The European Union is facing an important test. A few months after the launch of the Fit for 55 package – a series of policies aimed at achieving a 55% reduction in carbon dioxide emissions by 2030 – a gas supply crisis is putting pressure on the European energy system, requiring member states to review their energy strategy.
At a time when governments around the world are accelerating their efforts to tackle climate change, the European Green Deal – launched in December 2019 – represents a pioneering effort that aims to outline a new paradigm for society and the European economy, based on the concept of “economic growth not linked to the exhaustion of resources”. The Deal has set the stage for ambitious EU climate diplomacy – and is an inspiration for other economies.
Earlier this year, the European Central Bank reported that failure to tackle climate change could reduce Europe’s GDP by 10% by the end of this century, and that the likelihood of default for climate vulnerable portfolios it can increase by 30% by 2050.
If there is one upside to the COVID-19 pandemic, it is the demonstration that public and private sector cooperation is critical to addressing global threats – and when needed, it can achieve results very quickly. For this reason, governments and companies must join forces and design immediate, bold and replicable large-scale solutions that can help achieve the ambition of the European Green Deal.
In a period of economic recovery for the European Union, the private sector plays a central role as co-pilot of the so-called “moon landing of the European Union” in becoming the first climate-neutral continent by 2050. While the European Commission and national governments are creating the foundations for a sustainable economy through low environmental impact policies, the private sector can become the real facilitator of an effective ecological transition. And here’s why.
Increase of investments in ecological infrastructures
With an annual investment of around € 500 billion needed to meet emissions reduction targets by 2030, capital markets can be particularly important in redirecting funds to more sustainable sectors. For this reason, the European Commission launched in September 2020 the new action plan of the Capital Markets Union with the aim of unlocking private capital with the dual purpose of accelerating the ecological transition and the digital growth of economies. of European Union.
In recent years, the European Union has seen unprecedented growth in the demand for sustainable investments, which is also leading to a structural shift in capital markets. In 2020, 60% of sustainable bonds were issued in Europe, and the market for such bonds is expected to exceed € 1 trillion by 2025. This huge demand for investments based on the principles of the ESG (“Environmental, Social , Governance ”) is leading companies to review their business models by encouraging greater adoption of sustainable and socially responsible practices.
To support investors and companies in this drive towards sustainability, the European Union has decided to launch an all-encompassing financial regulation that includes a clear definition of investment in ecological infrastructure, precise regulations regarding the information that investment funds and asset managers must disclose about the risks associated with the ESG of its portfolios starting from 2021 (“Sustainable Finance Disclosure Regulation (SFDR)”) and an update of the reference obligations for public companies (Corporate Sustainability Reporting).
Private companies have enthusiastically welcomed these new regulations introduced in conjunction with the European Green Deal and recently issued a letter asking for the support of European institutions in ensuring that these measures are implemented harmoniously around the world and in a way that helps the development of global markets in a sustainable way.
A new architecture for low environmental impact innovation
To achieve the European Green Deal goal of economic growth not linked to the depletion of natural resources, innovation and technology are key elements. Through direct investment in research and development and indirect investments in innovative start-ups, the private sector can help build a new architecture for the future of industries, from identifying new solutions for improving the energy mix in favor of renewable resources for the optimization of processes along the entire value chain. Companies are also key in developing climate mitigation and adaptation mechanisms.
Examples include the collaboration between Eni, the Italian energy supply company, and the Massachusetts Institute of Technology (MIT), from which great progress has been made in fusion energy while mitigating some of the risks associated with this. technology; and the partnership between TAE Technologies, the world‘s largest privately held fusion energy company, and the Japanese Institute for Fusion Science that successfully completed development tests of zero-emission, replicable fusion power in large scale. Another example of revolutionary technology is the collaboration between Swiss Re and Climeworks, an innovative start-up that created the first plant to capture carbon dioxide from the atmosphere in Iceland, called Orca.
The social role of the private sector
The role of companies is not just limited to investments. Companies can exercise their power of persuasion towards all stakeholders in the value chain, from suppliers to customers to workers.
Some of the examples we can list include Zurich Insurance’s decision to prefer digital communications and remote assistance to support its customers and its commitment to reduce 70% of business flights for its employees. Another example is the commitment of a group of international companies, including Amazon, IKEA and Unilever, to use only zero-emission cargo ships by 2040 to transport their goods and the raw materials needed in the production cycle. A similar expedition-related effort also includes the “Call to Action” for the decarbonisation of shipments, which led to the Danish government-led Declaration of Zero Emission Shipments for 2050, supported by 13 governments around the world, which was recently announced at COP26 in Glasgow.
Furthermore, by investing in staff retraining and innovative business models, companies can transform the ecological transition from a threat to existing jobs to skills improvement opportunities for their employees. Companies can support the European Union and ensure that the climate agenda is focused on people, aimed at encouraging sustainable work and the creation of new jobs in line with new industrial requirements.
Finally, companies play a vital role in creating public opinion. By developing environmentally friendly solutions and offering more insights into customers’ daily choices, companies can promote sustainable practices in the communities in which they operate. For example, the agreement between Google and ENGIE to purchase only clean energy from offices and factories in Germany will have a large-scale domino effect and may inspire similar efforts by other companies. For this reason, organizational practices and policies can have a positive influence on the awareness that workers have about their climate impact, and in turn have an indirect impact on their personal choices.
How can business leaders further support the European Green Deal?
The World Economic Forum’s CEO Action Group for the European Green Deal – a group of more than 50 CEOs committed to the ecological transition – supports cross-sectoral initiatives aimed at addressing decarbonisation across the value chain.
To be successful, the European Green Deal needs deep and ongoing cooperation from the public and private sectors in which governments and business leaders join forces to channel investments towards sustainable solutions, enable innovation and technologies with low environmental impact, and help consumers to adopt more sustainable lifestyles.
*Mirek Dušek è Head of Europe, Eurasia and the Middle East, Member of Executive Committee, World Economic Forum.