EU Taxonomy 2025: Progress in ESG Reporting, Gaps in True Sustainability

EY’s EU Taxonomy Barometer 2025 shows an improvement in the quality of ESG information reported by European non-financial companies, but there is still a gap between activities and investments that are aligned with European environmental objectives and those that are truly aligned with sustainability principles and therefore the taxonomy.

The quality of sustainability reporting in Europe is making progress, but only a small portion of the activities declared “green” by companies can truly be considered as such according to EU criteria. On average, just 10% of turnover is fully aligned with the European taxonomy, despite much higher levels of potentially sustainable activities.

A clear signal: companies are investing in the transition, but are still struggling to meet all the required requirements. This is the finding of EY ‘s EU Taxonomy Barometer 2025 , which analyzes 332 non-financial companies in 20 European countries.

What is the EU taxonomy and how does it apply?

The EU Taxonomy (EU Regulation 2020/852) is the system by which the European Union defines which economic activities can be considered environmentally sustainable. Its objective is to direct investments towards activities with a truly reduced negative impact on ecosystems and nature, which can contribute to achieving the continent’s 2050 objectives.

Companies subject to the regulation must distinguish between “eligible” activities, i.e. those that fall within European environmental objectives, and “aligned” activities, which in addition to being eligible also comply with rigorous technical criteria and the principle of not causing significant harm to other environmental objectives.

The EY’s EU Taxonomy Barometer classification is measured through three key indicators. The first is turnover, which indicates the share of revenues derived from sustainable activities. The second is capex, i.e., investments in assets and infrastructure related to the transition. The third is opex, i.e., the daily operating costs associated with sustainable activities. This allows us to understand not only how sustainable a company already is, but also how much it is investing to become so.

ESG reporting improves, but it is still perceived as an obligation

EEY’s EU Taxonomy Barometer highlights a significant improvement in the quality of published information. The vast majority of companies (93%) now explain how they calculate their ESG indicators, and an increasing number of companies also clarify how they avoid double-counting activities (66%).

Furthermore, independent data verification has become the norm for 86% of the companies analyzed, driven by the entry into force of the Corporate Sustainability Reporting Directive.

Despite this progress, however, only a small minority of companies (5%) go beyond regulatory requirements. This figure, according to the report, suggests that sustainability reporting is still perceived primarily as a regulatory requirement, rather than a strategic tool.

The gap between “potential” and real activities

The key issue remains the gap between what companies declare as potentially sustainable and what actually is according to European criteria.

The EY’s EU Taxonomy Barometer data shows that a significant portion of economic activities already fall within the taxonomy as “eligible”: 36% of revenue and opex, and 46% of capex. Yet, when it comes to actual alignment, the percentages drop dramatically (10% of revenue, 12% of opex, and 16% of capex). This means that many companies are orienting their strategies toward sustainability, but are still failing to fully meet the required technical criteria.

The gap is particularly evident in investments (with a difference of over 30%), a sign that the transition is underway but still incomplete. Essentially, companies are planning and financing sustainable activities , but their concrete implementation requires time, expertise, and operational adjustments.

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(Featured image by Marco via Pexels)

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First published in ESG NEWS. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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