goods annually, from CBAM obligations. According to the EU, the measure is expected to exempt over 180,000 importers, mostly classified as small-to-medium-sized enterprises (‘SMEs’), while still covering over 99 percent of emissions. The amendments also aimed to streamline the system by simplifying and standardising authorisation, reporting, and data processes.
Overall, these changes are expected to reduce regulatory, administrative, and compliance costs. The EU contends that the simplification measures are designed to enhance CBAM’s effectiveness while simultaneously minimising any negative impact on small businesses and importers.
So what?
These adjustments signal the EU’s intent to make the Omnibus initiatives more operationally practical for smaller businesses while keeping strong pressure on large companies – in this case, carbon-intensive importers. This signals that the EU is maintaining its stance on promoting sustainability initiatives while, where possible, promoting and protecting SMEs.
[Contributor: Haddie Hamal]
European Commission proposes amendments to the SFDR
In November, the European Commission (‘the Commission’) proposed a set of amendments to the Sustainable Finance Disclosure Regulation (‘SFDR’), the EU’s legal framework that mandates how financial market participants must disclose information relating to sustainability. The framework’s goal is to enable investors to make sustainability-informed decisions. The proposed amendments address the shortcomings in the framework, and aim to deliver simpler and more user-friendly information for investors while reducing disclosure requirements and compliance costs.
The proposed amendments include simplified disclosures that no longer require companies to disclose how they consider principal adverse impact of investment decisions on sustainability factors at the company level. Additionally, the Commission proposed a voluntary ‘product categorisation’ to help investors match their sustainability preferences with products on offer.
The Commission also proposed that any ESG claims made in marketing materials would be restricted to categorised products in order to fight greenwashing and increase trust in sustainable investments.
So what?
If these proposed amendments are adopted, they may encourage sustainability-driven investment, as the product categorisation aims to simplify the process and make sustainable investing more accessible. Stricter rules around labelling and the use of ESG claims in marketing materials would also help to reduce greenwashing, which may thereby reinforce investor trust in ESG labels.
[Contributor: Elif Korca]
UK moves to regulate ESG ratings under the FCA
In early December, the Financial Conduct Authority (‘FCA’), the UK’s financial regulator, published proposals designed to make ESG ratings more transparent, reliable, and comparable. This move follows the UK government’s decision to require ESG ratings providers to obtain authorisation and supervision from the FCA. Under the proposed framework, both UK-based and overseas firms providing ESG ratings to UK clients would need FCA authorisation unless otherwise specified.
The proposals are intended to increase trust and transparency in sustainable finance, requiring firms to disclose potential conflicts and detail how they handle complaints. The FCA estimates that these changes have the potential to deliver approximately GBP 500 million in net benefits over the next 10 years. The rules are slated to come into force in 2028, after which any providers that are not FCA regulated will no longer be able to give ESG ratings.
So what?
By establishing a clear regulatory framework for ESG ratings, the UK is signalling its intent to promote transparency and reliability as key markers of its sustainable finance landscape. The FCA’s proposals aim to provide investors with clarity for enhanced market confidence and to help ensure that ESG ratings genuinely reflect sustainability goals and outcomes.
[Contributor: Haddie Hamal]
