ABSTRACT
This article addresses the urgent challenges facing sustainable finance today. It highlights the triple pressures of climate change, geopolitical upheaval, and regulatory fatigue, and argues for a balanced approach to simplification that preserves the integrity of climate data. The article calls for innovation in data collection, broader coalitions beyond technocratic circles, and a renewed narrative that connects sustainability to societal priorities to treat sustainability as a driver of economic transformation and opportunity, rather than viewing it solely through the lens of compliance requirements. Ultimately, it urges Europe to remain committed to a model of transition that is both ethical and competitive, positioning sustainable finance as a pillar of economic stability and future prosperity.
Keywords: Sustainable Finance, Climate Change, Regulatory Simplification, Data Integrity, Political Economy, Financial Stability, ESG (Environmental, Social, Governance), Geopolitics
Key Findings
- Finance is at a crossroads, facing simultaneous pressures from climate change, geopolitical shifts, and regulatory backlash.
- Simplification of sustainability regulations is necessary, but must not undermine the integrity of climate data or the credibility of the transition.
- Reliable, comparable, and timely data is essential for effective risk management and financial stability.
- Broader coalitions and renewed narratives are needed to ensure sustainability is seen as a political economy project with a substantial economic sense, not just a compliance exercise.
- Europe must maintain its leadership in sustainable finance to remain competitive and resilient in a rapidly changing world.
Content
The world of finance stands on the brink of profound transformation. As climate change accelerates, geopolitical tensions rise, and skepticism toward sustainability regulations grows, the financial sector faces a complex paradox: the need for decisive climate action is greater than ever, yet political and regulatory fatigue threaten to stall progress.
Today’s financial landscape is shaped by a convergence of powerful and disruptive forces, each amplifying the complexity of the challenges we face. The first of these is the undeniable reality of climate change. No longer a distant threat, its physical impacts are now part of our daily headlines: floods that devastate communities, wildfires that consume forests and homes, and droughts that threaten food security and economic stability. These events are not isolated; they are interconnected signals of a planet under stress, and their repercussions ripple through societies and economies alike.
At the same time, the world is witnessing a profound geopolitical realignment. The war in Ukraine has not only brought immense human suffering but has also redrawn the map of energy dependencies and trade flows. Meanwhile, the strategic rivalry between the United States and China is reshaping the global order, influencing everything from technology standards to supply chains. These shifts inject uncertainty into markets and force countries—and their financial systems—to adapt rapidly to new risks and opportunities.
Overlaying these challenges is a growing backlash against sustainability. As governments and institutions have raced to implement ambitious frameworks for environmental, social, and governance (ESG) standards, a countercurrent has emerged. Critics argue that the regulatory burden has become excessive, stifling innovation and competitiveness, especially for small and medium-sized enterprises. Calls to simplify, reduce, or even abandon ESG frameworks are gaining traction, fueled by concerns over costs, complexity, and the pace of change.
This convergence of climate urgency, geopolitical upheaval, and regulatory fatigue creates a deep tension at the heart of financial policymaking. On one hand, there is a clear and pressing need for decisive action to address climate risks and accelerate the transition to a sustainable economy. On the other, there is a legitimate desire to streamline regulations, reduce administrative burdens, and preserve the competitiveness of businesses operating in an increasingly fragmented world. The danger is that, in our efforts to simplify, we may inadvertently undermine the very foundations of transparency and data integrity that are essential for managing risks and building trust in financial markets.
Europe has been at the forefront of developing comprehensive regulatory frameworks, such as the CSRD, CSDDD, and the EU Taxonomy. These initiatives were designed with the best intentions: to drive meaningful change, ensure accountability, and provide clear guidance for sustainable finance. Yet, their complexity has often overwhelmed the very actors they were meant to support. For many companies, especially smaller ones, compliance has become a daunting and costly exercise, sometimes overshadowing the strategic benefits of sustainability. The recent Omnibus proposal seeks to address these concerns by simplifying reporting requirements. However, if simplification goes too far—if it strips away the data needed for effective oversight—it risks leaving supervisors and investors blind to emerging risks, and could ultimately weaken the credibility of the entire transition effort.
In this context, the importance of reliable, comparable, and timely data cannot be overstated. Transparency is a necessary condition for effective governance, but it is not sufficient on its own. Central banks and supervisors depend on robust data to identify exposures, measure systemic risks, and ensure that climate considerations are fully integrated into financial decision-making. When data is scarce or fragmented, opacity and short-termism thrive; when data is plentiful and accessible, markets and regulators can act with foresight and confidence.
Meeting this challenge requires innovation and collaboration. It means engaging more deeply with a wide range of stakeholders, from public institutions to private companies and civil society. It calls for the use of alternative data sources—such as environmental registers, emissions trading schemes, and even satellite imagery—to supplement traditional reporting. It also demands investment in new technologies that can transform unstructured information into actionable intelligence, and the promotion of data-sharing agreements that break down institutional silos.
But perhaps most importantly, the sustainability agenda must be reframed as a project of political economy, not just a technical or compliance-driven exercise. The allocation of resources, the balancing of trade-offs, and the setting of societal priorities are inherently political acts. To succeed, the transition to sustainable finance must be rooted in broad-based coalitions that extend beyond investors and policymakers to include SMEs, trade unions, civic groups, and ordinary citizens. The narrative must connect climate objectives to the everyday concerns of people—affordable energy, secure jobs, resilient communities—if it is to maintain legitimacy and momentum.
Institutions like the Banco de España are embracing this broader vision. By fostering collaboration between public and private actors, as exemplified by the Spanish Council on Sustainable Finance, and by contributing to international coordination through networks such as the NGFS or the recently established IOSCO Monitoring Group, they are helping to build the foundations for a more resilient and inclusive financial system.
The stakes for Europe could not be higher. In a world where the transatlantic relationship is increasingly transactional, where China is advancing a determined green technology agenda, and where energy has become a lever of geopolitical power, Europe must demonstrate that its model of transition is not only ethical but also competitive. Falling behind is not an option; the credibility and future prosperity of the continent depend on getting this balance right.
Conclusions and Proposals
Sustainable finance is at a critical juncture. Its legitimacy and effectiveness are being questioned, but the risks and opportunities of the transition are immediate and real. It is important to remember that sustainable finance is not an end itself, but a channel to fight against climate change and nature degradation.
The way forward requires:
- Humility to acknowledge past mistakes and realism to correct them.
- Determination to maintain focus on building a resilient, competitive, and fair economy.
- Commitment to preserving and enhancing climate data, engaging citizens, and embedding sustainability in the financial system as a source of resilience, not a burden.
- Collaboration between public and private actors, as exemplified by the Spanish Council on Sustainable Finance, where diverse group of stakeholders co-create proposals that are both ambitious and achievable.
Author
- Juan Carlos Delrieu, Head of the ESG Office, Banco de España
- David de Miguel, General Director, Inverco
- Pilar Galán, Head of Financial Services Legal, KPMG España
Furthermore, this document is signed in a personal capacity and does not represent the official position of the institutions or entities to which the author may belong.
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