Key items for your agenda in 2025
Our standout items
EU’s Corporate Sustainability Reporting Directive (CSRD)
What’s happening?
The first deadlines for reporting under CSRD are approaching – the largest listed entities will report for the first time in 2025 (covering the 2024 financial year). These reports will give some insights into the approach to reporting which will be useful for the large cohort of other entities reporting for the first time in 2026.
Please see our briefing for more information.
So what?
Many managers and portfolio companies who qualify as “large” undertakings or groups will be finalising their scoping assessments and moving into the practical stages of reporting, including major milestones such as the double materiality assessment (“DMA”). Defining the value chain in the absence of clear regulatory guidance remains a challenge for alternative asset managers, but is a necessary precursor to ensure a robust DMA that can withstand scrutiny at the audit stage.
However, as part of a planned simplification drive, the European Commission has said that it is considering some amendments to the CSRD, so it will be important to watch for these in early 2025, which might reduce burdens for some reporting entities.
The challenge as firms move into the active reporting phase is to ensure that they are compliant with CSRD whilst keeping the reporting process manageable. The Commission is making all the right noises in this regard but, in practice, it’s a fine line between under-disclosing and being accused of green or social washing, and over-disclosing and potentially creating a hostage to fortune for future reporting cycles. Uncertainty over potential changes to CSRD next year only serves to bring this conundrum into greater focus.
Sarah-Jane Denton
Director
UK Sustainability Disclosure Requirements (SDR) and labelling regime
What’s happening?
The UK sustainability disclosure regime started to come into force during 2024, including an anti-greenwashing rule, labelling regime and some disclosure requirements. Further disclosure requirements will start to apply during 2025. The FCA is also looking to extend the regime to portfolio managers.
In addition, HM Treasury has issued a consultation on a UK Green Taxonomy.
So what?
Larger asset managers (broadly those with AUM over £50 billion) carrying on sustainability business will need to make their first entity level disclosures from 2 December 2025. Smaller asset managers (broadly those with AUM over £5 billion) will need to report from 2 December 2026.
Ongoing product-level disclosures will also start to apply during 2025. The exact dates and requirements will depend on various factors, including whether the fund is listed and the date on which any label is first used.
The extension of the UK sustainability disclosure regime to portfolio managers was expected to come into force in late 2024 but has been delayed, with further information now expected in Q2 2025. The scope of the new regime will be of particular interest, and certain types of advice may be included. We discussed this further in our briefing.
The consultation on a possible UK Green Taxonomy looks at whether a UK taxonomy should be adopted and, if it is, how it would be used and how it should be designed.
Market adoption of the labelling regime has got off to a slow start and those that were first movers typically incurred high R&D costs developing designs to the satisfaction of the FCA. But now that example disclosures are in the public domain, we’re seeing a second wave and hear that there’s a strong pipeline.
Nick Glynn
Senior Counsel
Other things to keep a close eye on
EU’s Corporate Sustainability Due Diligence Directive (CS3D)
What’s happening?
CS3D will require in-scope entities to put in place a robust due diligence programme to identify, assess and act against a wide range of human rights and environmental harms that might exist within their own business, the businesses of their subsidiaries, and their chain of activities. EU entities with over 1000 employees and
EUR450m of net worldwide turnover and non-EU entities with over EUR450m of EU-derived turnover are subject to CS3D. Unlike CSRD, there is no need for non-EU entities to have a legal presence in the EU. Contrary to some headlines, financial services are in scope (though their downstream investment activities do not form part of their “chain of activities”).
What does this mean for me?
Businesses have until at least 2027, and for some until 2028 or 2029, to prepare. However, the application to groups as well as individual entities means that a robust scoping exercise should be undertaken soon. For asset managers, scoping should consider both the corporate entities and the portfolio companies, and that scoping should also consider whether any majority owned portfolio companies might be considered “subsidiaries” of the manager, which would have consequences for the manager’s compliance burden.
In-scope entities should expect a significant lift to ensure that their processes meet the stringent requirements of the directive – particularly important given the regulatory and civil liabilities foreseen by the regime.
The European Commission may propose some changes to the CS3D to reduce the burdens on affected businesses in 2025, so firms should watch out for those.
UK expected to adopt ISSB sustainability standards
What’s happening?
After some delay, the UK government is expected to endorse and publish the national versions of the International Sustainability Standards Board’s first two sustainability standards by Q1 2025. The UK Sustainability Disclosure Technical Advisory Committee issued a recommendation for endorsement with only minimal changes in December 2024. The standards cover general sustainability disclosures and climate-related disclosures (with an expectation of climate-only disclosures for the first two years) and are intended to provide decision-useful information for investors.
So what?
Once the standards are endorsed and published as UK sustainability reporting standards, it is expected that the FCA will introduce mandatory reporting in accordance with the standards for listed companies, potentially as soon as FY 2026, and the government will consider disclosure requirements for “economically significant companies”. The standards are also likely to be an important component of the entity-level report by firms subject to the FCA’s Sustainability Disclosure Requirements (“SDR”) discussed above, and could eventually be rolled out to a broader range of non-FCA regulated companies.
