SustainabilityConnect Newsletter August 2025
ESMA Issues New Guidelines to Curb Misleading ESG Claims Across Financial Markets.
The European Securities and Markets Authority has released new guidance to address the growing risk of greenwashing by tightening expectations around how financial institutions communicate sustainability-related claims. The guidance outlines four key principles that all sustainability communications must meet: they must be accurate, accessible, substantiated, and kept up to date. This applies across the investment value chain, including asset managers, issuers, and benchmark administrators, with a focus on ensuring that investors receive fair and clear information when evaluating ESG products and services.
The note places particular emphasis on ESG credentials such as labels, ratings, and industry affiliations, which are often used in marketing materials but lack consistent standards. ESMA warns against overstating the value of credentials, referencing outdated awards, and selectively presenting favourable data. Clear explanation of what a credential means, how it is earned, who awards it, and whether it is monitored over time is now considered essential. Claims must not rely on vague or irrelevant details and must be contextualised properly to avoid misleading investors.
With sustainable investment assets expected to surpass fifty trillion dollars globally by 2025, the pressure on regulators to ensure credibility and integrity in ESG markets is rising. ESMA’s move reinforces the EU’s broader agenda to build investor confidence in sustainable finance by holding firms accountable for the accuracy and transparency of their sustainability messaging.
Updapt Views: To align with ESMA’s expectations, funds must embed ESG integrity deep within their disclosure architecture. This means moving beyond surface-level narratives to build traceable, criteria-driven validation for every sustainability claim. Abstracting ESG into quantifiable signals, ensuring cross-functional governance, and stress-testing communications against evolving benchmarks will be key. Preparedness lies not in compliance alone, but in curating ESG narratives that are dynamic, data-hardened, and immune to regulatory and reputational fragility.
ECB Aligns Monetary Policy with Climate Risk Through Collateral Adjustments.
The European Central Bank is updating its collateral framework to integrate climate transition risks more directly. A new climate factor will adjust the value of assets pledged by banks in refinancing operations. Assets exposed to significant climate transition risks will face higher haircuts. This move is aimed at protecting the Eurosystem from climate-related financial instability while maintaining adequate collateral availability. The measure will apply to marketable corporate bonds from non-financial companies and is set for implementation in the second half of 2026. Calibration will rely on data from the 2024 ECB climate stress test and issuers’ climate scores.
The ECB has also expanded its financial disclosures to include an indicator assessing exposure to nature-intensive sectors such as utilities, food, and real estate. Nearly 30 percent of the central bank’s corporate bond holdings fall into these categories. While overall emissions from ECB portfolios are declining, the data reveals persistent systemic risks linked to biodiversity loss and environmental degradation.
Climate risks are becoming more material. Research shows that prolonged droughts and extreme weather events could shrink Eurozone GDP by up to 15 percent without strong policy responses. Banks currently hold around 1.3 trillion euros in loans to water-sensitive industries. More than 90 percent of Eurozone banks now acknowledge climate and environmental risk in their frameworks, and supervisors are enforcing stricter climate risk integration. Institutions that fall short may face binding regulatory measures.
Updapt Views: The ECB’s climate-based collateral rules will directly affect how banks manage their asset portfolios. Institutions holding carbon-intensive bonds will face stricter refinancing terms, which may reduce their access to central bank funding. This will likely prompt banks to increase lending to lower-risk, climate-aligned sectors. Over time, it will change credit allocation patterns and increase pressure on banks to improve climate risk disclosures and strategies.
California Publishes Key FAQ on Corporate Climate Risk and Emissions Reporting.
California has taken a major step in advancing corporate climate accountability by releasing a comprehensive Frequently Asked Questions document. This guidance supports businesses preparing to comply with two sweeping climate disclosure laws: the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Disclosure Act. These statutes apply to companies with over one billion dollars and five hundred million dollars in annual revenue, respectively, that are doing business in California. The laws require reporting on greenhouse gas emissions starting in 2026 and climate-related financial risks beginning January 1, 2026. This move places California at the forefront of climate regulation in the United States, setting a precedent for transparent, data-driven corporate accountability.
The FAQ, published by the California Air Resources Board (CARB), is organized into two main categories. The first section, Regulatory Development, outlines how CARB is transitioning from legislative mandates to final regulation. It addresses CARB’s goals of building a California-specific framework while aligning with global standards like the Task Force on Climate-related Financial Disclosures (TCFD). This section also explains the applicability of the laws, including definitions for "doing business in California," revenue thresholds, and the treatment of parent and subsidiary companies. CARB is actively seeking public feedback on these definitions to ensure clarity and consistency before finalizing the rules.
The second section, Initial Reports, provides detailed guidance on the reporting timelines, verification requirements, and expectations for good faith compliance. Companies must begin reporting Scope 1 and 2 emissions in 2026, based on prior-year data, with Scope 3 reporting phased in from 2027. These disclosures will require third-party assurance, starting with limited assurance in 2026 and progressing to reasonable assurance by 2030. For climate risk reports, companies must publish findings by January 1, 2026, and update them biennially. CARB is also creating a centralized public docket, open from December 1, 2025, to July 1, 2026, where companies must post the location of their risk reports to ensure accessibility and transparency.
The FAQ is part of CARB’s broader strategy to ease companies into compliance without compromising rigor. The guidance allows flexibility in early years, encouraging companies to use existing data systems while ramping up internal capacity.
Updapt Views: By aligning with global frameworks and offering phased compliance, California’s disclosure rules help companies futureproof their operations against regulatory and market risks. The structured reporting process enhances investor confidence, sharpens internal climate risk assessment, and builds reputational equity. It encourages firms to integrate sustainability into core strategy, not just for compliance but as a lever for long term value creation in an increasingly carbon conscious economy.
Australia Expands Capacity Investment Scheme to 40 GW for Renewable Growth.
Australia has increased its Capacity Investment Scheme to 40 GW, aiming to deliver 26 GW of new renewable generation and 14 GW of dispatchable storage capacity by 2030. This expanded target is expected to drive approximately AUD 73 billion in private investment across wind, solar, and battery storage projects. The initiative is a key part of Australia’s broader plan to achieve 82 percent renewable electricity by the end of the decade, supporting national energy security while cutting emissions from the power sector.
The increase follows six competitive tender rounds that have already secured commitments for 18 GW of clean energy projects. Each round has attracted strong investor interest, confirming that the market sees long-term value in Australia’s renewable energy transition. The scheme also creates opportunities for job growth, industry development, and regional economic benefits by encouraging the construction of new energy infrastructure across multiple states and territories.
Early investment trends in 2025 show growing momentum, particularly in battery storage. More than AUD 2.4 billion was committed in the first quarter alone, financing over 1.5 GW of new storage capacity. In total, more than 80 renewable energy projects with a combined capacity of 12 GW are now under construction or financially committed. These developments mark steady progress toward a cleaner, more resilient national energy system that can meet future demand with lower emissions and greater reliability.
Updapt Views: The expansion of the Capacity Investment Scheme will ripple far beyond the energy sector, influencing how industries manage risk, capital, and supply chains. Heavy industries will find new incentives to electrify operations, while finance and infrastructure sectors will recalibrate around long-term clean energy exposure. It signals a structural shift, embedding decarbonisation into the core logic of industrial strategy and investment planning across the economy.
IFRS Foundation Issues Near Final Climate Related Examples to Guide Reporting of Uncertainties in Financial Statements.
IFRS Foundation released a near-final set of six illustrative examples designed to guide companies in disclosing climate-related uncertainties within their financial statements. Developed in collaboration with the International Sustainability Standards Board (ISSB), the examples reflect increasing global demand for consistent, transparent, and decision-useful climate risk disclosures. As financial markets integrate environmental risk into capital allocation, this move strengthens the connection between financial reporting and real-world climate exposure.
The examples provide practical guidance for companies navigating complex areas where climate factors influence financial judgment. These include impairment testing assumptions like future carbon pricing, materiality assessments for transition plans, credit risk exposure tied to climate-sensitive sectors, and provisions related to asset decommissioning under evolving regulations. They also recommend disaggregating property, plant, and equipment based on differing climate vulnerabilities, highlighting the need for more granular disclosures across industries and geographies.
Importantly, companies are encouraged to disclose climate-related information even when there is no immediate effect on recognition or measurement, especially if users of financial statements would benefit from understanding the risks and assumptions involved. This guidance pushes entities to apply a forward-looking lens, strengthening investor confidence in the resilience of financial statements amid environmental uncertainty. It also underlines the need to align financial reports with broader sustainability narratives.
Updapt Views: The early release provides companies with a head start in preparing for implementation. Organizations are encouraged to assess their existing reporting frameworks, identify and address disclosure gaps, and ensure their financial statements align with the evolving expectations of regulators, investors, and global stakeholders.
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