Environmental, social and governance | UK Regulatory Outlook October 2024

Commission proposes 12 month delay to EU Deforestation Regulation 

On 2 October, the European Commission put forward a proposal to delay the implementation of the EU Deforestation Regulation (EUDR) by 12 months. Key points from the announcement are as follows:

• Extra 12 months – the proposal would mean the EUDR applies from 30 December 2025 for large companies and 30 June 2026 for micro- and small enterprises. The intention is that the extra 12 months can serve as a phasing-in period to ensure proper and effective implementation. The Commission has invited the Parliament and Council to adopt this proposal by the end of the year.
• New guidance and FAQs – the proposal is accompanied by a new set of guidance and FAQ document.
• Risk classification to countries – the proposal confirms that the Commission is looking to speed up the classification process of countries to "low", "standard" and "high" risk. Apparently, a large majority of countries worldwide will be classified as "low risk".
• EUDR IT System will be ready for business – the European Commission confirms that the IT System used for submitting due diligence statements will be available from November and fully operational from December 2024. This will allow EUDR affected businesses to start registering/submitting DD statements before the law takes effect in December 2025.

The Council of the EU, on 16 October, agreed to postponing the date of EUDR application by 12 months. Notably the Council's press release explains that "the targeted amendment will not affect the substance of the already existing rules."

The Council will now inform the European Parliament of its position in view of the Parliament taking a decision on its position, with the aim that the proposal be formally adopted by both the Council and Parliament and published in the Official Journal of the EU so it can enter into force by the end of the year.

Where next for UK green consumer finance?

The potential of green finance is clear, but the growth of the sector is hampered by a range of practical and regulatory challenges. What solutions is the industry leaning towards, and what measures might the government take to boost green finance? See our Insight series for more.

Guidelines to take effect on the use of ESG or sustainability-related terms in fund names

The final guidelines on the use of ESG or sustainability-related terms in the names of funds will come into force on 21 November.

The guidelines aim to unambiguously regulate the use of words or acronyms that are indicative – or merely allusive – of sustainability-oriented investment strategies within the names of investment funds.

They include substantive provisions that will have a direct impact on how to manage in-scope fund portfolios, including a minimum 80% net asset value investment requirement.

In addition to EEA AIFMs, UK managers using the services of host AIFMs from Luxembourg or Ireland, for example, will also need to consider the implications of these guidelines.

Select committee publishes report on the impact of the Modern Slavery Act 2015

Please see Modern Slavery.

European Parliament approves Regulation on forced labour products

Please see Modern Slavery.

The Transition Finance Market Review (TFMR) publishes its report on Scaling Transition Finance

In October, the Transition Finance Market Review (TFMR) published its report and findings on "Scaling Transition Finance". The report describes transition finance as encompassing "the financial flows, products and services that facilitate an economy-wide transition to net zero".

The report identifies three areas for scaling the transition finance market:

• "Establishing clarity and credibility", to define the scope and objectives of this type of finance;
• "Scaling finance for transition activities", to ensure that solutions are commercially viable;
• "Scaling finance for transitioning entities", by prioritising transition strategy in financing decisions.

FCA announces the publication of Climate Financial Risk Forum guides on key climate risks

The Climate Financial Risk Forum (CFRF) is a financial services industry forum jointly established by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). On 10 October 2024, the CFRF published guides designed to assist the financial sector in addressing climate-related financial risks and opportunities.

The guides cover three key areas:

• Nature-related Risk: Handbook for Financial Institutions, which frames nature as a financial risk.
• Short-term Scenarios, to provide further guidance to firms.
• Mobilising Adaption Finance to Build Resilience, to help facilitate increased levels of investment into the climate response.

European Parliament approves regulation on ESG rating activities

This month the European Parliament approved the final text of the regulation on the transparency and integrity of ESG rating activities. Under the regulation, EU ESG ratings providers will have to apply for authorisation from ESMA (the EU's financial markets regulator and supervisor). Non-EU ESG rating providers will be able to provide ESG ratings in the EU in limited circumstances. ESG ratings providers will be subject to ongoing supervision by ESMA.

The Council is expected to formally adopt the regulation at an upcoming meeting, after which it will be published in the Official Journal of the EU and enter into force.

Please also see our latest international ESG Knowledge Update, for a round-up of legal, regulatory and market news.