Shifting investments for a green recovery

Thanks to the 2020 EU Recovery Plan – largely influenced by the COVID-19 pandemic – Europe has its most ambitious recovery plan in decades. However, the bloc has also become one of the world’s biggest debt issuers and will be heavily reliant on taxpayer funds going forward. EU climate action plans have also been upended, yet the bloc must still cut emissions by at least 50% in the next decade to meet the 1.5°C Paris Agreement goal.

“We have a cross-section of speakers to debate how to shift investments for a green recovery (02:30),” opened Dharmendra Kanani, Director of Insights at Friends of Europe. “Money matters, but how do we spend it?”

Ambitious EU recovery plans

Astrid Manroth, Director for Climate Finance at the European Climate Foundation (ECF), outlined the latest key EU initiatives, noting that they highlight how “Europe can lead the world in demonstrating that an environmentally […] and socially sustainable recovery is possible (04:10).”
(04:37) We have a resounding commitment to the EU Green Deal as a framework for Europe’s recovery.
(05:06) 30% of the recovery package, on average, is for climate action, thus boosting financial instruments.
(05:21) €200bn will be raised through issuing green bonds – a landmark for European capital markets.
(06:15) Progressive business wants a green and sustainable recovery, including investors and corporates.
(06:28) EU must ensure credible implementation and credible tracking of climate action (EU Taxonomy).
(07:22) ‘Do no harm principles’ are especially relevant for the Recovery and Resilience Fund, and the Just Transition Fund.
(63:05) We need a new EU narrative that’s politically consistent, simple and understandable, to communicate to citizens how we’re protecting their lives and livelihoods (Kanani).

A pipeline of projects

Speakers backed the idea of investing in ‘shovel-ready’ green projects across the EU-27. Notable initiatives include the European Commission’s seven Smart Cities & Communities Lighthouse Projects to boost EU recovery in the short term, though these must be assessed quickly for their green credentials before roll-out, said Artur Runge-Metzger, Director of Climate Strategy, Governance and Emissions from Non-trading Sectors at the European Commission’s Directorate General for Climate Action.
(08:10) An ECF study identified over 1,000 shovel-ready green projects in the EU-27, worth €200bn, creating 2 million jobs and avoiding 2 gigatonnes of CO2 emissions; these are just 10% of green projects in Europe, with a total pipeline of over €1tn (Manroth).
(37:37) We must not only invest in projects, but also in assessing the regulatory system (Runge-Metzger).
(35:13) Lighthouse Projects, or ‘shovel-worthy’ projects, aim to sow the seeds of long-term recovery.
(35:27) Deep Renovation projects cover a building’s insulation, plus the heating system and digitalisation.

Ensuring governance and regulation

“The European Parliament believes standards like the EU Taxonomy can help create convergence for the sustainable finance market (41:37),” remarked Irene Tinagli, Chair of the European Parliament Committee on Economic and Monetary Affairs (ECON) and European Young Leader Alumna. She said the Parliament wants to play a bigger role in assessing national plans for new green projects (47:13), but was confident the highest standards would apply to use of EU taxpayers’ money for a just transition.
(43:56) Parliament is looking to support industries struggling with the just transition, notably in Eastern Europe.
(44:33) We must support the EU’s proposed carbon border tax, to support projects and protect our industry.
(62:21) We need a different and more agile infrastructure for sustainability governance (Kanani).

Promoting the private sector

Private sector investment in the EU’s recovery should be maximised, to counterbalance the vast sums coming from the bloc’s taxpayers. Speakers and the online audience also debated the value of subsidies and bailouts to the private sector. It was agreed that airlines, though heavy users of fossil fuels, are vital for other sectors like tourism.

“Since 2015, sustainability has been at the core of our business strategy (16:01),” said Alberto De Paoli, Chief Financial Officer at Enel, resulting in the group becoming world number two in market capitalisation. He argued that companies must make sustainable choices in projects and strategies. “Our aim is to make 100% of our investments in sustainable choices (17:13),” he added.
(18:19) The sustainable finance market only makes up 2% of the world’s bond market and is too focused on very few instruments, like green bonds.
(25:23) There is no single instrument for all companies.
(19:19) Enel’s sustainable finance innovation was to successfully launch SDG-linked bonds, in order to finance strategies rather than projects.
(24:30) Subsidies to companies can create more supply and demand for sustainable finance.
(39:42) Renewable energy initiatives, e.g. the hydrogen economy, might need some subsidies (Runge-Metzger).
“When bailing out companies, we should ask for more green and sustainability commitments (60:22),” said Astrid Manroth, adding that the EIB should collaborate more with banks.
(43:44) We can’t ignore the brown economy, which provides hundreds of thousands of jobs (Tinagli).
(46:16) It’s important to help SMEs with the just transition, especially in Eastern European countries, as they are key for Europe’s future (Kanani).