How can investments in transition be linked to the regulatory framework?

The European regulatory environment is undergoing rapid changes, with the Omnibus package at the forefront of simplifying reporting obligations while maintaining the ambition of the Green Deal. At Rencontres de l'IFD, industry leaders and experts gathered to discuss the evolving regulatory framework, its challenges, and the path forward for investments in the transition economy.

A Changing EU Context: Key Challenges in 2024

The EU regulatory landscape is dense, and 2024 presents critical milestones with elections shaping the future direction. Three key themes emerged:

1. Europe’s competitiveness – Strengthening European businesses to compete globally by easing regulatory burdens.

2. Social acceptance of the Green Pact – Addressing concerns that ambitious sustainability policies might be too demanding for businesses and citizens alike.

3. Geopolitical considerations – Reassessing policies amid global economic and political shifts, ensuring that sustainability measures remain pragmatic and viable.

With these challenges in mind, the Omnibus package aims to simplify reporting while ensuring that the original ambitions remain intact. However, rapid negotiation of these measures is essential to prevent uncertainty from delaying progress.

One major concern is that delaying clarity around regulatory frameworks will encourage non-compliance, as companies struggle to meet unrealistic deadlines. The sentiment among industry experts is clear: businesses need quality regulations, not just compliance checklists. This requires a coordinated effort to align reporting requirements with actual corporate needs.

The Role of Taxonomy and Regulatory Coherence

As companies strive to comply with multiple frameworks, ensuring coherence among different regulations is paramount. Taxonomy reporting remains a cornerstone, but many aspects require clarification, particularly in aligning the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD).

Key Considerations:

• Clarity and coherence – Investors require sustainability data that is readable and comparable to make informed decisions.

• Standardization of reporting – Auditable, sector-specific standards will help reduce complexity and enhance credibility.

• Strategic focus over compliance burden – CSRD should be seen as a tool for long-term business strategy rather than mere reporting.

However, CSRD is not just about reporting—it is a strategic exercise requiring companies to rethink their business models. The focus must be on setting up long-term sustainability policies rather than just publishing data for regulatory purposes.

Challenges in Implementation and Data Comparability

One major concern is the difficulty of implementing CSRD across industries. Companies face obstacles such as:

• Lack of comparability due to differences in data calculation methodologies.

• The need for meaningful sustainability indicators amidst 400+ reporting requirements.

• The risk of non-compliance due to overwhelming complexity.

Experts at Rencontres de l'IFD highlighted that while reporting frameworks exist, the reality is that many companies struggle to meet even basic transparency requirements. Taxonomy reporting, for instance, still has unresolved issues—some financial ratios remain unclear, and companies are unsure how to interpret requirements consistently.

To ensure efficiency, regulatory frameworks must avoid overlapping or contradictory requirements. Companies and investors alike call for:

• Greater harmonization of EU sustainability regulations.

• Standardized methodologies for calculating sustainability indicators.

• Stronger guidance on how to implement CSRD in a practical way.

The Omnibus package seeks to reduce the reporting burden while ensuring that key disclosures remain intact, particularly those that investors rely upon for decision-making. However, speed of implementation is critical—without clear deadlines and guidelines, companies risk being caught between compliance pressure and operational constraints.

The Role of Regulatory Incentives in Driving the Transition

For a successful transition, regulatory incentives must be well-structured. The shift from an investor-centric to a client-centric approach in SFDR revisions is one such effort. Ensuring financial education and transparency is critical in allowing stakeholders to make informed decisions about long-term sustainable investments.

What Needs to Happen Next?

• Greater regulatory consistency – Aligning CSRD, SFDR, and other sustainability reporting standards to avoid duplication.

• Market-driven incentives – Encouraging companies through adaptive regulatory frameworks rather than excessive reporting burdens.

• Data transparency – Providing clear, quantifiable data such as CO2 emissions that investors can trust.

• Clearer guidance on Green Bonds – Strengthening the EU Green Bond Standard while ensuring flexibility in a fast-changing market.

A major debate in the regulatory sphere is whether defense-sector investments should be recognized under sustainable finance rules. Some argue that defense contributes to peace and security, while others maintain that it contradicts ESG principles. How the EU addresses this question could reshape the definition of sustainable investments.

Final Thoughts: A Call for Simplification and Practicality

The consensus at Rencontres de l'IFD was clear: the transition economy requires clear, simplified, and actionable regulation. While ambition must remain high, it must also be pragmatic to ensure real-world effectiveness. As the EU refines its regulatory approach, maintaining competitiveness, coherence, and long-term vision will be key to driving sustainable finance forward.

Furthermore, industry leaders emphasized that companies should not be reporting for reporting’s sake. Instead, sustainability reporting should support strategic decision-making and long-term business resilience.

As we move ahead, the question remains: How do we strike the right balance between regulatory oversight and practical investment incentives? The answer will shape the future of Europe’s sustainable economic transition.

The takeaway? We must avoid overcomplicating the sustainability transition. Instead, let’s focus on pragmatic, transparent, and standardized frameworks that support companies in achieving meaningful change.