Exploring the role of intellectual capital in EU taxonomy compliance: the mediating effect of sustainability reporting

In the current era, marked by the rapid diffusion of artificial intelligence, increasing market volatility and the urgency of environmental and social challenges, the factors that drive corporate value creation are undergoing profound transformation. Whereas in the past tangible assets, such as physical capital and infrastructure, constituted the primary source of competitive advantage, firms today derive an increasingly significant share of their market value from intangible resources (Rehman et al., 2022; Chahal and Bakshi, 2015). Intellectual capital (IC), therefore, plays a central role, as it encompasses human competencies, relational networks and organizational processes that enable firms to exploit new technologies, adapt to uncertainty and respond to evolving stakeholder expectations.

Firms are consequently required to redesign their business models toward sustainable development (Ferlito and Faraci, 2022), pursuing value creation that is simultaneously economic, environmental and social and that ensures long-term competitive advantage. In this regard, the European regulatory framework on sustainability reporting has undergone significant evolution in recent years, shaping a context in which transparency, accountability and the disclosure of ESG performance are of increasing strategic importance.

A turning point in the assessment of corporate sustainability was the introduction of the EU Taxonomy for Sustainable Activities (Regulation 852/2020). This regulatory framework establishes a standardized, science-based classification system for the environmental sustainability of economic activities. Relying on technical screening criteria, requires companies to disclose the share of turnover, CapEx and OpEx associated with Taxonomy-aligned activities. On the one hand, this regulation supports the European Commission’s objective of redirecting capital flows toward activities that contribute to sustainable development goals (SDG); on the other hand, it imposes stringent reporting requirements on firms within the scope of the Non-Financial Reporting Directive (NFRD) initially and subsequently the Corporate Sustainability Reporting Directive (CSRD), generating significant organizational and managerial implications (Hoepner and Schneider, 2022).

Despite its relative novelty, the topic has already stimulated a growing body of research on the EU Taxonomy, focusing mainly on its design, implementation challenges and implications for capital markets (Bassen et al., 2022; Dumrose et al., 2022; Dusík and Bond, 2022; Hoepner and Schneider, 2022; Pacces, 2021; Sautner et al., 2022; O’Reilly et al., 2023; Kirby et al., 2024). However, the internal determinants that enable firms to prepare for and effectively respond to the new regulatory requirements remain largely unexplored. In particular, no empirical evidence has yet examined the organizational and managerial factors that may facilitate compliance with the reporting requirements.

From this perspective, IC can be considered a crucial driver of corporate sustainability and an enabler of effective reporting processes. Defined as the set of intangible resources embedded in the human, relational and structural dimensions of an organization (Edvinsson and Malone, 1997), IC supports the generation, sharing and application of knowledge underlying the integration of environmental, social and governance principles. It is widely recognized that organizations with stronger IC foundations tend to show higher adaptability and superior performance across several domains, including sustainability (Yusoff et al., 2019; Li et al., 2024).

In line with the resource-based view (RBV), such intangible resources represent strategic assets that contribute to a firm’s competitive advantage (Barney, 1991). From this perspective, IC represents a valuable, inimitable and nonsubstitutable resource that enables firms to develop distinctive capabilities in sustainability management. Within the European regulatory context, IC may therefore serve as a strategic lever that enhances firms’ ability to communicate their sustainability contribution and to adapt to the new reporting requirements imposed by the EU policy framework.

However, the mere fact of owning these resources may not be sufficient to achieve concrete results (Asiaei et al., 2022a; 2022b). Intangible assets must be mobilized and orchestrated within corporate processes to generate value. According to the resource orchestration theory (ROT), resources create value only when they are coherently integrated and coordinated through appropriate managerial processes (Sirmon et al., 2011a, 2011b). In this context, an integrated sustainability reporting system, embedded in the firm’s overall strategy rather than limited to compliance, can function as a mechanism of coordination and organizational learning. Such integration enhances the value of IC and strengthens the consistency and transparency of sustainability communication.

Building on these premises, this study investigates whether IC acts as a key driver of firms’ ability to comply with the EU Taxonomy reporting requirements. It further examines whether this relationship operates through the adoption and integration of structured sustainability reporting processes, assessing their mediating role. In doing so, the study sheds light on the organizational mechanisms through which firms translate internal capabilities into regulatory compliance, thereby contributing to the achievement of sustainability goals.

Methodologically, the analysis relies on a panel of European firms subject to the EU Taxonomy reporting obligations. A mediation model based on the approach of Baron and Kenny (1986) is used, complemented by robustness checks to ensure the stability of the results. An additional analysis examines the role of external factors, such as the assurance of sustainability reports by Big 4 auditors, to assess whether and to what extent these elements influence the mediation relationship (see  Appendix 3 for further details).

The results show that IC and its components exert both a direct and an indirect effect on firms’ ability to comply with the EU Taxonomy. In particular, HC emerges as the most relevant component, with its effect largely transmitted through the integration of structured sustainability reporting processes. In contrast, RC appears to operate mainly through a direct channel, while SC does not seem to exhibit significant direct or mediated effects. This study contributes to the existing literature by offering a novel perspective on the EU Taxonomy, a recently introduced and evolving sustainability policy framework that continues to be the subject of intense academic and policy debate, especially in light of recent simplification efforts such as the Omnibus Package ^[1]. While prior research has primarily focused on its effects on financial performance, compliance and environmental disclosure, limited attention has been devoted to the role of intangible assets in facilitating or constraining regulatory compliance. By connecting the fields of IC research and sustainability policy framework, this study shows how intangible resources influence firms’ ability to interpret, implement and report according to the EU Taxonomy’s technical screening criteria, thereby contributing to the achievement of sustainable development objectives.

The remainder of the paper is structured as follows: Section 2 provides an overview of the EU Taxonomy and its institutional context; Section 3 presents the theoretical background and hypothesis development; Section 4 describes the methodology and data; Section 5 reports the empirical results; Section 6 addresses robustness checks; Section 7 offers a discussion of the findings and Section 8 presents the concluding remarks.

The EU Taxonomy Regulation (EU Reg. 2020/852) is a key policy initiative aimed at align financial markets with environmental sustainability goals and in doing so, supports the achievement of broader sustainable development objectives. As a scientific classification system, it introduces a unified framework for assessing the environmental sustainability of economic activities, thereby creating a common language among firms, investors and regulators (Hoepner and Schneider, 2022). Unlike traditional CSR regulations, which mainly rely on qualitative disclosure of corporate strategies or objectives, the Taxonomy imposes a quantitative reporting obligation on companies, mandating the disclosure of the share of revenues, capital expenditures (CapEx) and operating expenditures (OpEx) attributable to activities that are aligned with the Taxonomy (Bassen et al., 2022). This shift signifies a transition from voluntary ESG narratives to a regulatory regime characterized by standardization, measurability and comparability of “sustainable” economic performance. Reporting the KPIs required by the Taxonomy enables an evaluation of the extent to which a company’s performance is genuinely sustainable and therefore contributes in a measurable way to SDG (Papari et al., 2024). In other words, a firm’s environmental sustainability depends on the contribution of each eligible economic activity. The Taxonomy is founded on the “Do No Significant Harm” principle, requiring economic activities to contribute to one or more environmental objectives (e.g. climate change mitigation, pollution prevention, circular economy) without significantly harming the other. Accordingly, the EU Taxonomy functions in two distinct ways: first, as a set of standards guiding the reallocation of capital flows toward environmentally sustainable business models, thereby supporting the transition toward sustainable development pathways (Roodman, 2009; Ullah et al., 2018); and second, providing a standardized framework for defining and assessing sustainable economic activities. Empirical studies suggest that firms operating in high-impact industries, such as energy, can benefit from adherence to the EU Taxonomy through reduced capital costs and improved organizational performance (Tonnarello et al., 2025; Cauthorn et al., 2023; Pacces, 2021).

Notwithstanding, the Regulation has given rise to both academic and practical debate. Among its main limitations are the absence of minimum thresholds for classifying financial products as sustainable (Brühl, 2021) and the limited ability of alignment metrics to predict broader ESG behavior (Bassen et al., 2022). Furthermore, implementing the Taxonomy imposes a considerable information burden on firms, demanding new internal data flows and advanced reporting capabilities to comply with the technical screening criteria. The result is an uneven playing field, in which smaller firms will face greater burdens to align (Kooths, 2023). This gap is further accentuated by the lack of adequate reporting infrastructure, which hinders organizations’ ability to collect and manage the data required for compliance (Hummel and Bauernhofer, 2024).

By contrast, firms with more mature sustainability reporting systems are better equipped to collect, process and disclose the information required by the Regulation. In this context, IC becomes a key organizational capability, enabling firms to support Taxonomy-aligned disclosure through sustainability-oriented information systems, data governance and integrated reporting processes. Consequently, firms with more developed IC are better positioned to meet reporting requirements and leverage their intangible resources for both regulatory alignment and competitive advantage.

The RBV posits that firms achieve sustained competitive advantage by possessing resources that are valuable, rare, inimitable and nonsubstitutable (Barney, 1991; Kaawaase et al., 2020). Within this theoretical framework, IC plays a central role, encompassing key intangible and knowledge-based assets, such as human expertise, organizational processes and relational networks, increasingly recognized as strategic levers for value creation and competitive differentiation.

Previous studies have assumed the lens of the RBV to explore the role of IC in enhancing both financial and sustainability performance (Murale et al., 2010; Kamaluddin and Rahman, 2013; Malik et al., 2020). Consistent with this view, Bagna et al. (2024) find a positive relationship between intangible assets and firm performance across countries, industries and time periods, while Massaro et al. (2018) identify IC as a strategic resource for addressing environmental challenges and promoting corporate sustainability.

In the context of emerging sustainability reporting policies, particularly the EU Taxonomy, these intangible resources are becoming increasingly critical. Because the Taxonomy imposes a substantial informational and reporting burden, IC emerges not only as a source of competitive advantage but also as a key enabler of regulatory compliance. Organizations with limited intangible resources tend to struggle with increasingly complex sustainability frameworks (Bananuka et al., 2023).

From this perspective, human capital plays a pivotal role, as it supports both direct contributions to sustainability performance and the firm’s capacity to collect, interpret and disclose ESG-related information. Literature consistently identifies knowledge and skills as a strategic lever for preparing firms for sustainability reporting (Bananuka et al., 2023; Tauringana, 2021) and for ensuring alignment with international standards (Tumwebaze et al., 2021).

Relational capital, in turn, provides access to external networks and stakeholder relationships that strengthen legitimacy, trust and transparency (Yusoff et al., 2019). Structural capital, which includes codified procedures, control systems and digital infrastructures, can facilitate the organization, management and standardization of Taxonomy-aligned data, although its effects may be more indirect or context-dependent.

Taken together, these insights suggest that firms endowed with high levels of IC may be better positioned to transform regulatory requirements into strategic opportunities, particularly through mature sustainability reporting infrastructures. In data-intensive regulatory environments such as the EU Taxonomy, the ability to translate intangible assets into disclosure capabilities may be a crucial determinant of both compliance and competitive differentiation.

IC has long been considered a cornerstone of organizational competitiveness and innovation. Introduced by Galbraith (1969) and subsequently developed by Stewart (1991) and Edvinsson and Malone (1997), it comprises three dimensions: human, structural and relational capital. Human capital refers to employees’ knowledge, skills, values and behaviors; structural capital comprises the systems, processes and technological infrastructure that store and operationalize knowledge within the firm; relational capital captures firms’ relationships with external stakeholders.

In recent years, IC has increasingly been interpreted as a strategic asset for sustainable development, particularly within knowledge-driven economies (Alvino et al., 2021). According to Tonelli et al. (2024), its value lies in transforming knowledge into organizational capabilities that sustain innovation and long-term performance, with structural capital facilitating the codification and dissemination of knowledge. Drawing on the knowledge-based view theory (Grant, 1996), Li et al. (2024) contend that a company’s competitive advantage stems not only from its knowledge, but also from its capacity to acquire, integrate and use that knowledge effectively. In this sense, IC acts as both a reservoir and a transmission mechanism for sustainability-oriented capabilities, enabling companies to respond dynamically to regulatory pressures and market expectations.

From this perspective, Alvino et al. (2021) emphasize that IC drives the transition to sustainable development by improving competitiveness and supporting broader societal goals that are aligned with the UN SDG. Concurrently, Caputo et al. (2016) observe that organizations are increasingly engaging in IC measurement and disclosure, recognizing its significance in fostering stakeholder trust and ensuring compliance with increasingly stringent regulations.

Therefore, we formulate the following hypothesis:

In a context where the evolving regulatory landscape increasingly requires companies to build internal capabilities, thus promoting sustainable development to be pursued in economic, environmental and social terms, human capital has emerged as a critical intangible resource for understanding and responding to complex sustainability policy frameworks. Drawing on Human Capital Theory (Schultz, 1961; Becker, 1975), firms investing in education, training and sustainability-related competencies are better positioned to implement sustainability strategies. Empirical evidence from Al Frijat and Elamer (2024) confirms that HC efficiency not only directly enhances firm performance but also plays a mediating role in supporting corporate sustainability, particularly in emerging markets. Employees equipped with interdisciplinary knowledge, critical thinking and stakeholder engagement skills are essential for embedding sustainability into both organizational culture and strategic planning. At a macrolevel, Kim and Go (2020) demonstrate that higher national levels of HC significantly improve environmental performance, especially in areas such as biodiversity, habitat protection and sustainable agriculture. These domains closely align with the objectives of the EU Taxonomy, suggesting that HC enhances organizations’ ability to implement policies consistent with regulatory expectations. The authors further argue that HC promotes environmental awareness and compliance with environmental regulations, both of which are essential for meeting the EU Taxonomy disclosure requirements. Consistent with this view, previous research identifies human capital as a key driver of sustainability, environmental responsibility and ESG performance (Campos-García et al., 2023; Piwowar-Sulej, 2021; Diaconu and Popescu, 2016a, 2016b). Moreover, firms with a well-developed human capital base, supported by sustainability-related training and managerial capabilities, achieve superior environmental disclosure outcomes (Lin et al., 2012; Aman-Ullah et al., 2022; Bananuka et al., 2023).

Considering the strategic, operational and institutional roles human capital plays in driving corporate sustainability, we propose the following hypothesis:

Relational capital, as a fundamental pillar of IC, captures the value embedded in a firm’s relationships with external stakeholders, including customers, regulators, investors, suppliers and the broader community. As emphasized by Al Frijat and Elamer (2024), companies with strong stakeholder ties are better positioned to implement sustainability initiatives through greater responsiveness to regulatory and social pressures, improved access to resources and expertise and stronger reputational incentives to comply with ESG standards. Stakeholder dialogue and inclusiveness also facilitate the institutionalization of sustainability practices at both strategic and operational levels.

Empirical evidence by Zahoor and Gerged (2021) confirms that RC improves environmental performance in SMEs by enabling the integration of environmental knowledge. Trust, frequent interaction and reciprocal knowledge sharing with strategic partners are key mechanisms through which relational capital operates. These dynamics align closely with the EU Taxonomy’s environmental objectives, such as pollution prevention, circular economy principles and sustainable resource use, all of which require active stakeholder collaboration and efficient information flow.

These findings are consistent with stakeholder and institutional theory. Diaconu and Popescu (2016a, 2016b) argue that relational capital facilitates the transmission of sustainability expectations and best practices between firms and their external environment, reinforcing norms of environmental and social responsibility. Firms embedded in dense stakeholder networks are more responsive to societal expectations and regulatory pressures, making relational capital a key enabler of sustainability policy compliance (Bontis, 1998). Moreover, strong stakeholder relationships create commercial incentives to align with sustainable activities while preserving consumer trust and brand value (Clarkson et al., 2008). Accordingly, stakeholder-oriented firms are more likely to integrate long-term sustainability objectives into their strategies (Piwowar-Sulej, 2021; Kim and Go, 2020).

Firms with well-developed external communication channels also produce higher-quality nonfinancial disclosures (Alshbili and Elamer, 2020), which are essential for demonstrating alignment with the EU Taxonomy. By reducing information asymmetry between firms and investors regarding environmental and social impacts, relational capital further enhances transparency and facilitates access to green finance (García-Sánchez et al., 2016).

Taken together, the literature suggests that firms with high relational capital are structurally better positioned to comply with EU sustainability standards.

Therefore, we extend this line of reasoning to propose the following hypothesis:

Structural capital, encompassing organizational processes, infrastructure, routines and technologies, is widely recognized as a key enabler of corporate sustainability (Stewart, 1997; Bontis, 1998). Historically, the literature has emphasized the role of SC in providing the foundation for innovation, efficiency and adaptability (Teece, 2009), elements that are crucial for responding to external pressures such as sustainability policy frameworks. Within this perspective, structural capital can be defined as codified knowledge embedded in organizational systems and procedures, ranging from databases and manuals to cultural norms and internal control mechanisms (Cabrita and Bontis, 2008; Buenechea-Elberdin et al., 2018).

Recent studies have shown that firms equipped with structured and formalized internal knowledge systems are better positioned to produce advanced sustainability disclosures (Bananuka et al., 2023). This may be due to the fact that when knowledge is systematically stored, shared and retrieved through well-established infrastructures, it enhances coordination across departments and facilitates the collection of nonfinancial data.

This dynamic becomes particularly significant in the context of the EU Taxonomy, where the disclosure of the required KPIs demands a broad and integrated set of information, including environmental performance metrics and financial details, all of which must be coherently organized within a unified reporting framework.

According to this, we hypothesized that:

According to the RBV, IC can represent a valuable and difficult-to-imitate resource, capable of generating a sustainable competitive advantage for firms (Barney, 1991). In this context, it can also facilitate firms’ ability to meet complex regulatory requirements, such as those introduced by the EU Taxonomy. However, recent studies suggest that resources alone do not ensure superior performance without effective management and coordination (Rehman et al., 2022). IC improves environmental performance only when supported by systems capable of measuring and managing these resources effectively (Asiaei et al., 2022a; 2022b).

The ROT addresses this limitation by emphasizing the role of managerial action in structuring, bundling and leveraging organizational resources (Sirmon et al., 2007, 2011a, 2011b). In other words, the challenge is not simply to possess valuable resources, but to identify the mechanism through which these resources are mobilized and transformed into value creation (Helfat et al., 2007).

In this context, we hypothesize that a potential mechanism for managing intangible assets lies in the existence of structured sustainability reporting systems, understood as mature reporting that is fully integrated into the business model. This channel could act as an orchestration tool, translating the capabilities of the different IC components into tangible results in regulatory compliance and the achievement of sustainability goals. This hypothesis is supported by two strands of literature. On the one hand, several studies have shown a positive relationship between IC and sustainability reporting systems (Tonelli et al., 2024; Asiaei et al., 2022a; 2022b). On the other hand, research has highlighted that mature and structured sustainability reporting systems contribute to improved sustainability performance, corporate legitimacy and stakeholder trust (Konar and Cohen, 2001; Van et al., 2024).

Indeed, the quality of sustainability reporting processes has been widely discussed in the literature (Adams and McNicholas, 2007; De Villiers et al., 2014; Minutiello and Tettamanzi, 2022; Korca et al., 2023; Mio et al., 2024; Adamo et al., 2025) and numerous studies have examined its determinants and implications (Adams and Frost, 2008; Ching et al., 2017; Van et al., 2024). However, to the best of our knowledge, its mediating role in the relationship between IC and policy compliance, such as the EU Taxonomy, remains largely unexplored, representing a gap that the present study aims to address.

These insights point to the need for a more integrated understanding of how IC may indirectly support regulatory compliance through sustainability reporting. When considering the individual components of IC, sustainability reporting may mediate the role of human capital by systematizing employees’ and managers’ sustainability knowledge into disclosure practices that meet regulatory requirements; it may translate structural capital, such as internal control systems and data infrastructures, into standardized disclosures aligned with regulatory requirements; and it may amplify relational capital by converting stakeholder engagement and transparency expectations into compliance-oriented communication. As institutional demands for standardization and transparency continue to grow, sustainability reporting may serve as the operational interface through which IC translates into regulatory compliance.

Based on these theoretical premises, we propose the following hypotheses:

Figure 1 presents the conceptual framework of the study.

Given our objective of evaluating whether internal capabilities enhance firms’ capacity to meet the EU Taxonomy reporting requirements, the analysis focuses on companies expected to fall within the scope of the original CSRD, before the amendments introduced by the Omnibus proposal. This choice aligns with the sample timeframe and enables us to assess firms’ preparedness for regulatory requirements applicable during the observation period. Under the original CSRD provisions, firms were required to disclose EU Taxonomy KPIs if they met at least two of the following thresholds: annual revenues exceeding €50m, total assets exceeding €25m or a workforce exceeding 250 employees.

We rely on Refinitiv Eikon, an authoritative database widely used in accounting and management research (Akbas et al., 2018), to identify all firms meeting the directive’s size criteria. To enhance comparability and consistency across observations, we additionally impose a minimum market capitalization of €250m, consistent with prior studies (Tonelli et al., 2024; Chodorow-Reich et al., 2022; Lins et al., 2019). Financial institutions, including banks and insurance companies, are excluded due to the substantial differences in EU Taxonomy requirements applied to this sector (Velte, 2024).

This sampling strategy has yielded a strongly balanced panel of 1,350 European companies observed over the period 2018–2024.

In this paper, the concept of “Taxonomy compliance” is used to describe the extent to which companies are prepared to implement the reporting requirements introduced by the EU Taxonomy. Consequently, the term refers to companies’ organizational capacity to generate, organize and disclose the information required by the Regulation, rather than to legal compliance as such.

To assess firms’ ability to meet the reporting requirements of the EU Taxonomy, we developed a proxy based on Refinitiv Eikon data that measures the discrepancy between expected and reported eligible revenue.

Specifically, we use two complementary indicators available in the LSEG Refinitiv database. The first is the Estimated EU Taxonomy Eligibility Company Green Revenue Percentage, which is a proprietary estimate produced by LSEG. According to the LSEG EU Taxonomy methodology, the estimate combines several proprietary data sets, including FTSE Russell Green Revenues, Business Classification, Fundamentals and ESG data. It identifies firms’ business segments and maps them to EU Taxonomy economic activities using detailed business classifications and green revenue taxonomies. It then estimates the share of revenues associated with Taxonomy-eligible activities based on disclosed business-segment information, industry classifications and additional company-specific information. Where segment disclosures are incomplete, LSEG supplements public information with analyst assessments and bottom-up estimation procedures to approximate the share of eligible revenues. Overall, the measure provides an independent estimate of firms’ potential Taxonomy eligibility.

The second is the Reported EU Taxonomy Eligibility Company Green Revenue Percentage, which is derived from the information disclosed by companies in their nonfinancial and sustainability reports.

Building on these two measures, we define our dependent variable, denoted as EUTAX, as follows:

Unlike previous studies relying exclusively on reported Taxonomy metrics, this variable captures the relative gap between expected Taxonomy eligibility and the information actually disclosed by firms. Higher values indicate larger discrepancies between estimated and reported eligible revenue, suggesting a lower ability to translate expected Taxonomy disclosure requirements into reported information. Accordingly, the indicator should be interpreted as a Taxonomy reporting gap rather than a direct measure of regulatory compliance.

By focusing on the difference between estimated and reported values, the indicator isolates reporting dynamics from structural differences in firms’ asset portfolios. Normalizing by estimated eligibility ensures comparability across firms of different sizes and sectors (see Table 1 for further details).

To measure IC, we draw on the framework proposed by Tonelli et al. (2024), which identifies a set of Refinitiv-based variables capturing its three components: human, relational, and structural capital (see  Appendix 1 for details). However, our composite indicator departs from that of Tonelli et al., reflecting the distinct objectives of this study. Whereas their dichotomous coding strategy was designed to capture the accountability dimension of IC, we aim to measure its broader, multidimensional development within firms.

Accordingly, each IC component is measured through a composite indicator derived from a heterogeneous set of variables. To ensure semantic consistency, variables representing undesirable outcomes (e.g. workplace fatalities, days lost due to injuries, employee-related legal disputes or negative managerial evaluations) were reverse-coded, so that higher values uniformly denote more favorable conditions. All variables were then standardized using Z-scores to remove scale effects and ensure comparability across measures:

where $Zik$ is the standardized value of variable $k$ for observation $i$⁠, $Xik$ is the observed value, $μk$ is the sample mean of variable $k$⁠, and $σk$ is its standard deviation.

For each dimension of IC, the composite indicator was calculated as the arithmetic mean of the standardized values of its constituent variables:

where $KHC$⁠, $KRC$ and $KSC$ denote the number of variables included in each respective dimension.

Following established guidelines on the construction of composite indicators (Freudenberg, 2003; OECD, 2008; Maggino and Ruviglioni, 2009; Decancq and Lugo, 2013; Greco et al., 2019), we adopt an unweighted arithmetic aggregation. While alternative weighting schemes can be applied when supported by a strong theoretical rationale, in the present context, no robust theoretical structure exists to justify differential weights. Consequently, the unweighted approach represents the most appropriate choice, as it ensures transparency, interpretability and robustness, particularly given the exploratory nature of this study.

Finally, following Tonelli et al. (2024), the overall IC index is obtained by aggregating the three component indicators into a single firm-level measure.

To operationalize the mediating construct of reporting quality process (Reporting), we rely on the set of Refinitiv-based variables identified by Tonelli et al. (2024), which capture firms’ adoption of recognized sustainability reporting practices. These include, among others, the adoption of Global Reporting Initiative standards, the existence of a dedicated sustainability committee, and the publication of standalone ESG or sustainability reports.

To ensure comparability of the variables across different scales, they are standardized using Z-scores. The aggregation of these variables then provides a continuous composite indicator, which is outlined below:

where $Zij$ represents the standardized value of variable $i$ for firm $j$⁠, and $N$ denotes the total number of constituent variables. This procedure produces a synthetic measure reflecting the breadth and institutionalization of sustainability reporting practices, suitable for cross-sectional and longitudinal comparisons.

Overall, the composite measure captures the maturity and quality of corporate sustainability reporting processes, providing a robust and interpretable proxy for firms’ reporting practices. As a result, lower values of the indicator may correspond to a more limited adoption of formalized reporting standards and governance structures, rather than to inaccuracies or incompleteness in the information disclosed.

To ensure the robustness of our findings across different model specifications, we included a set of firm-specific control variables, in line with prior literature. These variables were selected based on their well-documented influence on firm performance and strategic behavior, and to account for potential confounding factors.

Firm size was measured using the natural logarithm of total assets, a commonly adopted proxy in empirical research. The inclusion of firm size is particularly relevant, as larger firms often benefit from economies of scale, have more resources to invest in intangible assets, and may exhibit different reporting behaviors compared to smaller firms (Bruggen et al., 2009; Busco et al., 2019; Terblanche and De Villiers, 2019; Tonelli et al., 2024).

To capture the firm’s financial condition and growth dynamics, we included EBIT, reflecting operational profitability and sales growth, indicating the firm’s ability to expand its revenues over time. These measures are commonly used in corporate finance and management studies to control for differences in economic performance and growth potential across firms (Fasano and Cappa, 2022; Xu et al., 2023).

To account for unobserved heterogeneity, we incorporated firm fixed effects, capturing time-invariant characteristics such as managerial style, organizational culture or industry-specific practices. In addition, time fixed effects were included to isolate temporal dynamics, including the evolving implementation of the EU Taxonomy and other time-dependent regulatory or market conditions. This dual fixed-effects (FE) approach allows for a more accurate estimation of the effects of our independent variables, controlling for both firm-specific and temporal sources of variation.

Finally, all control variables were winsorized at the 1st and 99th percentiles to mitigate the influence of extreme values and ensure comparability across firms. Table 2 reports the summary statistics of the variables included in the analysis

Table 3 reports the correlation matrix for the main variables. The dependent variable shows a statistically significant and negative correlation with all three components of IC, HC (r = −0.1619*), RC (r = −0.1861*), SC (r = −0.0606*).

As expected, the IC indicator is strongly correlated with each of its components, particularly with RC (r = 0.8361*) and SC (r = 0.6265*), confirming the internal consistency of the composite measure. Reporting quality is positive associated with HC (r = 0.8682*), IC (r = 0.7079*) and RC (r = 0.7596*), suggesting that firms investing in human and relational capital also exhibit more developed sustainability reporting practices.

Among the control variables, firm size and EBIT are positively correlated with both IC and reporting quality, indicating that larger and more profitable firms tend to develop stronger intangible resources and reporting capabilities.

Table 4 reports the variance inflation factor (VIF) analysis. All VIF values are well below the conventional threshold of 5, with a maximum value of 2.51, indicating that multicollinearity is not a concern.

To control for unobserved firm heterogeneity and common time shocks, we estimate the mediation analysis within a FE panel framework, as supported by the Hausman test. Standard errors are clustered at the firm level. This approach controls for time-invariant firm characteristics by absorbing them into the individual fixed effects, thereby reducing potential omitted-variable bias (Arellano, 2003; Hsiao, 2003; Leszczensky and Wolbring, 2022).

To examine the mediating role of reporting quality in the relationship between IC and firms’ ability to meet the EU Taxonomy reporting requirements, we follow the causal steps approach proposed by Baron and Kenny (1986) through the following equations:

• We first regress the dependent variable on the independent variable to obtain the overall effect of IC (or its components) on EU Taxonomy compliance (path c).

• We then regress the mediator on the independent variable, estimating the effect of IC on structured reporting systems (path a).

Finally, we regress the dependent variable on both the independent variable and the mediator, which allows us to estimate the direct effect (c′) of IC on EU Taxonomy compliance, as well as the indirect effect via reporting quality (b) (paths b and c′).

Mediation is supported when IC significantly affects EUTAX (path c) and reporting quality (path a), and when reporting quality significantly affects EUTAX while reducing the magnitude of the direct effect (c’). To further assess the mediation mechanism, we complement the analysis with the Sobel test and the delta method.

Table 5 reports the results of the FE estimations for each component of IC. Columns 1, 4, 7 and 10 present the total effects (c paths) on EUTAX, columns 2, 5, 8 and 11 report the effects on reporting (a paths), while columns 3, 6, 9 and 12 show the direct effects (c′ paths) when reporting is included.

Model 1 shows that IC negatively affects EUTAX (−0.027***), whilst it exerts a positive and highly significant impact on the reporting quality (path a: 0.581***). When reporting quality is included, it exerts a negative and significant effect on EUTAX (path b: −0.014*), and the direct effect of IC decreases whilst remaining statistically significant (−0.019***).

Similar evidence emerges for human capital. HC negatively affects EUTAX (−0.053***) and positively influences reporting quality (1.236***). The inclusion of reporting quality reduces the direct effect of HC (−0.033**), confirming a partial mediation mechanism and highlighting the importance of internal skills and capabilities in supporting Taxonomy reporting.

Relational capital exhibits the same pattern. RC negatively affects EUTAX (−0.055***) and positively influences reporting quality (1.123***). Reporting quality remains significant (−0.014**), while the direct effect of RC decreases (−0.040***), suggesting that stakeholder relationships facilitate the information flows required for Taxonomy disclosure.

By contrast, structural capital does not significantly affect either EUTAX (−0.005) or reporting quality (0.007). Although reporting quality remains significant when included in the model (−0.038***), the direct effect of SC remains insignificant, providing no evidence of a mediating effect. This suggests that structural capital, at least in the short term, does not significantly affect firms’ ability to meet the regulatory reporting requirements.

To further investigate whether the various dimensions of IC operate independently or complement one another, additional FEs models that include pairwise interaction terms were estimated (see Table 6). The results confirm the main findings. HC and RC, which in the baseline models both show significant direct effects on the reporting gap, also exhibit a significant and negative interaction effect, suggesting that these two dimensions reinforce each other in improving firms’ ability to meet the reporting requirements of the EU Taxonomy. In contrast, interaction terms involving SC are not statistically significant. This result is consistent with the baseline estimates, in which structural capital does not exert a significant direct effect, indicating that it does not contribute, either independently or jointly, to reducing the reporting gap.

Table 7 also reports the results of the Sobel, Aroian and Goodman tests (Sobel, 1982; Aroian, 1947; Goodman, 1960), which assess the inference on the mediation mechanism. The results confirm the statistical significance of the mediation effect exerted by reporting, thereby reinforcing our findings.

To test the validity of the results, a series of robustness tests was conducted (see  Appendix 2). First, it is recognized that the reporting quality may be influenced by the disclosure requirements introduced by the EU Taxonomy, as firms may have an incentive to improve the quality of their disclosures. Therefore, to address concerns regarding the persistence and correlation between past and future values of error terms, a dynamic panel model with lagged independent variables was used (Galletta et al., 2021).

In particular, because IC is likely to precede reporting quality, which in turn precedes compliance with the EU Taxonomy, a two-year lag for IC and its components and a one-year lag for reporting was introduced. In this way, the potential incentive generated by the Regulation is addressed.

Table A2 presents the results of the Baron and Kenny approach applied to the lagged values of the independent variables and reporting quality.

For IC (Models 1–3), reporting quality continues to partially mediate the relationship with EUTAX, with a stronger mediating effect than in the baseline specification. Similar evidence emerges for HC (Models 4–6), confirming the role of human capital in supporting firms’ reporting capabilities over time.

With regard to RC (Models 7–9), the results differ slightly from the baseline model, in that only the direct effect on EUTAX remains significant. This suggests that relational capital operates primarily through direct interactions with stakeholders and external information networks rather than through the quality of reporting.

Consistent with the baseline results, SC has neither a direct nor an indirect effect on EUTAX. Overall, the specification with lagged variables confirms the robustness of the main findings.

The results remain largely consistent with the baseline specification, providing further confirmation of the robustness of the analysis.

Secondly, although the FEs model with lagged variables mitigates concerns related to reverse causality, endogeneity may still lead to biased estimates. To further address this issue, we use the system generalized method of moments (GMM) estimator developed by Arellano and Bover (1995) and Blundell and Bond (1998), which is widely recognized as an effective approach for estimating dynamic panel models in the presence of endogeneity (Leszczensky and Wolbring, 2022; Mubeen et al., 2020; Bedada Gonfa and Phoo, 2025; Aslam et al., 2024; Akhtar and Abdullah, 2025). Consistent with the previous analysis, we estimate the mediation framework following Baron and Kenny. The analysis relies exclusively on endogenous instruments, constructed from the lagged values of the endogenous variables. In particular, the main explanatory variables and reporting quality are treated as potentially endogenous. The use of their lagged values as instruments, both in level and difference equations, is consistent with the standard structure of the GMM system (Roodman, 2009; Ullah et al., 2018). Furthermore, to avoid instrument proliferation, the instrument matrix was “collapsed” and the lag depth was limited. Control variables are treated as exogenous and included as standard instruments in the level equations, ensuring a clear distinction between endogenous regressors and external controls (Ullah et al., 2018).

Table A3 reports the results of the mediation analysis estimated using system GMM. Models 1–3 use IC as the independent variable. Once reporting is controlled for, the direct effect of IC becomes insignificant. This indicates full mediation, with the effect of IC on firms’ ability to meet the EU Taxonomy reporting requirements operating entirely through reporting processes. Models 4–6 show the same pattern, with the direct effect of HC becoming insignificant once reporting is included, confirming full mediation.

Models 7–9 present the estimates for RC. Consistent with the lagged model, RC exerts only a direct effect on EUTAX, providing no evidence of mediation. This indicates that, once time-series dynamics are taken into account, the reporting channel loses relevance, probably because relational capital operates through interactions with stakeholders, partners and information networks, directly influencing the availability and quality of information relevant for disclosure.

Models 10–12 indicate a total mediation effect for SC. The GMM results differ in the strength of the mediation effects but remain broadly consistent with the lagged specification and the baseline model. This is consistent with the dynamic nature of the GMM estimator, which explicitly accounts for endogeneity and persistence of the dependent variable. In this context, the role of reporting as an intermediate channel is more pronounced for IC and HC, leading to full mediation. At the same time, the absence of mediation for RC is confirmed, whilst the mediated effect for SC suggests that its impact emerges only when dynamic adjustments and feedback effects are controlled. The diagnostic tests (AR(1), AR(2) and Hansen) confirm the adequacy of the model and the validity of the instruments, supporting the robustness of the results (Roodman, 2009; Ullah et al., 2018).

Thirdly, to further assess the robustness of the findings, we use an alternative operationalization of firms’ ability to meet the EU Taxonomy reporting requirements. While the main analysis is based on the gap between estimated eligibility and reported eligibility, this specification considers the transition from activities declared as eligible to those actually aligned with the Taxonomy criteria. The variable is constructed as follows:

The indicator measures the proportion of eligible activities that do not align with the Taxonomy criteria. Higher values indicate a greater gap between eligibility and alignment and, therefore, lower preparedness in meeting the technical requirements set forth in the regulations. Unlike the main measure, this proxy does not capture the company’s ability to correctly identify and report eligible activities, but rather its ability to demonstrate that such activities meet the criteria required to be considered effectively aligned. It therefore captures a complementary dimension of reporting preparedness, because alignment requires verification of the substantial contribution to environmental objectives, compliance with the “Do No Significant Harm” principle, the Minimum Safeguards and the Technical Screening Criteria.

Table A4 presents the results of the analysis using the GMM model. Taken together, the evidence confirms the robustness of the study’s main conclusions. Even when using this different operationalization of reporting preparedness, the effect of IC remains predominantly mediated by sustainability reporting, confirming its role as the mechanism through which intangible resources translate into firms’ ability to meet the EU Taxonomy reporting requirements. These findings further suggest that IC supports not only the disclosure of the required information but also the organizational processes needed to satisfy the more demanding assessment criteria introduced by the European regulatory framework.

Finally, to examine whether the relationship between IC and EUTAX differs for firms already subject to nonfinancial reporting requirements, we repeated the analysis on a subsample of 1.153 firms falling within the scope of the NFRD, identified on the basis of the relevant size thresholds. Tables A5, A6 and A7 present the results for the baseline FEs model, the lagged specification and the system GMM estimates, respectively.

In view of the highly unstable regulatory environment surrounding sustainability reporting, the present study aimed to explore the role of IC and its components in fostering corporate compliance with the EU Taxonomy. In such a context, focusing solely on the performance implications of these mandates provides only a partial picture, as it becomes equally important to understand the internal drivers that enable organizations to proactively prepare for and respond to regulatory changes (Kirby et al., 2024). Accordingly, this study examines whether intangible resources enhance firms’ responsiveness to regulation, thereby supporting competitive advantage and sustainable development. To address this question, the study adopts the RBV perspective, considering IC, in its human, relational and structural components, as a valuable and potentially strategic resource for achieving sustainability goals. At the same time, ROT suggests that resources, on their own, do not generate value unless they are adequately coordinated and integrated within coherent organizational processes. In this regard, the analysis also considers the role of structured sustainability reporting processes as a potential mediating mechanism through which intangible resources are translated into concrete results.

From a methodological standpoint, the analysis focuses on European firms subject to the reporting requirements under the EU Taxonomy. Several models were tested to assess their robustness and address potential biases arising from alternative specifications. The results, which are largely consistent across the different specifications, show that IC exerts both a direct effect on regulatory compliance and an indirect effect mediated by the presence of well-established internal reporting strategies. The disaggregated analysis of IC yields more nuanced evidence. First, HC emerges as the most significant component, but its effect is not direct. Skills and knowledge related to ESG information management affect compliance only when channeled into structured organizational processes. Without such mechanisms, HC remains untapped. This suggests that compliance in data-driven regulatory contexts does not depend on the mere availability of skills, but on the firm’s ability to organize them effectively. In this sense, structured sustainability reporting becomes the mechanism through which skills are translated into effective capabilities to respond to regulation.

RC, on the other hand, follows a different logic. Relationships with stakeholders, partners and professional networks influence compliance more directly, without necessarily going through formal reporting systems. This suggests that such resources already incorporate mechanisms for accessing relevant knowledge, reducing the need for internal formalization. In other words, while HC requires processes to be activated, RC appears to function as a more immediate channel for adapting to regulation.

Finally, SC shows no significant effects in most specifications, confirming that infrastructure, codified processes or technological investments, while relevant, are not sufficient to ensure regulatory compliance or create sustainable value. Rather, people and relationships emerge as determining factors in contexts where companies face complex regulatory requirements.

These results indicate that, in highly information-intensive contexts, the ability to translate intangible assets into disclosure capabilities is a determining factor for both regulatory compliance and competitive advantage. In this sense, firms’ ability to meet regulatory requirements depends not on the magnitude or frequency of their investments, but rather on their capacity to transform knowledge, skills and relationships into coherent, comparable and actionable information.

This result assumes even greater significance in light of recent regulatory developments. The findings indicate that firms’ ability to comply is not predominantly influenced by the firm’s size, as evidenced by the absence of significant differences in the NFRD subsample. Instead, the study emphasizes the pivotal role of individuals, their relationships and their integration into internal organizational processes. It can thus be deduced that the degree of preparedness exhibited by firms with regard to the Taxonomy requirements is dependent on qualitative factors that are not fully captured by dimensional indicators. From this standpoint, the introduction of the Omnibus package, while addressing simplification requirements, gives rise to several significant concerns. A size-based approach risks failing to capture the actual level of preparedness, overlooking both the investments already made in human capital, relational capital and reporting systems (Bertram, 2025) and sector-specific characteristics in terms of environmental impact (Baumüller, 2025). Consequently, this may create a gap between regulatory boundaries and firms’ actual ability to produce relevant information. At the same time, by revising the scope, timing and implementation of existing disclosure requirements, the Omnibus Package reinforces the idea that firms operate within a context of ongoing regulatory transition. This continuous adjustment increases the complexity of compliance processes and further highlights the need for internal mechanisms capable of ensuring continuity and consistency in reporting practices. In this perspective, the role of IC and structured internal processes becomes even more critical in responding to evolving regulatory frameworks.

These considerations are particularly relevant because the EU Taxonomy relies on a reporting-based mechanism to guide capital allocation toward activities that contribute to SDG. In such a context, the quality, consistency and comparability of corporate disclosure represent essential conditions for this mechanism to function effectively. The results, therefore, suggest that firms’ ability to participate in this process depends not only on their inclusion within the regulatory scope but also on the presence of adequate internal organizational capabilities.

However, this study should also be interpreted in light of some limitations. The proposed indicator relies on the discrepancy between companies’ reported Taxonomy eligibility and the proprietary eligibility estimates developed by LSEG. These estimates combine business-segment information, Green Revenues classifications, business classifications, fundamentals and ESG data to approximate firms’ potential Taxonomy eligibility. Consequently, the indicator reflects the assumptions underlying LSEG’s estimation methodology and should be interpreted with appropriate caution. Nevertheless, the use of an independent external benchmark provides a consistent and comparable basis for assessing firms’ reporting preparedness, allowing the analysis of differences in the extent to which companies translate expected Taxonomy disclosure requirements into reported information. Future research could complement this approach through qualitative analyses of firms’ reporting processes and detailed examinations of sustainability reports. Case studies, interviews with sustainability managers and content analyses of Taxonomy disclosures could provide a deeper understanding of the organizational mechanisms underlying discrepancies between estimated and reported eligibility, thereby helping to validate and refine the interpretation of the proposed indicator.

The findings of this study have important implications for sustainability accounting, management and policy, with regard to at least three main categories of stakeholders:

1. policymakers and regulators;

2. businesses and professionals; and

3. the academic community are directly relevant to the achievement of SDG.

The results show that compliance with the EU Taxonomy depends less on regulatory pressure itself and more on companies’ internal capacity to translate intangible resources into credible and comparable sustainability disclosures. This highlights a structural limitation of disclosure-based regulations, where their effectiveness depends on heterogeneous organizational conditions that are unevenly distributed across companies. Sustainability policies should therefore go beyond a purely compliance-oriented approach and recognize reporting as an embedded organizational outcome, rather than a mere technical requirement. In this sense, measures aimed solely at simplification risk being insufficient if not accompanied by steps to strengthen companies’ internal capabilities, particularly in terms of reporting expertise and reporting systems. The presence of structured reporting processes and, where possible, external assurance mechanisms is a fundamental condition for ensuring the quality and reliability of information, thereby strengthening the role of the EU Taxonomy as an allocation mechanism for sustainable development.

From a managerial perspective, the findings highlight that compliance with the Taxonomy cannot be achieved through isolated investments in technologies or processes, but requires deep integration between human and relational capital and reporting practices. From this perspective, IC operates as latent potential whose contribution depends on how effectively it is incorporated into organizational disclosure routines and decision-making processes. This highlights the need for companies to develop information and organizational architectures capable of coordinating skills, relationships and information flows, transforming compliance from a formal obligation into a lever for creating sustainable value.

The integration of the RBV and ROT in this analysis serves to redefine sustainability compliance as the result of resource activation, and not merely their availability. This perspective contributes to a more process-oriented understanding of how firms respond to increasingly data-intensive sustainability regulation.

These findings open new avenues of research aimed at understanding how the processes of translating intangible assets into disclosure capabilities evolve and how they influence companies’ contributions to the transition toward sustainability, particularly in relation to the global SDG agenda.

In this regard, on the one hand, it would be useful to investigate further drivers of regulatory adaptation. The EU Taxonomy interacts closely with international sustainability reporting frameworks, particularly those developed by the International Sustainability Standards Board and the Sustainability Accounting Standards Board. Future studies could analyze how the adoption of these standards influences EU Taxonomy compliance. Furthermore, the analysis was conducted on all European companies subject to reporting requirements; future research could explore the role of sectoral dynamics or national contexts as sources of differentiation.

Therefore, compliance with the EU Taxonomy cannot be reduced to a mere exercise of formal adherence to regulatory requirements but rather reflects the degree of corporate organizational maturity. IC, through the development of knowledge, systems and relationships, represents the infrastructure that enables the translation of sustainability principles into relevant practices and information. In this sense, a mature and integrated reporting system not only supports effective compliance but also helps make companies’ contributions to SDG measurable and credible.

As this work takes shape, the European regulatory framework on sustainability appears to be in a state of constant redefinition and, if possible, more unstable than ever. In this scenario, the question remains open as to whether and to what extent simplification-oriented measures can preserve that delicate information mechanism, which, as the results highlighted, is based not so much on size-related characteristics as on companies’ ability to activate skills, relationships and processes to make sustainability measurable and concretely oriented toward achieving SDG.