Europe’s Green Deal offers ‘considerable opportunity’ for investors
0
A pledge to make the European Union (EU) carbon neutral by 2050 lies at the heart of The European Commission’s European Green Deal. Joshua Kendall explores the scope of the plan.
When European Commission president Ursula von der Leyen announced Europe’s Green Deal towards the end of 2019, she described the plan as seeking to “reconcile the economy with the planet” and has championed it as the principal mandate of her tenure.
The plan is heavily focused on achieving the bloc’s long-term climate objectives and includes spending and financing programmes across areas spanning biodiversity, food and agriculture, low-carbon power generation and electric vehicles.
Central among the goals is a pledge to make the European Union (EU) carbon neutral by 2050. In effect this means EU carbon emissions will be offset by at least similar levels of carbon removal. This is a significant development.
As one of the largest carbon emitters, this marks a clear advancement of global decarbonisation goals and is a considerable improvement on prior pledges. Ultimately it is hoped the future growth path of the EU will be one that is sustainable, resource efficient and competitive, and in the process one where economic growth is decoupled from resource reliance.
12th Local Authority Treasurers Investment Forum & FDs’ Summit
NOW A VIRTUAL EVENT + ZOOM151 Networking
Jan 20, 21 & 22, 2021
Paris
The Green Deal strengthens the EU’s Paris Agreement commitments, the main goal of which is to keep rises in global temperatures “well below” two degrees above pre-industrial levels.
The emergence of the Covid-19 pandemic redoubled the commitment to the Green Deal. As economic damage from shutdowns mounted, European governments agreed to a major €1.85 trillion recovery package. This is made up of a €750bn economic stimulus plan, named “Next Generation EU”, and a €1.1 trillion seven-year budget programme. One third of the stimulus plan will be directed to climate action investments, integrating much of what was proposed in the 2019 Green Deal.
The sheer scope and scale of the Green Deal will provide considerable opportunity across all sectors of the economy. Indeed, stimulus efforts are much more likely to succeed if the much more sizeable funds in the hands of private investors are leveraged.
Private investors can now take advantage of this opportunity by re-orienting their portfolios towards more sustainable technologies and businesses directly affected by the Green Deal. This process will have been made easier with the recent adoption by the European Parliament of the Taxonomy Regulation, which will result in an EU-wide framework to “provide clarity and transparency on environmental sustainability to investors, financial institutions, companies and issuers thereby enabling informed decision making in order to foster investments in environmentally sustainable activities.”*
Opportunities
Delving a bit deeper, opportunities could potentially abound across sectors as diverse as energy, agriculture, construction, materials, food and industrials.
Investors may seek to focus on companies in these sectors that are actively seeking to reduce their carbon footprint or are devising solutions that contribute towards helping the EU achieve its goal of net-neutral carbon emissions by 2050. In turn, investors may benefit by not only allocating capital to such companies and investments but also by actively avoiding companies set to be left behind by the Green Plan.
Room151’s Monthly Online Treasury Briefing
November 27th, 2020
Money market funds and deposit accounts
Watch the recording here
With almost three quarters of the Europe’s greenhouse gas emissions caused by energy production according to the European Commission**, the shift towards renewables could present considerable opportunity for investors. Wind and solar power are expected to lead the way in the shift towards renewables, seeing some of the fastest rates of growth over the coming decade as the marginal costs continue to decline.
For example, the global offshore wind market grew nearly 30% annually between 2010 and 2018 and is likely to continue growing at a rate of almost 13% over the coming two decades according to the International Energy Agency***.
The cost of renewables has fallen, and they have become competitive, if not cheaper, to operate than fossil fuel generation. Hydrogen as a form of clean energy is also a specific target of the Green Deal, with substantial investments measuring in the hundreds of billions of euros over the coming decades.
Joshua Kendall is head of responsible investment research at Insight Investment.
*EU Technical Expert Group on Sustainability. Spotlight on taxonomy 2020
**European Commission. A clean planet for all. 28 November 2018.
***EA Offshore Wind Outlook 2019 https://www.iea.org/reports/offshore-wind-outlook-2019.
Important information
For Professional Clients only. Any views and opinions are those of the investment manager, unless otherwise noted and is not investment advice. This is not investment research or a research recommendation for regulatory purposes.
For further information visit the BNY Mellon Investment Management website: www.bnymellonim.com
FREE monthly newsletters
Subscribe to Room151 Newsletters
Monthly Online Treasury Briefing
Sign up here with a .gov.uk email address
Room151 Webinars
Visit the Room151 channel
