ESG Regulation Year-End Review & What to Expect in 2026

Over the past five years, many developments have shaped the sustainable finance framework. As with any new framework, regulatory requirements started off casting a broad net, but standards have begun to narrow in on decision-critical information for investors and other stakeholders. 

One development aimed to address concern about greenwashing with stricter rules around the naming of fund products. Fund managers in the United Kingdom had until May 21, 2025, to comply with new guidance from the European Securities and Markets Authority, meant to ensure products using ESG-related terms in fund names matched the investment objective of those products. 

Hundreds of funds dropped or added ESG terms to their names to better reflect their investment holdings.  

Regulatory bodies have also refocused on materiality when it comes to sustainable investments. The International Sustainability Standards Board drafted standards for climate and sustainability disclosures in 2023. The ISSB published proposed amendments to those standards in 2025 with the intent of making it less challenging for companies to implement the standards.  

Morningstar surveyed 25 asset managers and found that 58% of the asset owners believe ESG has become “more” or “much more” material in the past five years. Regionally, 67% of asset owners in APAC believe ESG factors have become more material, followed by 60% in Europe, and 38% in North America.  

is year’s Morningstar Sustainable Investing Summit, 78% of attendees said they believe that stronger evidence for ESG’s material impact is the single factor that will likely accelerate its adoption.  

In response to feedback that reporting burdens have become too heavy on corporate and investors, the EU put forth the Omnibus Package as a way to simplify climate-related reporting. Stop-the-clock, a measure within that package, essentially paused the immediate sustainability reporting requirements for certain companies that were due to report in 2025 and 2026.  

However, some investors interpret these changes as mixed signals from the EU on its plans to move toward a low-carbon economy.  

The European Union is now reckoning with the appropriate balance between transparent, consistent, comparable data and realistic reporting requirements for companies of varying sizes. 

Standards like those set forth by the ISSB are a positive move toward the eventual adoption of international, interoperable standards. At the same time, changing standards and inconsistent regulatory reporting requirements have created a lot of noise in the market.  

ESG and sustainable investing may be in a state of flux when it comes to establishing globally accepted standards for collecting, aggregating, and reporting data across markets, while also working to ensure investors receive comparable information regardless of which market they invest in. 

But regulators and investor commitment to this space remains clear. 

The United Kingdom, as well as other countries like Singapore, Hong Kong, and Australia, have been observing the sustainability disclosure requirements put forward in the European Union. Many jurisdictions are working on or have already begun implementing similar standards, with a focus on climate reporting and climate transition plans.

Some countries, particularly in Asia, are developing their own taxonomies. This creates challenges for firms operating in multiple countries to adhere to or measure their compliance. Unlike Europe, where there are also many individual efforts, there’s no larger umbrella to bring the requirements together.

In the United States, federal-level regulations aren’t moving forward. The Securities and Exchange Commission finalized a climate disclosure rule before saying they won’t defend it in the courts. For now, the rule is not in effect.

At the state level, California has finalized two bills on greenhouse gas emission reporting and climate-related financial risk disclosure that will come into effect in 2026. Both bills don’t just affect companies in California; they affect all companies in the United States that operate and serve individuals in California.

The Omnibus Package and Key Information Documents

In the European Union, investors should have their eye on the finalized text of the Omnibus Package in 2026. Although the package was proposed at the beginning of 2025, the final version will give more clarity on scope and reporting deadlines.

In the United Kingdom, The Financial Conduct Authority is implementing a new regime for retail investment products. This is meant to replace existing regulations on key information documents for UCITS as well as packaged retail and insurance-based products. This has raised the question of embedding sustainability information into that document.

More clarity on that question may be coming in the new year.

We expect this focus to continue in 2026.

Sustainable Finance Disclosure Regulation

A major overhaul is expected for the Sustainable Finance Disclosure Regulation. Proposals published by the European Commission, for SFDR 2.0, aims to transform the regulation from disclosure focused to a product labeling regime based on sustainability goals and also simplify reporting for asset managers.

The updated framework introduces three new fund categories:

• Sustainable Funds

• Transition Funds

• ESG Basics

Each fund type will need at least 70% of its assets aligned with its category’s objectives, making the rules clearer and more consistent. The transition to 2.0 is expected to take around 18 months.

Asset managers and professional investors should monitor the SFDR 2.0 updates closely to better align investment strategies and adapt to the evolving regulatory reporting requirements in sustainable investing.

Aside from looking forward to more well-established guidance on regulatory requirements, 2026 may be the year for professional investors to reflect on what regulatory regimes are effective in helping regulators meet their objectives and what adjustments should be made in this context.

Establishing global standards for regulatory requirements is crucial to making decision-making information more accessible to investors and helping companies and compliance professionals navigate regulations, while also striving for a stable regime that allows the industry to evaluate the effectiveness of future changes.

The EU Action Plan is designed to harness financial markets to drive sustainable economic growth across Europe, while addressing risks related to ESG factors. Navigating this evolving regulatory landscape presents both challenges and opportunities for financial professionals. 

For asset managers, aligning with the EU Taxonomy and fulfilling Sustainable Finance Disclosures Regulation (SFDR) requirements is crucial. For compliance professionals, creating accurate regulatory documents like the European ESG Template (EET) and ESG factsheets is essential for meeting both compliance and marketing needs. 

To learn more about mastering these requirements, explore our comprehensive regulatory reporting guide or you can watch this webinar for expert insights and practical strategies on bringing ESG data to life.