ESG INVESTING IN EUROPEAN STOCK MARKETS: TRENDS, REGULATORY REQUIREMENTS AND IMPACT ON PORTFOLIO RETURNS

Abstract

The article examines current trends in ESG investing in European stock markets in the context of forming a new paradigm of sustainable finance. The purpose of this study is to analyze the regulatory architecture of the EU in the field of sustainable finance, assess the dynamics of ESG fund assets and evaluate the performance of sustainable investments compared to traditional financial instruments. The research methodology is based on systematic analysis of regulatory documents, statistical analysis of market data, and comparative analysis of ESG and conventional fund returns. The study analyzes the interrelationship between the Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), and the EU Taxonomy, which together form the foundation of the European sustainable finance framework. The research reveals that Europe dominates the global ESG investing market with approximately 83% of all ESG assets under management, reaching over 17 trillion USD in 2025. The green bond market has shown remarkable resilience, with issuance reaching 6.9% of all bonds issued by corporations and governments in the EU during 2024, while the global sustainable bond issuance exceeded 1 trillion USD for the first time. Empirical data demonstrates that sustainable funds outperformed traditional funds in 2023, achieving a median return of 12.6% compared to 8.6% for conventional funds. The five-year cumulative analysis confirms a consistent performance advantage of ESG-oriented portfolios over traditional benchmarks. The study systematizes the impact of the EU Omnibus simplification package on the regulatory framework, including the narrowing of CSRD scope and postponement of implementation timelines for new reporting entities. The practical significance of the study lies in providing recommendations for investors and portfolio managers regarding ESG integration strategies in the context of evolving European regulations. The article identifies key challenges including regulatory complexity, greenwashing risks, and the need for standardized ESG metrics, while also highlighting emerging opportunities in transition finance and biodiversity-linked investment instruments.