The Danish Financial Supervisory Authority (Finanstilsynet) has released a new thematic review shedding light on the ongoing challenges with the EU Taxonomy Regulation. While the regulation was designed to create a common language for sustainable investments, the report shows that it has largely evolved into a compliance-heavy framework that does little to drive real green transition.

Low Alignment and Eligibility Ratios Undermine the Purpose

One of the most striking findings in the report is the very low levels of taxonomy alignment and eligibility across the financial sector. According to Finanstilsynet, only 4.2% of credit institutions’ assets and 3.5% of insurance companies’ investments are reported as environmentally sustainable under the EU Taxonomy.

These low figures reflect both limited data availability and a lack of incentives for institutions to increase the share of sustainable activities. In practice, this means that for most financial institutions, the regulation is not perceived as value-creating. Instead of functioning as a driver of green capital flows, it is often viewed as a complex and bureaucratic reporting obligation.

Compliance Over Impact

The thematic review also highlights other structural weaknesses, including insufficient qualitative reporting and the fact that none of the financial conglomerates assessed met the requirement to report on a consolidated group level.

The findings point to a central issue: the EU Taxonomy, as implemented today, has become more about regulatory compliance than about fostering sustainability impact. The lack of clarity in definitions, inconsistent data standards, and limited market incentives have weakened its role as a credible benchmark for green investments.

Time for a Fundamental Rethink

For the Taxonomy Regulation to fulfil its original purpose—guiding capital toward environmentally sustainable activities—it needs more than technical adjustments. It requires a fundamental rethink of how sustainability data, incentives, and financial materiality interact in practice.

As the European Commission continues its omnibus review of the sustainable finance framework, there is little indication that the core issues will be resolved. Unless these structural gaps are addressed, the taxonomy risks remaining a symbolic exercise rather than a practical tool for the green transition.

Read the full report here:
Finanstilsynet – Thematic Review on the EU Taxonomy Regulation (October 2025)

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