ESG View: February 2026

Welcome to the February edition of ESG View.

As we move further into 2026, the ESG landscape continues to evolve, with regulatory scrutiny, litigation, and supervisory enforcement intensifying across Europe and beyond. If 2025 was a year marked by recalibration and simplification in the face of political and market headwinds, the early months of 2026 have shown that ESG remains embedded as a core business and legal risk.

Recent proactive regulator and enforcement body activity includes the UK's Advertising Standards Authority's continuing robust stance on environmental claims, and the European Central Bank's willingness to impose significant penalties for failures in climate risk assessment. Meanwhile, litigation around environmental and health impacts, such as the high-profile PFAS case in France and the ongoing BHP parent company liability proceedings flag that ESG disputes remain a key risk for businesses.

On the regulatory front, the drive for simplification and interoperability continues, with the ECB weighing in on the revised European Sustainability Reporting Standards and the UK FCA consulting on new sustainability disclosure requirements for listed issuers. The UK's introduction of a Carbon Border Adjustment Mechanism (CBAM) and the European Commission's call for evidence on forced labour guidelines both signal a shift towards more granular, cross-border approaches to ESG risk and supply chain integrity.

Despite the challenges, there are grounds for cautious optimism. The direction of travel is clear - towards greater clarity, comparability, and integration of ESG into core business strategy and governance. As we look ahead, the focus for companies, investors, and financial institutions should remain as embedding robust processes, anticipating regulatory developments, and ensuring that ESG claims and disclosures are both precise and substantiated.

We hope you find this edition a useful guide to the latest developments and practical implications for your business.

Best,

Robert Allen
Partner - Global Head of ESG
robert.allen@simmons-simmons.com

1. ASA continues to tighten the net on environmental claims

What: On 4 February 2026, the ASA upheld rulings against ads issued by baby product companies Kit & Kin Ltd and The Cheeky Panda Ltd, reinforcing a clear and consistent message: broad, unqualified environmental claims will be closely scrutinised and must be supported by robust, product-specific evidence across the full lifecycle.

Key takeaways from the rulings:

• "Eco", "sustainable" and similar terms are high-risk: In both cases, the ASA found that terms such as "eco", "sustainable" and "sustainable bamboo" were understood by consumers as absolute claims. That meant advertisers were expected to substantiate them with evidence covering raw material sourcing, manufacture, use and disposal. Partial evidence (e.g. FSC certification, carbon-neutral factories, or the characteristics of a single material) was not enough.
• Material claims ≠ product claims: Both advertisers argued that their claims referred to specific components (viscose, bamboo fibre). The ASA rejected this where the ads did not clearly limit the claim. Where products contain mixed or inextricable materials (e.g. plastics, additives), evidence must relate to the finished product as a whole, not just one element.
• "Biodegradable" must reflect real-world disposal: Claims that wipes were "biodegradable" were upheld as misleading because: (a) evidence related only to fibres, not the wipes in their entirety; (b) biodegradation was shown only under specific test conditions; and (c) ads failed to explain disposal requirements, timescales, or by-products. The ASA's position remains clear: consumers are likely to expect biodegradation to occur in normal disposal conditions, without harmful residue, unless told otherwise.
• Comparative claims must explain the comparison: Statements like "better for our world" or "kinder to the planet" were found misleading where the basis of comparison was unclear or unsupported by comparative lifecycle evidence.

Why this matters: These rulings sit squarely within the ASA's wider effort to combat greenwashing and bring environmental advertising into line with consumer understanding. Certifications, ESG credentials and charitable partnerships may be relevant context, but they do not substitute for clear explanations and substantiation of the specific claims being made. For advertisers, the direction of travel is unmistakable:

• be precise
• qualify claims clearly
• substantiate at product level
• avoid aspirational language that implies zero or net-positive environmental impact without evidence

Environmental claims remain an enforcement priority, and these decisions are a timely reminder that good intentions and partial evidence are not enough.

2. PFAS litigation: French communities challenge industrial giants

What: In January 2026, around 200 French local residents filed a lawsuit against Arkema and Daikin Chemical France. They accuse these companies of massive releases of "forever chemicals" (PFAS) from their factories near Lyon, alleging significant health and environmental impacts.

Key details: The claimants, supported by several associations, argue that PFAS emissions have contaminated local water, air, and soil, exposing the local population to increased health risks (such as cancer and hormonal disorders). They are seeking compensation for the harm suffered and the implementation of remediation measures. Arkema and Daikin deny liability, asserting that they comply with current regulations. This case arises amid growing mobilisation against PFAS in France and Europe, where these substances are facing heightened regulatory scrutiny.

Our view: This dispute highlights the increasing judicialisation of environmental and health issues linked to persistent chemicals. It underscores the need for industrial companies to anticipate regulatory developments and adopt a proactive approach to environmental risk management, in order to mitigate potential civil and reputational liability.

3. ECB staff opinion on the revised European Sustainability Reporting Standards (ESRS)

Background

The Corporate Sustainability Reporting Directive (CSRD)

The CSRD is a key part of the EU's sustainable finance agenda, aiming to integrate ESG considerations into investment decisions and encourage long-term investment in sustainable activities. The CSRD requires relevant entities to report on their impact on sustainability matters and vice versa ("double materiality"). While the CSRD outlines general disclosure requirements, detailed obligations are set out in the European Sustainability Reporting Standards (ESRS).

European Sustainability Reporting Standards (ESRS)

The first set of ESRS, adopted on 31 July 2023, applies to all entities within the CSRD's scope and comprises 12 standards:

• ESRS 1 (General Requirements)
• ESRS 2 (General Disclosures)
• ESRS E1-E5 (Environmental)
• ESRS S1-S4 (Social)
• ESRS G1 (Governance)

EU Simplification Agenda and Omnibus Proposals

The Commission's Competitiveness Compass aims to simplify regulation, including ESG disclosure requirements. The first omnibus package, including the Stop the Clock Directive, is already in place, with further revisions proposed to simplify ESRS by reducing mandatory data points, prioritising quantitative over narrative disclosures, clarifying provisions, improving consistency with other EU laws, and enhancing interoperability with global standards. Draft revised ESRS were published by EFRAG on 3 December 2025, and the ECB was invited to provide an opinion.

The Opinion

The ECB welcomes the simplification and clearer distinction between disclosure requirements (DRs) and application requirements (ARs). However, it raises concerns about:

Reliefs and Phase-Ins

The revised ESRS introduce numerous permanent reliefs and phase-ins, including new exemptions for the financial sector. The ECB warns these may reduce transparency and comparability. The EBA recommends:

• Time limits (three years) for reliefs related to metrics and data quality
• Removing the additional three-year phase-in for omitting quantitative information on anticipated financial effects
• Explicitly stating reliefs should be exceptional, not the norm

The ECB also suggests reassessing reliefs given the CSRD's likely application to only the largest entities.

Interoperability with International Standards

The ECB supports efforts to align ESRS with standards like IFRS/ISSB and GRI but notes some reliefs exceed those under IFRS, potentially disadvantaging EU entities globally.

Appropriateness for Bank Disclosures

The ECB recommends clarifying ESRS application for banks, focusing on value chain risks, ensuring double materiality assessments capture material risks, and ensuring metrics cover financial assets. It also advises against exempting banks from greenhouse gas target transparency and recommends sectoral guidance reflect SFDR updates.

4. Listed issuers: FCA proposals for UK sustainability disclosures

The UK Financial Conduct Authority has published CP 26/5, its consultation on sustainability disclosures by listed issuers who currently have to "comply or explain" against the TCFD recommendations and recommended disclosures (TCFD Recommendations). The UK is now developing UK sustainability reporting standards (UK SRS) which will be a tailored version of the International Sustainability Standards. Draft UK SRS S1 sets out general content requirements that apply to sustainability-related disclosures where there is no specific standard. UK SRS S2 sets out requirements that relate specifically to climate-related risks and opportunities and broadly aligns with the TCFD Recommendations. However, it also requires additional detail in certain areas such as Scope 3 emissions reporting (indirect greenhouse gas emissions in the value chain of the entity), and any information about climate-related transition plans the entity has. The consultation is open until 20 March 2026.

Please click here for our detailed briefing.

5. UK CBAM: pricing carbon at the border (multi sector)

What: In February 2026, the UK government published a CBAM policy summary alongside the first tranche of draft secondary legislation and draft HMRC notices, launching a six week technical consultation on the detailed rules. A second set of draft regulations, covering issues such as system boundaries and monitoring, reporting and verification, is due in spring 2026, with final legislation to follow later in the year.

CBAM will apply from 1 January 2027 to imports of specified aluminium, cement, fertiliser, hydrogen, and iron and steel products into the whole of the UK. The charge is based on the direct greenhouse gas emissions embodied in the imported good (including certain precursor inputs) multiplied by a sector specific CBAM rate, with the possibility of a deduction where a qualifying carbon price has already been paid overseas.

Key details: The crucial design feature is that CBAM rates are explicitly tied to the UK Emissions Trading Scheme (UK ETS). For each in scope sector, the government will set a quarterly CBAM rate using the mean average of UK ETS auction clearing prices for that quarter, adjusted for the proportion of emissions covered by free allowances and a reduction factor that reflects the phase out of those allowances over time.

This means CBAM effectively imports the volatility of the UK carbon market into the cost of working with covered materials. The carbon related import cost will move with the UK ETS price, which will increase with the gradual withdrawal of free allocation. Importers can mitigate that exposure to some degree by using independently verified actual emissions data from their suppliers instead of government default values, and by claiming Carbon Price Relief where foreign carbon pricing can be evidenced, but they cannot insulate themselves from the underlying UK carbon price signal.

Our view: CBAM will be of critical importance to those that manufacture with, trade in, or finance these materials, or who have economic exposure to them (e.g. through project financing). For businesses moving in scope goods, CBAM introduces a new, potentially volatile, cost component into supply chains and pricing decisions. For investors, it creates a direct near term channel through which carbon and policy risk bite on cashflows, margins, and competitiveness, particularly for businesses with carbon intensive imports or limited ability to pass costs through to customers.

The data requirements, scope definitions, and relief mechanisms are daunting, though may be eased as a result of the consultation process. Yet the direction of travel is settled: carbon costs will increasingly be priced into cross border trade, and managing that exposure will require closer coordination between sustainability, tax, finance, and procurement functions.

6. Parent company liability for overseas environmental harm

The High Court’s decision in Municipio de Mariana v BHP Group, delivered late last year, was a landmark in the development of parent company liability for overseas environmental and human harm. It built on the foundations laid by the English courts in Vedanta Resources PLC and another v Lungowe and others and Okpabi and others v Royal Dutch Shell Plc, confirming that English courts will look beyond formal corporate structures, scrutinise the reality of parent-subsidiary relationships and hold parent companies to account where they exercise control or assume responsibility for the activities of overseas subsidiaries.

Now, BHP has been denied permission to appeal by the High Court and has said it will apply directly to the Court of Appeal for permission. In the meantime, a damages trial is expected to begin in October 2026.

We have prepared an article comparing the analysis of the English courts in the key decisions of BHP, Vedanta and Okpabi to date to draw out the circumstances in which a court in England & Wales may find a parent company liable for the acts of its overseas subsidiaries.  We also highlight practical considerations for corporates with cross-border operations.

Please click here to read the full article.

7. EBA consults on amending Systemic Risk Buffer guidelines to address climate risks (financial services)

What: On 29 January 2026, the European Banking Authority (EBA) published a consultation paper proposing targeted amendments to its Guidelines on the Systemic Risk Buffer (SyRB). The changes are designed to enable competent authorities to apply capital buffers to banks in order to address systemic risks arising from climate change, including both transition and physical risks.

Key details:

• Climate risk as a systemic concern: The EBA recognises that climate-related risks - both transition (arising from the shift to a low-carbon economy) and physical (stemming from climate events such as floods or wildfires) -- can have material, systemic impacts on the financial system. The amendments are intended to ensure that SyRB measures can be used to address these risks where they may have serious negative consequences for the financial system and real economy.
• Granularity and targeting: The proposed changes would allow authorities to apply the SyRB to more granular subsets of exposures, using detailed economic activity classifications (NACE level 2 or more granular) and more precise geographic identifiers (down to Local Administrative Units, or LAUs). This is intended to enable more accurate targeting of exposures most vulnerable to climate risks, and to avoid unintended consequences for transition and adaptation financing.
• Lessons from practice: The amendments also incorporate lessons learned from national authorities that have already implemented SyRB measures, including clarifications on combining different subsets of exposures, improved information sharing, and the use of harmonised data sources to facilitate cross-border consistency and reciprocity.

Next step: The consultation is open for comment until 30 April 2026. The EBA expects to finalise the amended Guidelines by mid-2026, with application envisaged from six months after publication of the final text.

Our view: The EBA's proposals mark a significant step in integrating climate risk into the EU's macroprudential toolkit. By enabling more granular and risk-sensitive application of the SyRB, the amendments should help authorities better address the unique characteristics of climate-related systemic risk, while minimising unintended impacts on transition finance. The focus on harmonised data and cross-border consistency is particularly welcome, given the interconnected nature of climate risk and the EU banking sector. However, the practical challenges of data availability and implementation at the required level of granularity should not be underestimated. Banks and other stakeholders should engage with the consultation to ensure the final Guidelines strike the right balance between risk sensitivity, proportionality and operational feasibility.

8. European Commission calls for evidence on implementation guidelines for Forced Labour Regulation

Key details: The EU's Forced Labour Regulation (FLR) establishes a new framework for combating forced labour, by prohibiting products made with forced labour from being sold, imported, or exported in the EU, aiming to eliminate forced labour from global supply chains and protect human rights. In connection with the FLR coming into force in December 2027, the European Commission (EC) is required to publish implementation guidelines by June 2026. In February 2026 the EC issued a four-week call for evidence for feedback on implementation guidelines, including (a) guidelines for competent authorities regarding the practical implementation of the FLR, (b) guidelines for economic operators in-scope of the FLR on due diligence in relation to forced labour, and (c) guidelines for civil society organisations, victims and other stakeholders on how to submit concerns and allegations of potential forced labour.

Our view: The FLR does not currently (unlike other EU sustainability-related regulations) introduce additional due diligence obligations for in-scope businesses. However, and following on from agreement in December 2025 of the Sustainability I Omnibus Package (to simplify directives relating to corporate sustainability reporting, and due diligence), and Deforestation Regulation, the European authorities are continuing to press ahead to ensure the implementation of regulatory frameworks for combating social, as well as environmental, challenges.  

9. ECB penalises Crédit Agricole S.A. for failure to sufficiently assess climate risks

Key details: In February 2026, the European Central Bank (ECB) imposed periodic penalty payments totalling €7.55m on Crédit Agricole S.A. for failing to comply with an ECB decision in February 2024 requiring the bank to conduct a materiality assessment of climate-related and environmental risks by May 2024. Crédit Agricole did not meet the materiality assessment requirement for 75 days in 2024. This penalty is part of the ECB's broader efforts to ensure banks properly identify, assess, and manage climate-related and environmental risks.

Our view: Following the imposition of penalty payments on ABANCA in November 2025 for a similar failure to comply with an ECB decision for ABANCA to assess and document the materiality of climate-related and environmental risks to the bank, this represents another example of the ECB increasing its supervisory approach over time, moving from supervisory expectations to binding decisions and, where necessary, enforcement measures via financial penalties.

10. ESMA two separate thematic notes on sustainability-related claims

In this episode, regulatory lawyer Betül Kohlhäufl, who hosts the discussion, speaks with Patricia Schneider, Managing Associate, about why the European Securities and Markets Authority (ESMA) published two separate thematic notes on sustainability-related claims, and what asset managers, particularly in the private funds space, should take from them.

Patricia explains that the reason for two notes is not the creation of different regulatory standards, but ESMA's decision to analyse two distinct categories of sustainability claims under the same overarching framework: communications must be clear, fair and not misleading. Both notes are part of ESMA's broader supervisory efforts to address greenwashing risks and are structured around four core principles, claims should be accurate, accessible, substantiated and kept up to date.

The first note (July 2025) focuses on ESG credentials, including labels, ratings, awards and memberships in sustainability initiatives. ESMA observed that such credentials are increasingly used in marketing materials, sometimes without sufficient explanation of their scope or limitations. Patricia highlights that ESMA's key message is that credentials provide context, not proof of overall sustainability performance. Asset managers must avoid exaggeration, refrain from implying endorsement or guarantees, and disclose relevant methodologies, limitations and the possibility that credentials may change or be withdrawn.

The second note (January 2026) applies the same principles to ESG strategies, particularly ESG integration and ESG exclusions. Here, ESMA looks beyond branding to how strategies operate in practice. Firms must clearly explain how ESG factors influence investment decisions, whether they are binding or discretionary, and ensure exclusions are described with appropriate detail regarding thresholds, carve-outs and real portfolio impact.

Taken together, the two notes reflect a shift from ESG storytelling to ESG accountability. While they do not introduce new legal obligations, they provide supervisors with a clearer benchmark for assessing sustainability-related communications. The key takeaway for asset managers: sustainability claims must accurately reflect investment reality and be understandable to an informed but non-expert investor.