ESG+ Newsletter – 29 May 2025

EU Ombudsman probe into sustainability rule rollback may be merely symbolic

In April, a coalition of climate organisations filed a complaint with the European Ombudsman, alleging that the European Commission failed to follow proper procedures in drafting legislation to scale back sustainability reporting requirements. The Ombudsman has since announced the launch of an official investigation, reports Forbes. The legislation in question seeks to roll back key elements of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Climate activists cheered the move, viewing it as a chance to halt the reforms. However, the Ombudsman’s powers are limited. While the office can investigate and make recommendations, it lacks enforcement authority. Even if it is concluded that the Commission violated its own “Better Regulation Guidelines,” outcomes are likely to be procedural corrections, not policy reversals. The Commission’s proposal, which some have critiqued for the opacity of process around its development, is already advancing through EU legislative channels, with a final package expected in October. Activists argue the rushed process ignored public consultation and impact assessments, violating the European Climate Law. Yet the political momentum for simplifying ESG regulations remains strong.

Unless courts intervene, the investigation may amount to little more than a symbolic win for campaigners. The broader debate over EU green policy continues, just under tighter timelines and shifting political winds, with corporates and investors perhaps left to focus on the strategic importance of ESG initiatives, rather than complying with strict EU legislation.

Private capital emphasising driving ESG factors

According to BNP Paribas’ latest biennial ESG study, private capital managers have emerged as some of the staunchest advocates of ESG. BNP’s study analysed the views of 420 institutional investors, split equally between asset owners, asset managers and private capital firms, across 29 countries. IPE News reported on the research, noting institutional investors, but particularly private capital managers, remain firmly committed to their sustainability goals. Over half of the private capital managers in the study stated that geopolitical ESG pushback had not affected sustainability objectives, although less confident responses were observed among other institutional investors, who are now inclined to be less vocal about their ESG and sustainable investing achievements. The survey found 51% of the responding private capital managers expect to use active ownership to fulfil their ESG goals and are placing more emphasis on social issues (76%) and just transition strategies (63%). Notably, 74% of participants expected the pace of progress towards sustainability to be sustained between now and 2030, a consistent opinion observed across geographies and organisations, although participants suggested the movement would likely continue with less publicity. 

US climate policy shift jeopardises global debt-for-nature initiatives 

As US climate policy enters uncertain territory, the effects are rippling out across global conservation finance. A recent Reuters piece shed light on how potential pullbacks by the US International Development Finance Corporate (DFC) are jeopardising key debt-for-nature deals, agreements that trade national debt relief for environmental protection. With upcoming projects in Angola, Ecuador, and Zambia hanging in the balance, the reliance of these mechanisms on steady political will and US backing has become clearer. The of relative fragility in international environmental finance mechanisms amid shifting political landscapes will mean the bar continues to rise for corporates, regions and bodies looking to integrate such mechanisms into practice and strategies. 

Room for improvement in SFDR due diligence and engagement disclosures

A new report by non-profit ShareAction reveals that while asset managers are increasingly providing meaningful information on due diligence and engagement under the EU Sustainable Finance Disclosure Regulation (SFDR), significant gaps remain.

Based on disclosures from 30 leading asset managers operating in the EU, the study finds that although all managers outlined sustainability due diligence policies in their Principal Adverse Impact (PAI) statements, fewer than half offered detailed explanations, such as how they prioritise and assess adverse impacts. Many statements remain too vague, limiting comparability for investors. Similarly, roughly half of the asset managers failed to specify which PAIs they address through engagement or how they adjust their strategies when progress is lacking.

The European Commission announced a review of the SFDR in late 2022 to improve the framework and address implementation challenges. However, the EU’s current emphasis on regulatory simplification may influence the outcome of the review. The Commission is expected to present a legislative proposal for review in Q4 2025, which may result in shifts in expectations of engagement between corporates and investors in 2026.

ICYMI 

• European “green” funds holding more than $33bn of investments in major oil and gas companies have been revealed by an investigation. According to The Guardian, some of these investment funds used branding such as Sustainable Global Stars and Europe Climate Pathway. 
• US regulators have issued a landmark warning that ESG-driven coordination among institutional investors could violate antitrust laws if it influences strategy across competing companies to limit market competition, the Financial Times reports. 
• European ESG funds are increasingly investing in defence stocks, driven by heightened geopolitical tensions. Data from Morningstar shows more than a dozen defence ETFs have been launched in Europe since the start of 2024, including by iShares, Invesco and WisdomTree.