["Corporate Social Responsibility and Environmental Management, EarlyView. ", "\nABSTRACT\nSustainable financial instruments are increasingly promoted as tools to accelerate firms' transition toward more sustainable business models. However, skepticism remains regarding their ability to generate substantive environmental outcomes. Existing empirical evidence is largely based on narrow indicators, limiting the assessment of their real impact and leaving open questions about the conditions under which these instruments are effective. This study addresses this gap by examining whether sustainable finance instruments foster firms' environmental transition using EU Taxonomy alignment as a comprehensive and policy‐relevant benchmark. Drawing on credible commitment theory, we argue that their effectiveness depends on the extent to which their design constrains managerial discretion and enhances the credibility of sustainability‐related commitments. Using a panel of European firms over the period 2012–2024, we estimate Kaplan–Meier survival functions and Cox proportional hazard models to analyze the time required to achieve Taxonomy alignment. Results show that green bond issuance significantly accelerates alignment, particularly when supported by external certification, whereas self‐labeled instruments remain ineffective. These results suggest that sustainable finance instruments can accelerate firms' alignment with the EU Taxonomy, but their effectiveness depends on the instrument's type and credibility.\n"]