Journal of FinTech and Sustainable Finance

Articles

Vol. 2 (2026)

Advancing Sustainable Finance Through Law: Lessons from The EU’S Reporting Regime

DOI:
https://doi.org/10.31875/2755-8398.2026.02.08
Submitted
July 1, 2026
Published
2026-07-01

Abstract

Over the past decade, the European Union (EU) has introduced a range of new sustainability reporting rules designed, in part, to encourage sustainable finance and investment. However, over the past two years, a policy shift in the EU has resulted in removing many of these rules on the basis that they imposed too many regulatory burdens on companies and investors. While law clearly has the capacity to facilitate sustainable finance and investment, it also has the capacity to impose unnecessary constraints on businesses, investors and lenders which inhibit economic development and investment. Analysis of the EU’s legal innovations in this area can provide a unique insight into the optimal legal framework to promote sustainable finance. Hence, this article aims to extract lessons from EU law reform around sustainable finance and reporting.

References

  1. The EU defines sustainable finance as the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable economic activities and projects. See https://finance.ec.europa.eu/sustainable-finance/overview-sustainable-finance_en.
  2. Directive 2014/95/EU.
  3. European Commission Communication on the European Green Deal (2019) see https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en.
  4. European Commission, Action Plan: Financing Sustainable Growth available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52018DC0097.
  5. Regulation (EU) 2019/2088.
  6. Regulation 2020/852.
  7. Directive 2022/2464.
  8. Regulations in EU law are directly binding on all Member States.
  9. Directives in EU law are binding on all Member States in relation to the result to be achieved but leave the methods by which to achieve them to be decided by Member States. See Article 288 of the Treaty on the Functioning of the European Union.
  10. E. Letta, ‘Much More than A Market’ (2024) available at https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf.
  11. M. Draghi, ‘The Future of European Competitiveness’ (2024) available at https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en#paragraph_47059.
  12. For example, the proposal for the 28th regime of EU company law (or “EU Inc.”), the launch of a Scaleup Europe Fund and a Savings and Investments Union.
  13. Directive (EU) 2026/470 available at https://eur-lex.europa.eu/eli/dir/2026/470/oj. See European Commission, Omnibus I (2025) available at https://commission.europa.eu/publications/omnibus-i_en. The Omnibus is a proposal only and, at the time of writing, is going through the EU legislative process.
  14. See P. Davies and S. Worthington, Gower’s Principles of Moden Company Law 10th edn. (Sweet and Maxwell, 2016), 689-691 and C. Leuz and P. Wysocki, ‘The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research’ (2016) 54(2) Journal of Accounting Research 525. https://doi.org/10.1111/1475-679X.12115
  15. R. Kraakman et al, The Anatomy of Corporate Law: A Comparative and Functional Approach 3rd edn. (Oxford University Press, 2017), 249 - 254.
  16. Ibid, 252 but also to enable corporate taxation.
  17. Certain legislative provisions do allow creditors take claims against company officers for harming the interests of creditors. One such example is ‘Wrongful Trading’ under s.214 of the UK Insolvency Act 1986. For a broader discussion of the law’s response to this issue see J. Quinn and P. Gavin, ‘The Creditor Duty Post Sequana: Lessons for Legislative Reform’ (2023) 23(1) Journal of Corporate Law Studies 271. https://doi.org/10.1080/14735970.2023.2226802
  18. Meaning the company has insufficient assets to discharge all of its debts.
  19. This would depend on the degree of insolvency and level of security held by the creditor.
  20. See R. Kraakman et al, The Anatomy of Corporate Law (n 32), 338-39. The authors note that periodic disclosure of financial information allows shareholders to determine whether they wish to invest further in the company or exit and also provides mechanisms to limit agency costs through, for example, disclosure requirements on third party transactions and where directors must disclose details of transactions to gain approval from shareholders.
  21. Directive 68/151/EEC.
  22. Ibid Article 2(e) and 2(f).
  23. Ibid, Article 3.
  24. First in 2003 by Directive 2003/58/EC which provided for the disclosure of information by electronic means.
  25. Directive 78/660/EEC. For example, Article 2(3) provided that the annual accounts shall give a true and fair view of the company's assets, liabilities, financial position and profit or loss.
  26. Directive 83/349/EEC.
  27. Directive 84/253/EEC.
  28. For example, the Statutory Audit Directive 2006/43/EC.
  29. Directive 2013/34/EU.
  30. Ibid, Article 3 divides undertakings into small medium and large and imposes different regulatory burdens on each type of undertaking.
  31. Ibid, Article 4 (1). The notes are to provide additional context to the accounts.
  32. Ibid, Article 19.
  33. Ibid, Article 4.
  34. N. De Luca, European Company Law 2nd edn. (CUP 2021), 230-232. https://doi.org/10.1017/9781108918992
  35. Ibid, Annex III and IV allowing Member States to select either vertical or horizontal formats.
  36. Ibid, Annex V and VI.
  37. Directive 2013/34/EU defined by Article 2 as all listed companies, credit institutions, insurance undertakings and other companies designated by Member States because of their activities, size or number of employees
  38. Ibid, Article 34.
  39. S. Grundmann, ‘European Company Law in Transformation—Striving for Participation and Sustainability’ (2023) 42 Yearbook of European Law 210, 215. https://doi.org/10.1093/yel/yead002
  40. Ibid, 211.
  41. Ibid, 213.
  42. Directive 68/151/EEC, Article 3(1).
  43. BRIS connects the business registers of each Member State to a 'European Central Platform' to widen accessibility of the disclosed information. See https://ec.europa.eu/digital-building-blocks/sites/pages/viewpage.action?pageId=533365899.
  44. Available at https://commission.europa.eu/document/download/3e9822aa-8cef-40a1-904e-a53fc68e7265_en?filename=Proposal%20for%20an%20EU%20Inc%20corporate%20legal%20framework.pdf.
  45. Ibid Art 15.
  46. Ibid Art. 17.
  47. Ibid Art. 20.
  48. Regulation EU 2023/2859.
  49. Most famously Enron, see J. Coffee, ‘Understanding Enron: It's about the Gatekeepers, Stupid’ (2001) 57 Business Law 1403 and S. Deakin and S. Konzelmann, ‘Learning from Enron’ (2004) 12(2) Corporate Governance: An International Review 134. https://doi.org/10.1111/j.1467-8683.2004.00352.x
  50. The underlying rationale for BRIS stemmed from the financial crisis and the EU’s resultant belief that up-to-date, trustworthy information on companies would encourage greater confidence in the single market. See https://ec.europa.eu/digital-building-blocks/sites/pages/viewpage.action?pageId=533365899.
  51. See C. Stone, Where the Law Ends: The Social Control of Corporate Behaviour (1975 Harper & Row). https://doi.org/10.2307/1228316
  52. See C. Hill, ‘Marshalling Reputation to Minimize Problematic Business Conduct’ (2019) 99 Boston University Law Review 1193, 1208-1211 noting that the mere fact that companies go to significant effort to engage in greenwashing suggests that they are concerned with public perceptions.
  53. For example, a contingent environmental liability.
  54. As demonstrated by the rise of ESG investing. See D. Esty and Q. Karpilow, ‘Harnessing Investor Interest in Sustainability’ (2019) 36 Yale Journal on Regulation 625 and Macey, ‘ESG Investing’ (n 13).
  55. Nearly all of the world's top 250 companies report on sustainability related issues and the number of companies producing sustainability reports is rising. See KPMG, ‘Key Global Trends in Sustainability Reporting’ (2022) available at https://kpmg.com/xx/en/our-insights/esg/survey-of-sustainability-reporting-2022/global-trends.html.
  56. See M. Barzuza, Q. Curtis and D. Webber, ‘Shareholder Value(s): Index Fund ESG Activism and the New Millennial Corporate Governance’ (2020) 93 Southern California Law Review 1243 and J. Macey, ‘ESG Investing: Why Here? Why Now?’ (2022) 19 Berkeley Business Law Journal 258.
  57. See D. Ahern, ‘Turning Up the Heat? EU Sustainability Goals and the Role of Reporting under the Non-Financial Reporting Directive’ (2016) 4 European Company and Financial Law Review 599 noting that companies, left to their own devices, are inclined ‘to report favourable aspects than less favourable aspects of their activities and policies.’ https://doi.org/10.1515/ecfr-2016-5007
  58. See E. Yu, B. Lu, and C. Chen, ‘Greenwashing in Environmental, Social and Governance Disclosures’ (2020) 52 Research in International Business and Finance 1. https://doi.org/10.1016/j.ribaf.2020.101192
  59. See D. Monciardini, ‘Regulating Accounting for Sustainable Companies: Some Considerations on the Forthcoming Directive’ (2014) 11(2) European Company Law 121. https://doi.org/10.54648/EUCL2014024
  60. See D. Hess, ‘Social Reporting: A Reflexive Law Approach to Corporate Social Responsiveness’ (1999) 25 The Journal of Corporation Law 41.
  61. UK Companies Act 1985 (Operating and Financial Review) Regulations 2005 Statutory Instrument No. 1011.
  62. S.172(1) of the UK Companies At 2006. This provides for company directors to have regard to a wide range of stakeholder interests, such as employees, the community and the environment. See A. Keay, The Enlightened Shareholder Value Principle and Corporate Governance (Routledge, 2012).
  63. Operating and Financial Review Regulations 2005 Statutory Instrument No. 1011 Part 3 Schedule 7ZA (4).
  64. Ibid, Part 3 Schedule 7ZA (10).
  65. See A. Johnston, ‘After the OFR: Will UK Shareholder Value Still Be Enlightened?’ (2006) 7 (4) European Business Organization Law Review 817. https://doi.org/10.1017/S1566752906008172
  66. Introduced by section 417 of the UK Companies Act 2006.
  67. For example, Davies has described the Business Review as providing scope to companies to produce a ‘self-serving and vacuous narrative rather than analytical material which is of genuine use’. Paul Davies, Gower and Davies Principles of Modern Company Law, 8th edn. (Sweet and Maxwell, 2008), 740.
  68. The most notable development is through section 54 of the Modern Slavery Act 2015 which requires companies to produce an annual ‘slavery and human trafficking statement’ setting out ‘the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place’.
  69. See A. Johnston, ‘Market-Led Sustainability through Information Disclosure’ in B. Sjåfjell and C. Bruner (eds), The Cambridge Handbook of Corporate Law, Corporate Governance and Sustainability (2020, CUP). https://doi.org/10.1017/9781108658386.021
  70. European Commission, Green Paper - Promoting a European Framework for Corporate Social Responsibility (2001) available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52001DC0366.
  71. Ibid, [66].
  72. Commission Communication, “Single Market Act - Twelve levers to Boost Growth and Strengthen Confidence (2011) available at https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52011DC0206.
  73. Ibid, 5.
  74. Available at https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52013PC0207.
  75. Directive 2014/95/EU amending Directive 2013/34/EU.
  76. Defined by Article 3(4) of Directive 2013/34/EU as meeting two of three following criteria: (a) balance sheet total: EUR 20 000 000; (b) net turnover: EUR 40 000 000; (c) average number of employees during the financial year: with over 250 employees.
  77. Ibid, Article 1.
  78. Ibid.
  79. Ibid.
  80. For analysis of comply or explain regulation see A. Keay, ‘Comply or Explain in Corporate Governance Codes: In Need of Greater Regulatory Oversight?’ (2014) 34(2) Legal Studies 279. https://doi.org/10.1111/lest.12014
  81. Ibid.
  82. Commission Communication - Guidelines on Non-Financial Reporting available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52017XC0705(01).
  83. Ibid, [4.1]- [4.5].
  84. See J. Quinn and B. Connolly, ‘The Non-Financial Information Directive: An Assessment of its Impact on Corporate Social Responsibility’ (2017) 14(1) European Company Law 15. https://doi.org/10.54648/EUCL2017003
  85. Szabó and Sorensen, ‘New EU Directive on the Disclosure of Non-Financial Information’ (n 23), 316.
  86. European Commission, Report on the Review Clauses in Directives (n 23).
  87. Ibid, 17.
  88. Ibid.
  89. Ibid, 20.
  90. Ibid, 19.
  91. Regulation (EU) 2019/2088. For analysis see E. Partiti, ‘Addressing the Flaws of the Sustainable Finance Disclosure Regulation: Moving from Disclosures to Labelling and Sustainability Due Diligence’ (2024) 25 European Business Organization Law Review 299. https://doi.org/10.1007/s40804-024-00317-6
  92. Defined as managed portfolios, alternative investment funds, undertakings for collective investment in transferable securities, insurance-based investment products, or pension products.
  93. Regulation (EU) 2019/2088 Recital 9.
  94. Ibid, Article 1.
  95. Ibid, Article 3.
  96. Ibid, Article 4. These must take due account of their size, the nature and scale of their activities and the types of financial products they make available.
  97. Ibid Recital 17. The full definition can be found at Article 2(17).
  98. Delegated Regulation (EU) 2022/1288.
  99. Regulation 2020/852 (EU).
  100. Ibid, 9 including energy agriculture, transport, manufacturing
  101. Ibid, Article 9. Articles 10-15 provide greater depth on these objectives.
  102. Proposal for a Corporate Sustainability Reporting Directive (CSRD) available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021PC0189.
  103. Directive 2022/2464/EU.
  104. Ibid, 17.
  105. Ibid, Recital 9.
  106. Ibid, Recital 12.
  107. Defined by Article 3(4) of Directive 2013/34/EU as meeting two of three following criteria: (a) balance sheet total: EUR 20000000; (b) net turnover: EUR 40000000; (c) average number of employees during the financial year: with over 250 employees.
  108. Defined by Article 3(7) of Directive 2013/34/EU as meeting, on a consolidated basis, two of the three following criteria: (a) balance sheet total: €20,000,000; (b) net turnover: €40,000,000; (c) average number of employees during the financial year: 250.
  109. Directive 2022/2464/EU Article 5(2)(a).
  110. Directive 2022/2464/EU Article 5(2)(b).
  111. Defined by Article 3(2) of Directive 2013/34/EU as undertakings which meet two of the following criteria: balance sheet total: EUR 4,000,000; (b) net turnover: €8,000,000; (c) average number of employees during the financial year: 50.
  112. Defined by Article 3(3) of Directive 2013/34/EU as undertakings which meet two of the three following criteria: (a) balance sheet total: EUR 20,000,000; (b) net turnover: €40,000,000; (c) average number of employees during the financial year: 250.
  113. Directive 2022/2464/EU Article 5(2)(c). But not to ‘micro undertakings’ defined by Article 3(4) of Directive 2013/34/EU as undertakings which meet two of the three following criteria: (a) balance sheet total: €350,000; (b) net turnover: €700,000; (c) average number of employees during the financial year: 10.
  114. Ibid, Recital 20.
  115. See K. Hummel and D. Jobst, ‘An Overview of Corporate Sustainability Reporting Legislation in the European Union’ (2024) Accounting in Europe 1, 15. https://doi.org/10.1080/17449480.2024.2312145
  116. Directive 2022/2464/EU amending Directive 2013/34/EU Article 29(2)(a).
  117. Ibid Article 29a 1(4)(2)(b).
  118. Ibid Article 29a (2)(a)(c)
  119. Ibid Article 29a (1)(4).
  120. Ibid, Recital 31, due diligence being defined as the process that undertakings carry out to identify, monitor, prevent, mitigate, remediate or bring an end to the principal actual and potential adverse impacts connected with their activities and the activities of their value chain.
  121. Ibid, Article 29b (1)(4)(2)(f).
  122. Ibid, Article 29b (1)(4)(g).
  123. Ibid, including as regards scope 1, scope 2 and, where relevant, scope 3 greenhouse gas emissions.
  124. Ibid, Article 29(b) 2(a).
  125. Ibid, Article 29(b) 2(b).
  126. Directive 2022/2464/EU, Recital 39.
  127. European Commission Delegated Regulation (EU) supplementing directive 2013/34/EU and including European Sustainability Reporting Standards (ESRS) available at https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=PI_COM:C(2023)5303.
  128. Ibid, Section 3. These are E1 Climate change; E2 Pollution; E3 Water and marine resources; E4 Biodiversity and ecosystems; E5 Resource use and circular economy; S1 Own workforce; S2 Workers in the value chain; S3 Affected communities; S4 Consumers and end-users; G1 Business conduct.
  129. See Directive 2022/2464/EU, Recital 29. For a comprehensive analysis for what is likely to meet the double materiality see F. Mezzanotte, ‘Corporate Sustainability Reporting (n 109) and F. Mezzanotte, ‘Examining the Reasons for Impact Materiality in EU Corporate Sustainability Reporting’ (2024) 35(7) European Business Law Review 925. https://doi.org/10.54648/EULR2024048
  130. ESRS (n 126), s. 3.5.
  131. Ibid, section 3.4.
  132. Art. 3(2) Directive 2022/2464/EU.
  133. ibid 69.
  134. ibid 6.
  135. Budapest Declaration on the New European Competitiveness Deal (2024) available at https://www.consilium.europa.eu/en/press/press-releases/2024/11/08/the-budapest-declaration/, [4]
  136. European Commission, A Competitiveness Compass for the EU (2025) available at https://commission.europa.eu/document/download/10017eb1-4722-4333-add2-e0ed18105a34_en?filename=Communication_1.pdf
  137. Ibid, [3].
  138. Directive (EU) 2026/470 available at https://eur-lex.europa.eu/eli/dir/2026/470/oj.
  139. This may threshold may be met on a consolidated basis in the case of corporate groups.
  140. See EFRAG’s Voluntary Standard for SMEs available at https://www.efrag.org/en/smes-and-sustainability-reporting.
  141. See https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/16775-Revised-European-sustainability-reporting-standards_en.
  142. See https://www.traverssmith.com/knowledge/knowledge-container/eu-sustainability-reporting-less-is-more/#:~:text=The%20Commission%20has%20affirmed%20the,%22)%20by%20over%2070%25.
  143. See https://www.arthurcox.com/insights/sfdr-reform-proposal-key-changes/#:~:text=The%20current%20Article%208%20and,Streamlined%20disclosures%20and%20reporting%3A.
  144. See generally, C. Malecki, “Sustainable Directors’ Duties: European and French Perspectives in Light of the Omnibus I Simplification Package or the Dilemma of the Hare and the Tortoise” (2026) 23(1) European Company and Financial Law Review 72 and J. Quinn, The Societal Company: Sustainability, Shareholder Value and European Company Law (Hart, 2025). https://doi.org/10.1515/ecfr-2026-0007
  145. As Mayer and Shift have noted, the weakness of EU’s corporate Sustainability framework is its complexity. See C. Mayer, ‘Success, Law and ESG’ (2024) European Corporate Governance Institute Working Paper available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4939931, 14. See also analysis from Shift available at https://shiftproject.org/the-european-commissions-omnibus-simplification-proposal-shifts-preliminary-reflections/.
  146. I develop this point further in J. Quinn and R. Condon, 'Beyond the Individual-Company: From Corporate Social Responsibilities to Corporate Social Liability” (2025) 16 Transnational Legal Theory 226. https://doi.org/10.1080/20414005.2025.2479318