Not so long ago, we could start our blog with words like "the rapidly evolving landscape of ESG," followed by a series of newly adopted directives or regulations in the area of the EU Green Deal. And yes, ESG is still evolving rapidly, but rather in the opposite direction. The main driver for this change can be traced back to Draghi's report "The Future of European Competitiveness", in which he emphasized the need for Europe to create a regulatory landscape that facilitates competitiveness and resilience, drawing attention to the burdens and compliance costs created by regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
So, what is the forecast for ESG today? Is ESG going away or is it here to stay? And what does it mean for you as a financial market participant (FMP)?
In this blog, we explore the latest developments in ESG laws and regulations from the European Commission (EC) versus our (national) regulators.
At the EU level, we cannot write this blog without mentioning Directive 2025/794, the so-called "stop the clock" directive.
On April 16, 2025, this directive was published in the Official Journal of the EU. It postpones the entry into force of the CSRD requirements for large companies that have not yet started reporting and for listed SMEs by 2 years and the CSDDD requirements by 1 year (largest companies).
The "stop the clock" directive is part of the omnibus package adopted by the EC at the end of February 2025 with the aim of simplifying EU sustainability legislation.
With a publication date of April 16 2025, and entry into force the next day, it appears to be an EU record in terms of speeding up its simplification efforts.
And yet there is more to come, as plans to simplify the application of the EU taxonomy were also announced in this February 2025 proposal. A new "opt-in" taxonomy reporting framework was unveiled, including proposals for partial taxonomy alignment. In addition, on the same day, the EU launched a consultation on the Level 2 Taxonomy, i.e. the so-called "Article 8", officially called the Taxonomy Disclosures Delegated Act, and the technical screening criteria as included in the Climate Delegated Act and the Environmental Act.
Although the SFDR is not directly within the scope of the omnibus package at this stage, it goes without saying that these changes will have an impact on the disclosure of FMPs under the SFDR. Where the current lack of data would be addressed by CSRD reports, it appears that CSRD will not be the answer. The extent to which SFDR will be adapted will remain unclear until at least the end of 2025; according to the EC's 2025 work program, SFDR 2.0 is scheduled for the end of 2025. Impatient? On Friday, May 2, the EC launched a call for evidence as part of its SFDR review. You may submit your feedback until May 30, 2025. It will be considered as the EC develops and refines SFDR 2.0.
Does this give you the impression that ESG is slowly moving towards the exit door? The signals we’re receiving from our (Dutch) national regulators tell a different story.
The Dutch Central Bank (DNB) published a reviewed Guide to managing climate and environmental risks for consultation in February 2025.
Compared to the previous version from 2023, the Guide has been updated to reflect legislative and regulatory developments. Additional good practices are shared, for instance regarding the management of nature-related risks and climate ambitions. This new version, once final, will replace its earlier version.
DNB emphasizes that climate change and environmental degradation may result in risks for Dutch financial institutions, which risks must be managed. These risks may arise from the physical damage of climate change and environmental degradation or arise as a result of stricter climate and environmental policies, new technologies and/or changes in market and consumer sentiment. Financial institutions should understand and manage all material risks, including climate and environmental risks. DNB’s research shows that while financial institutions are aware of climate and environmental risks, they still only take them into account to a limited extent in their core processes.
In this regard also worth mentioning are the Final guidelines on managing ESG risks published by the European Banking authority (EBA) on 9 January 2025 as well as a consultation on guidelines for ESG scenario analysis published on 16 January 2025.
The Guidelines establish criteria for financial institutions to identify, assess, manage, and oversee ESG risks, and incorporate strategies to guarantee their resilience over short, medium, and long-term periods.
The draft guidelines set out expectations for financial institutions when incorporating scenario analysis into their management framework to test the resilience of business models. The draft guidelines would complement the EBA guidelines on managing ESG risks.
So, not only does DNB continue to find ESG risks important, but so does the EBA.
The Authorities Financial Markets (AFM) also notes that financial institutions have made good progress on ESG over the past year. However, it also believes that further efforts are needed to comply with ESG regulations that have been in place for some time.
The above is mentioned in AFM's first ESG edition published on May 1, 2025. This update covers AFM's priorities for 2025 and 2026 in four key areas: sustainability claims, SFDR, product oversight and governance (POG), and suitability.
Below an overview of AFM’s expectations:
What stands out? Our regulators emphasize that managing and integration ESG risks are crucial. Why? Because of the importance of the impact of ESG risks on capital requirements and risk management on one hand. And the importance adequate disclosures on (a.o.) sustainability risks on the other hand
The "stop the clock" directive signals a shift in sentiment in the ESG landscape at EU level. However, our national regulators are sticking to their current ESG frameworks. — and rightly so, as they are bound by existing mandates and supervisory responsibilities. As a result, you, as an FMP, should do the same. Not only because you have to, but because you want to. Political hesitation on ESG matters does not mean that temperatures are no longer rising. Global temperatures reached a record high in 2024, according to NASA. So either way, ESG should stay.
