Rebecca Christie / Jul 2026
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The European Union wants companies to assess their impact on the planet as part of their financial disclosures, in addition to tracking the sustainability metrics of their own balance sheets. This so-called ‘double materiality’ reflects the ambition and good intentions of the EU’s initial green finance reporting push. It also shows the disconnect between Europe and global standards. To make double materiality work better, the EU should scale it back so it can be stacked on top of global standards.
Doing less to accomplish more goes against the trend for European sustainable finance rules. The 2025 “omnibus” legislation exempted many companies from needing to report, but those that remain in scope still face copious paperwork requirements. Furthermore, the firms with more than 1,000 employees and €450mn in net turnover who do need to follow the EU rulebook are probably also reporting to global investors using different benchmarks.
The International Sustainability Standards Board (ISSB) has become the worldwide reference point for what information companies should share with investors. Its single materiality approach means it aspires to be ‘policy neutral’ and focus on information that directly affects decisions by a company’s current or future investors and creditors. According to ISSB Vice Chair Sue Lloyd, this means companies that also report under the EU regime will always have to keep two sets of books.
Supporters of double materiality want to show that the planet’s fortunes are directly linked to the financial outcomes of specific companies; My Bruegel colleague Silvia Merler recommended increasing its relevance by requiring all European providers of green ratings to include an assessment of this measure, even those who use their own metrics. But critics such as U.S. Securities and Exchange Commission chairman Paul Atkins view its efforts to gauge overall impact as an externality without a clear price signal.
This means the EU’s ongoing commitment to double materiality can look more like back-door regulation – trying to change corporate behaviour by mandating more kinds of reports – and less like trying to align financial disclosures with market participants’ needs. This, in turn, can hurt Europe’s broader efforts to make its overall capital markets stronger.
The green transition operates in the same market as more generic projects, and investors use the same money. Europe’s priority going forward should therefore be how to make its green finance part of its savings and investments union (SIU) and capital markets union (CMU) agendas.
When it comes to double materiality, this could mean committing to a “bolt-on” approach that would allow companies to start with their ISSB disclosures and do some extra work to meet the EU rules. The European Commission has so far resisted this approach, largely because its framework pre-dates the ISSB consensus, and there have been plenty of other simplification battles to fight.
There is also a strong argument for just resisting future changes, given all the many recent adjustments to compliance deadlines and reporting thresholds. But if the EU could bring itself to overhaul the sustainable finance rules before they were even all up and running, it could also seriously look for ways to reconcile its approach with the global norms.
For example, the EU taxonomy is complex and one of more than 50 taxonomies that are emerging around the world. The EU could make use of this database more optional, while allowing more global standard-setting into its green labeling process. EU taxonomy-aligned green bonds made up less than 10% of the market in 2025, and much of the debate has centred around how energy companies do and do not fit in.
Markets are more than just bonds, and the EU could do more to make its green finance framework more applicable for equities, venture capital and other kinds of assets. A thriving capital market is one that offers more options than debt.
Where companies still rely on traditional bank loans, markets can still play a role if those loans can be standardised and bundled into securitisations. From a green transition perspective, this offers opportunity for more expressly sustainable funding to make its way into the market, provided issuers have the right tools to make a good product. Policymakers should make new rules with market dynamics in mind. To the extent that public guarantees or subsidies are in play, those sweeteners should be deployed to catalyse more private sector activity.
It’s time for the EU to get practical about sustainable finance and focus on making markets work, not just setting out ambitious priorities. Focusing on technical challenges might lower the temperature on the surrounding political stakes, allowing authorities to iron out technical challenges rather than feel pushed to take a stand on saving the planet with each and every financial rule. Turning double materiality from a separate standard into something that could use a passporting or additive approach would be a great way to take this forward.
The green transition needs a lot of financing to keep moving ahead. The European Union can best assist this by strengthening its capital markets overall, and wrapping its sustainable finance goals into a more market-based framework.
A longer version of this article can be found here.
