The European Green Deal at five: progress, fault lines, and the next chapter in EU sustainable finance

Specifically, the cross-cutting strategy sought to (i) achieve a climate-neutral EU economy by 2050, consistent with the Union’s commitments under the Paris Agreement, and (ii) implement the Sustainable Development Goals set out in the United Nations 2030 Agenda.

More than 150 policies were introduced to address global environmental challenges such as climate change, biodiversity loss, and pollution by driving ambitious transformations across key sectors, including energy, industry, buildings, transport, and food systems.

Today, emissions are down, clean tech investment has scaled up, and reporting frameworks have matured at great speed. Yet slow economic growth, inflation, geopolitical shocks, and shifting national politics have tested public patience and political will. In response, the EU embarked on a major project to simplify sustainability laws and regulations. The next five years will help determine whether the Green Deal becomes a durable economic settlement, or an ambitious first draft which becomes much less effective as a result of rollbacks.

What worked: Architecture, accountability, and allocation

One of the Green Deal’s most successful contributions is institutional. Europe’s taxonomy set green goals and developed the architecture and systems needed to deliver results. For example, reform of the Emissions Trading System tightened the cap and price signal, extending coverage and laying the groundwork for a parallel system for buildings and road transport. The Carbon Border Adjustment Mechanism (CBAM) began its transition, advancing the principle that carbon-intensive imports should not undercut decarbonization at home.

Equally significant is Europe’s accountability revolution in corporate reporting. The Corporate Sustainability Reporting Directive (CSRD) seeks to move sustainability disclosure into the financial mainstream, expand mandatory reporting, and introduce assurance over key metrics through the European Sustainability Reporting Standards (ESRS), which operationalizes double materiality. The EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR) complement this by providing a legally grounded definition of environmentally sustainable activities, with technical screening criteria and a minimum safeguards framework for financial market participants. Together, the CSRD, Taxonomy, and SFDR create a coherent, enforceable disclosure system that aims to channel capital based on comparable and comprehensive data, and curb greenwashing.

Public financing for green projects has followed with funding supporting priorities such as clean tech manufacturing and environmental sustainability.

The sustainable finance backbone: From taxonomy to bonds

The EU Taxonomy provides both the definitional backbone as well as a first disclosure framework on environmentally sustainable (i.e., green) economic activities. The EU Taxonomy’s disclosure rules are supplemented by other disclosure frameworks, including in particular the CSRD. A key purpose of these prescriptive disclosure rules is to ensure that the markets are supplied with the appropriate data to assess the level of sustainability of businesses' operations and investments.

It is well established that these disclosure rules imposed significant compliance burdens on businesses and exposed them to legal risks, and this led the European Commission to significantly revise these rules in the so-called “Omnibus” package announced in February 2025, discussed in more detail below. It goes without saying that the lighter reporting requirements and the significant reduction in scope of the reporting rules (only the largest companies and groups will need to draw up detailed reports) were applauded by many, but also criticized by certain political actors, civil society, and even by investors that were keen to assess and compare this new trove of detailed sustainability data. The discussions on the Omnibus package again demonstrated that the balance between data availability and compliance costs will continue to be a political hot iron, particularly as robust data is essential to allocating capital efficiently to sustainable investments and activities.

In that regard, it is useful to consider the European Green Bond Regulation, which entered into force in December 2024, and which provides the EU capital markets with a voluntary, legally grounded label for bonds whose proceeds align with Taxonomy criteria. 

The Green Bond Regulation (which supplements the widely-used ICMA green bond standards, a market-driven initiative) matters for three reasons. First, it introduces standardization into a crowded European bond market. It creates a close alignment between the Taxonomy and use-of-bond proceeds and introduces a mandatory factsheet and reporting templates. Second, it elevates assurance with independent third-party entities evaluating transactions and providing authorization and supervision. Third, it creates positive pressure upstream. Issuers cannot credibly wear a European green label without data on eligibility and alignment, driving better internal controls, supply chain transparency, and improved capex planning.

Critics will note that participation in respect of this European green bond label is voluntary and that Taxonomy coverage is still incomplete in some sectors and objectives. Both points are correct, but change is inevitably incremental. Market standards harden gradually, and although no comprehensive data on the Green Bond Regulation’s success is yet available, take-up is rising and issuers who have invested in taxonomy alignment see the benefit of the combination of a recognized public label and enhanced assurance.

Challenges ahead: Complexity, consistency, and the politics of pace

Success has come with substantive trade-offs. Firms face overlapping requirements across sustainability reporting, labeling, and prudential compliance. Aspects of the SFDR illustrate the problem: launched to channel capital towards environmental sustainability goals, firms have struggled with interpreting requirements and with inconsistent application across market participants.

Consistency has also been strained by the multitude of delegated acts, updates, and evolving supervisory expectations. Adjustment and compliance costs faced by SMEs, energy-intensive industries, and households have become politically sensitive.

After two years of feedback that CSRD, Taxonomy, ESRS, SFDR, CBAM and related rules were too complex, fast-moving, and difficult to operationalize, the European Commission, in February 2025, unveiled a sustainability Omnibus to stabilize and simplify the EU’s reporting and due diligence architecture. The Omnibus enables the Commission to amend several laws at the same time. The package responds to mounting implementation strain flagged by businesses and Member States and aligns with the competitiveness agenda contained in Mario Draghi’s September 2024 report on the Future of European Competitiveness, which called for a lighter administrative burden, clearer sequencing, and greater regulatory predictability. It also reflects lessons from the first CSRD reporting cycle and the need for better interoperability across EU sustainable financing proposals.

Taken together, the Omnibus is more of a recalibration than a retreat, with fewer moving parts and more usable data, while preserving the core objectives of the Green Deal.

The next five years: Stabilize, simplify, and scale

Looking ahead, the Green Deal’s credibility hinges on three interlocking tasks: stabilizing the rulebook, simplifying where possible, and scaling up green investment.

Stabilizing means fewer surprises and more roadmaps. Investors and corporates need predictable timelines and standards, and clear, long-dated transition pathways for hard-to-abate sectors. Some early movers have rued changes in sustainability laws after committing resources.

Simplification will be the political and technical project of the mid-2020s. Simplification measures need to retain the overarching goals of the Green Deal, be sufficiently flexible to accommodate technological progress and sectoral priorities, and prevent greenwashing. There is considerable scope for simplification. A streamlined SFDR—one that clarifies product categories, harmonizes sustainability indicators, and reduces duplicative documentation—is essential. Continued work extending and calibrating the Taxonomy without over-engineering is also important, as is reducing the number of data points required under the CSRD.

Scaling up sustainable finance will likely require continued financial innovation and financing structures that pair green bonds with other project financing instruments. Such blended financing could crowd in private capital to support decarbonization and other environmental sustainability goals and assist investors by enhancing the liquidity of the green bond market.