Introduction
This guide will assist in-house counsel and private practice lawyers in their understanding of climate-related legislation and regulations in the UK and Europe.
This guide covers:
- The key drivers behind climate-related legislation and regulation
- Key legal developments in the UK and Europe
Section 1 – The key drivers behind climate-related legislation and regulation
While scientists have been warning of the dangers of climate change for several decades, world leaders first expressly recognised that climate change needed to be tackled with rules and procedures at the Rio Earth Summit in 1992. Consequently, the United Nations Framework Convention on Climate Change (UNFCCC) was established, with the primary goal of promoting international action to stabilise greenhouse gas (GHG) emissions.
1.1 Understanding climate change
Climate change is a long-term shift in global weather patterns or average temperatures. Scientific research shows that, compared with climate change patterns throughout Earth’s history, the rate of temperature rise following the Industrial Revolution (due to the release of GHGs from the combustion of fossil fuels such as oil, gas and coal into the atmosphere) is extremely high.
1.1.1 Global warming
Global warming is a term used interchangeably with climate change, although climate change is preferred because the warming atmosphere and oceans are just some of the impacts.
1.1.2 Limiting global temperature
In the reports of the United Nations Intergovernmental Panel on Climate Change (IPCC) (see paragraph 1.3 below), thousands of scientists and government reviewers have agreed that limiting global temperature rise to no more than 1.5°C would help avoid the worst climate impacts and maintain a liveable climate. Yet policies currently in place point to a 2.8°C temperature rise by the end of the century.
Some scientists now think that focussing on 1.5°C is not helpful as ‘1.2°C is already dangerous for many and deadly for some’ and we need to ‘. . . get to net zero, so that is what we need to focus on, cutting emissions as fast as possible’ (Friederike Otto, The Times, July 22 2023).
1.1.3 Climate change adaptation and resilience
Climate change adaptation and resilience refers to adjustments in ecological, social or economic systems in response to actual or expected climate change and its effects. Adaptation can take many forms, depending on the unique context of a community, business, organisation, country or region. There is no ‘one-size-fits-all-solution’ – adaptation can range from building flood defences, setting up early warning systems for cyclones or switching to drought-resistant crops, to redesigning communication systems, business operations and government policies. Adaptation is a critical component of the long-term global response to climate change to protect people, livelihoods and ecosystems.
1.2 The Paris Agreement
The UNFCCC’s biggest milestone to date is the adoption of the Paris Agreement – a legally binding international treaty on climate change – at the United Nations Climate Change Conference of the Parties (COP21) on 12 December 2015 in Paris, France. It entered into force on 4 November 2016. In accordance with its article 20, the Paris Agreement was open for signature at the United Nations Headquarters in New York from 22 April 2016 until 21 April 2017 by states and regional economic integration organizations that are parties to the UNFCCC. It has been signed by 195 parties – Iran, Libya and Yemen have not signed and the USA has started the process to withdraw (again), which will be formalised on 27 January 2026.
The overarching goal of the Paris Agreement is to hold ‘the increase in the global average temperature to well below 2°C above pre-industrial levels’ and pursue efforts ‘to limit the temperature increase to 1.5°C above pre-industrial levels’. The Paris Agreement covers climate change mitigation, adaptation and financial burden-sharing, and relies on pledges made by each UNFCCC party to achieve this goal.
1.3 UN Intergovernmental Panel on Climate Change
The IPCC was established in 1988 and is the UN’s body for assessing the science related to climate change. It prepares comprehensive reports about the state of scientific, technical and socio-economic knowledge on climate change, its impacts and future risks, and options for reducing the rate at which climate change is taking place. It also produces reports on topics agreed to by the UNFCCC, its member governments and international organisations, as well as reports that provide guidelines for the preparation of GHG inventories. Currently, the IPCC has 195 member countries (including the UK). It meets approximately once a year at the plenary level. These meetings are attended by hundreds of officials and experts from relevant ministries, agencies and research institutions from member countries and from observer organisations. UK institutions provide a high number of advisors to the IPCC.
The IPCC has recently indicated that crossing the 1.5°C threshold will likely trigger more intense and more frequent extreme weather events – such as hurricanes, floods, heatwaves, droughts and wildfires. The IPCC, in its 2023 report, states that there is a rapidly closing window of opportunity to secure a liveable and sustainable future for all. Deep, rapid and sustained mitigation and accelerated implementation of adaptation actions in this decade is needed to reduce projected losses and damages for humans and ecosystems, and delivers many co-benefits, especially for air quality and health.
Critically for businesses, the IPCC believes that delayed mitigation and adaptation action will lock in high-emissions infrastructure, raise risks of stranded assets and cost-escalation, reduce feasibility, and increase losses and damages.
Climate-related stranded assets are those that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities due to changes in their risk profile caused by climate change risks. Such risks can be physical, such as changes in the environment, or societal, such as regulation, legislation, litigation, changing social norms and consumer behaviour.
The IPCC’s next report (which will be its seventh scientific assessment report) is likely to be released by late 2029.
1.4 Impact on organisations
The UN had stated that to limit global warming to 1.5°C, GHG emissions must peak before 2025 at the latest and decline 43% by 2030. However, it has been reported that power producers in both the United States and Europe boosted generation from fossil fuels such as coal and natural gas during the opening months of 2025 from the year before, and that the USA’s power sector is about to enter its most fossil fuel-intensive generation period just as China's manufacturers lift output during the trade truce with the USA. Therefore global power emissions will likely keep rising and hit new highs in 2025. Action across the globe and in every sector is still needed to rapidly decarbonise economies in order to achieve net zero – cutting GHG emissions to as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere, for example, by oceans and forests.
Climate-related legislation and regulations set the legal basis for action on climate change and are already in place, or are being developed, in almost every global market, particularly for:
- sectors with the highest GHG emissions (eg, electricity and heat production; industry; agriculture, forestry and other land use; transportation; buildings); and
- the financial services sector.
Climate-related legislation and regulations help governments meet their commitments under the Paris Agreement and to reach net zero.
Organisations should be aware of the climate-related rules and regulations that impact their operations and also of their contribution to GHG emissions. Organisations of all sizes will likely need to develop transition plans for their own journey to net zero (see the IFRS Knowledge Hub for the Transition Plan Taskforce (TPT)’s disclosure materials, including the TPT’s Disclosure Framework) and will need to understand how they can reach net zero without ‘greenwashing’ (for further information about greenwashing, see Client Earth’s website, How-to guides: How to understand and avoid the risks of greenwashing and How to navigate the regulatory and litigation risks associated with greenwashing in the UK and EU, and Checklist: Greenwashing risk assessment (UK)).
Organisations must also be aware that even if they are not covered by any climate-related rules and regulations, they may be part of a supply or value chain that includes regulated entities. These regulated entities may need climate-related information from entities in their supply or value chains in order to meet their disclosure or other climate-related obligations.
Section 2 – Key legal developments in UK and Europe
There is sector-specific legislation and regulations relating to climate change for many sectors (eg, advertising, fashion, financial services and building design). The key overarching climate laws in the UK and Europe, and the more general climate rules and regulations are set out in the table below.
| Legislation | Sector | Jurisdiction | Who has to comply | Summary |
| Climate Change Act 2008 | Government | UK | Government | The UK framework for the development of a targeted and economically credible plan to reduce current and future GHG emissions. It commits the government to reducing UK GHG emissions by at least 100% of 1990 levels (net zero) by 2050. |
| EU Climate Law 2021 | Government | EU | EU institutions and member states | Sets a legally binding target of net zero GHG emissions by 2050 and a reduction in GHG emissions by at least 55% by 2030 compared to 1990. EU institutions and the member states are bound to take the necessary measures at EU and national level to meet the target, taking into account the importance of promoting fairness and solidarity among member states. |
| Fit for 55 | Multi | EU | Various | A package of EU legislation to help the EU meet its 55% reduction target by 2030 under the EU Climate Law 2021 in a fair, cost-effective and competitive way. There are regulations either in the pipeline, proposed, pending approval by the European Commission, or already in place. Regulations under the Fit for 55 package provide potential commercial opportunities for non-EU companies, and may also impact non-EU companies that operate in or trade with the EU. |
| UK Emissions Trading Scheme (UK ETS) | Energy-intensive industries; power generation; and aviation | UK | Aviation operators; energy-intensive industries; power providers | Replaced the UK’s participation in the European Union Emissions Trading Scheme (see below) on 1 January 2021. Works on the ‘cap and trade’ principle, where a cap is set on the total amount of certain GHGs that can be emitted by sectors covered by the scheme. The cap is reduced over time, so that total emissions fall. Emitting firms must obtain and surrender a permit for each unit of their emissions. They can obtain permits from the government or through trading with other firms. The UK ETS currently being evaluated in order to understand:
The evaluation will be a 2-phase process over the period 2023-2026. The first phase of the evaluation, covering process, outcomes and early impacts, was completed in December 2023. The second phase began in 2025 and a second survey to collect further evidence was expected to be launched in June 2025. |
| EU Emissions Trading System (ETS) | Energy generation; energy-intensive sectors; aviation; maritime; aluminium production; nitric, adipic and glyoxylic acids and glyoxal production | EU | Electricity and heat providers; energy-intensive industry sectors, including oil refineries, steel works, and production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and bulk organic chemicals; aviation operators; maritime transport; producers of nitrous oxide (N2O) from production of nitric, adipic and glyoxylic acids and glyoxal; aluminium producers | Works on the ‘cap and trade’ principle, similar to UK ETS. It created the world’s first carbon market. Was revised under ‘Fit for 55’. |
| EU ETS2 | Will cover and address the CO2 emissions from fuel combustion in buildings, road transport and additional sectors (mainly small industry not covered by the existing EU ETS). | EU | Fuel suppliers (those parties that pay the excise duties (including the carbon tax)) in relation to the following fuels:
The following types of fuels are currently excluded from the ETS2:
| ETS2 will become fully operational in 2027. Although it will be a ‘cap and trade’ system like the existing EU ETS, the ETS2 will cover emissions upstream. It will be fuel suppliers, rather than end consumers such as households or car users, that will be required to monitor and report their emissions. All emission allowances in the ETS2 will be auctioned, and a share of the revenues will be used to support vulnerable households and micro-enterprises through a dedicated Social Climate Fund (SCF). |
| Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022; and Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 | All | UK | All UK-registered companies that are currently required to produce a non-financial information statement, ie:
| The regulations make Taskforce on Climate-related Financial Disclosures (TCFD) mandatory for in-scope companies and LLPs for accounting periods starting on or after 1 April 2022. The Financial Stability Board (FSB) created the TCFD to develop recommendations on the types of information that companies should disclose to support investors, lenders, and insurance underwriters in appropriately assessing and pricing risks related to climate change, in order to support informed, efficient capital-allocation decisions. TCFD disclosures cover:
The FSB has now announced that the work of the TCFD has been completed – with the International Sustainability Standards Board (ISSB) standards (see below) marking the ‘culmination of the work of the TCFD’. The TCFD has disbanded and the the FSB has asked the IFRS Foundation to take over the monitoring of the progress of companies’ climate-related disclosures. Companies applying the ISSB’s IFRS S1 and IFRS S2 (see below) will meet the TCFD recommendations as the recommendations are fully incorporated into the ISSB standards. |
| Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 | All | UK | Quoted companies (companies whose equity share capital is officially listed on either the main market of the London Stock Exchange; or in a European Economic Area state; or is admitted to dealing on either the New York Stock Exchange or NASDAQ). Large unquoted companies (whether registered or unregistered) which are required to prepare company accounts and reports. Large LLPs. Large means:
| The regulations require in-scope organisations to share energy use and carbon emissions information in their annual reports. The regulations amend the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008. The regulations expand on existing emissions disclosure requirements for quoted companies, and introduce new, slightly different, requirements for large unquoted companies and LLPs. |
| Corporate Sustainability Reporting Directive (CSRD) | All | EU | From 1 January 2024, all large companies with > 250 employees and > €40m in net turnover, or > €20m in assets (but see below). From 1 January 2028 (but see below), all listed SMEs, except for listed micro-enterprises (balance sheet not more than €350,000, net turnover not more than €700,000, employees not more than 10). On 26 February 2025, the European Commission adopted a package of proposals (Omnibus I) to ‘simplify EU rules and boost competitiveness’. Key proposed changes include: • a revised scope -all companies with less than 1,000 employees and less than 50 million turnover will be outside the scope of the CSRD; and simplified reporting requirements (together the 'Simplification' Proposed Directive) The ‘Stop-the-Clock’ Directive was approved via fast-track on 14 April 2025 and it entered into force on 16 April 2025. EU member states have to transpose the directive into national law by December 31, 2025. The Simplification Proposed Directive will go through the normal EU legislative process. The earliest the European Parliament will vote on the final text is October 13, 2025, with a plenary vote expected later in the month. | The CSRD effectively replaces the EU’s Non-financial Reporting Directive (NFRD) rules. Its primary objective is to enhance access to sustainability information and enforce more consistent and transparent sustainability reporting by businesses. The CSRD requires in-scope companies to report using a double materiality perspective in compliance with European Sustainability Reporting Standards (ESRS), which were adopted in an EU delegated regulation in December 2023. Draft SME ESRS were issued for consultation in January 2024 and were expected to come into effect on 1 January 2026. Whether these will still be required depends on the outcome of the ‘Simplification’ Proposed Directive process. The ESRS and the first two standards of the ISSB (see below) were developed in parallel and the EU Commission states that there is a ‘. . . very high degree of alignment where the two sets of standards overlap’. CSRD includes provisions for the adoption of sector-specific ESRS and separate standards to be used by certain non-EU companies. The adoption of these has been postponed from mid-2024 to mid-2026 to give companies more time to comply with the ESRS. Whether these will still be required depends on the outcome of the ‘Simplification’ Proposed Directive process. |
| Global | Global | The standards are not mandatory and it is up to individual countries to decide whether listed companies are required to apply them. | IFRS S1 requires companies to disclose information regarding sustainability targets, governance, strategy and risk management. IFRS S2 is a set of climate-related disclosures that provide information to investors about a company’s climate-related risks and opportunities. IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after 1 January 2024. It is expected that the standards will be voluntarily adopted as non-financial reporting on sustainability becomes market standard. The UK has indicated its intent to incorporate the ISSB standards; however, the EU and United States plan to introduce their own separate disclosure requirements, although the ISSB has been working with the EU on the specific reporting requirements of the CSRD to ensure there is a level of consistency between the standards. The IFRS Foundation published Interoperability Guidance on the ESRS and ISSB Standards in May 2024. In May 2024, the UK Department for Business and Trade published a ‘Framework and Terms of Reference for the Development of UK Sustainability Reporting Standards’ (UK SRS), which sets out the process for the UK’s proposed endorsement and implementation of the ISSB’s standards in the UK. The technical assessment of IFRS S1 and IFRS S2 has now been completed and was delivered through two committees:
The TAC recommended four minor amendments to the ISSB Standards in the draft UK SRS. The UK government is also proposing two additional minor amendments, based on PIC discussions. All proposed amendments are judged to be necessary in the UK context, rather than ‘nice to have’ amendments, to support the development of a global sustainability reporting baseline. On 25 June 2025, the government opened a consultation on the proposed amendments in order to finalise UK SRS. The consultation closes on 17 September 2025. |
Additional resources
IFRS – International Sustainability Standards Board
European Commission – Corporate Sustainability Reporting Directive
Taskforce on Nature-related Financial Disclosures – Introducing the TNFD framework
Related Lexology Pro content
How-to guides:
Understanding environmental, social and governance (ESG)
How to understand and avoid the risks of greenwashing
What general counsel (GC) need to know about environmental, social and governance (ESG)
How to understand and implement the ‘E’ in environmental, social and governance (ESG)
Business and legal developments related to climate change (USA)
How to approach and implement an ESG strategy
How to comply with climate-related regulations applicable to the financial services sector in the EU
How to comply with climate-related regulations applicable to the financial services sector in the UK
How to navigate the regulatory and litigation risks associated with greenwashing in the UK and EU
Checklists:
Conducting environmental, social and governance (ESG) due diligence in supply chains (UK)
Greenwashing risk assessment (UK)
Quick views:
An overview of current ESG pressure points (Global)
Reliance on information posted:
While we use reasonable endeavours to provide up to date and relevant materials, the materials posted on our site are not intended to amount to advice on which reliance should be placed. They may not reflect recent changes in the law and are not intended to constitute a definitive or complete statement of the law. You may use them to stay up to date with legal developments but you should not use them for transactions or legal advice and you should carry out your own research. We therefore disclaim all liability and responsibility arising from any reliance placed on such materials by any visitor to our site, or by anyone who may be informed of any of its contents.