European Regulation: A Positive Step Toward Pragmatism
Sustainability has become a central focus for corporations across Europe and globally. However, the disproportionate emphasis on compliance and reporting risks diverting resources away from real impact.
Recent European regulatory developments, such as the Omnibus Directive simplifying corporate sustainability reporting,
mark an important shift. Reducing bureaucratic burdens can free up capital and talent for actual decarbonization and
innovation. As the EU prepares further revisions to its regulatory frameworks, it is time to ask: how can companies focus
on achieving meaningful and economically valuable sustainability outcomes?
The Omnibus Directive: From Reporting to Real Transformation
In early 2024, the EU adopted the Omnibus Directive, which among other changes, significantly reduces the reporting
requirements under the Corporate Sustainability Reporting Directive (CSRD). The Omnibus proposal (Feb 2025) aims to
exempt 80% of companies from CSRD obligations by raising thresholds (e.g., limiting reporting to firms with 1,000+
employees and €50M+ turnover) 1 . The current simplification is expected to save companies considerable administrative
costs and reallocate resources toward real action, such as investing in energy efficiency, circular business models, and
low-carbon technologies.
While some have misunderstood the Omnibus Directive as a step back from Europe’s sustainability goals, this
interpretation misses the European Commission’s actual goals. The Commission remains firmly committed to achieving
carbon neutrality by 2050 and advancing the European Green Deal. The simplification efforts are not about reducing
ambition but about enhancing effectiveness.
By eliminating duplicative, low-value reporting requirements, the EU is enabling companies to concentrate their
resources on transformative projects and innovation, rather than administrative tasks. It is a strategic recalibration,
designed to make Europe’s sustainability journey faster, more pragmatic, and ultimately more successful.
The new sustainability financial market and SFDR
The Sustainable Finance Disclosure Regulation (SFDR) introduced much-needed transparency into financial markets.
However, its practical application has revealed an excessive complexity. Asset managers and companies are often
required to disclose vast volumes of sustainability data, much of which lacks direct relevance to the actual sustainability
performance or financial risk profiles of their portfolios.
However, it is important to recognize the benefits that SFDR has delivered. By setting a common framework for
sustainability disclosure, SFDR has significantly enhanced transparency across the financial markets. It has helped
investors distinguish between genuinely sustainable products and those engaged in «greenwashing.» Additionally, it has
prompted financial institutions to integrate sustainability risks into their investment decision-making processes, fostering
a more responsible allocation of capital.
However, the broad, one-size-fits-all approach of SFDR has created a compliance-driven culture, where ticking boxes
can take precedence over delivering environmental or social outcomes. In practice, SFDR often forces companies to
report on dozens of Principal Adverse Impact indicators, many of which are peripheral to the business’s core activities.
This has not only increased administrative burdens but also confused investors rather than providing them with clear,
decision-useful information.
Recognizing these challenges, the European Commission is preparing an updated framework, expected by the end of
The upcoming revision is expected to:
These changes are intended to reduce the administrative burden and shift focus toward using sustainability reporting as
a strategic tool—driving genuine change in how capital is allocated towards sustainable activities, rather than
perpetuating bureaucratic exercises.
EU Taxonomy: A Valuable Tool, Underused and Misapplied
The EU Taxonomy was intended to define what constitutes sustainable economic activities, providing clarity for
companies and investors (European Commission, EU Taxonomy Regulation). However, the practical impact has been
limited. Despite the enormous resources spent by the European Commission, companies, and consultants in
interpreting and applying the Taxonomy, in many sectors it remains underutilized.
A striking example is the real estate sector. Despite Taxonomy-aligned definitions for green buildings, market
participants continue to use older, less ambitious labels such as BREEAM (BRE Global, BREEAM Standards) and
LEED (U.S. Green Building Council, LEED). These certifications often reward incremental improvements rather than
genuine low-carbon leadership. Thus, the Taxonomy’s potential to shift capital decisively towards truly sustainable
assets remains unrealized.
Another critical example is found in the banking sector. Although the Green Asset Ratio (GAR) was introduced to
measure the proportion of taxonomy-aligned activities in bank lending and investment portfolios, the actual reported
GAR remains very low across major European banks. Instead of relying exclusively on the EU Taxonomy criteria, many
institutions prefer alternative internal classifications or external ESG labels that lack the rigorous, sector-specific
standards demanded by the Taxonomy. While these alternatives may portray portfolios as «green,» they often miss the
environmental robustness intended by policymakers. This approach, albeit often unintended, risks creating perceptions
of greenwashing, potentially undermining credibility among investors and stakeholders.
It must be acknowledged that the EU Taxonomy’s detailed technical screening criteria pose challenges for companies
and financial institutions. Gathering the necessary data and aligning operational models with taxonomy benchmarks
require considerable effort. Yet, it is precisely this rigor that underpins the Taxonomy’s strength: providing investors with
reliable indicators of sustainable performance and offering businesses a strategic blueprint to build resilience and future-
proof their activities against evolving environmental risks. Embracing the full complexity of the Taxonomy, rather than
seeking shortcuts, will be key to aligning financial flows with the European Green Deal and achieving true, credible
sustainability leadership.
Toward an Incentive-Driven Future
The sustainability movement must evolve. If we want real transformation, incentives—not regulation alone—must lead
the way. True acceleration of sustainability transformation in business requires a paradigm shift cantered on economic
value creation and fostering demand for sustainable products and services.
Key priorities to achieve real impact include:
By embedding incentives into the core economic system, sustainability can shift from being a compliance exercise to
becoming a true competitive advantage.
The recent regulatory adjustments in Europe signal that a better balance is possible. By focusing on economic value,
strategic innovation, and measurable progress—and by driving real demand for sustainable products and services—we
can move decisively from a culture of compliance to one of true leadership and lasting impact in sustainability.
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