Financing Europe’s Green Recovery
By Carlo De Giacomo, associate, international affairs and financial services in Brussels and Katarina Muse, manager, public affairs in Brussels
As European countries begin to emerge from an almost complete economic standstill, the EU started planning for a very ambitious and needed economic and social recovery. With the publication of the European Commission’s proposal on the European recovery plan, the EU’s executive arm crystallised its commitment to an economic recovery based on a green transition and digital transformation, to create a more sustainable and resilient economy.
The Commission’s proposed €750 billion recovery plan, Next Generation EU, embedded within a revamped EU long-term budget — the Multiannual Financial Framework (MFF) worth 1.1 trillion — will supplement national efforts to overcome the crisis. It should jumpstart Europe’s economy and put the bloc firmly on a fair socio-economic recovery path. This will come on top of funds leveraged by the European development banks.
The funds for Next Generation EU will be raised by the Commission borrowing on capital markets and will be allocated via new and existing EU programmes, thus topping up the MFF’s support for a green and digital transition. EU countries most affected by the COVID-19 crisis will benefit from a new €560 billion Recovery and Resilience Facility, equipped with €310 billion in grants, to support investments and reforms leading to more resilient economies. A new Solvency Support Instrument, worth €31 billion will provide much needed support to European companies in the sectors and regions worst hit by this crisis, while a new Strategic Investment Facility, part of InvestEU, will mobilize private investment across strategic value chains.
While presenting the plan, the Commission reinforced the message that the European Green Deal remains at the core of the EU’s recovery strategy. Investments will focus on areas such as energy efficiency via a renovation wave and a comprehensive renewables programme to accelerate renewable energy projects, particularly wind and solar. Investments in clean hydrogen will be supported largely by Invest EU and the EU’s research and innovation programme Horizon Europe.
Transport is one of the sectors most exposed to major upheaval as a result of the pandemic, but at the same time it is seen as the sector with the highest potential to reduce GHG emissions. The Commission proposed a €12.9 billion budget in the Connecting Europe Facility dedicated to transport to support the sector’s recovery and decarbonisation efforts, accelerating the uptake of low-emission vehicles by investing into charging infrastructure. A strong investment in a “Renaissance of Rail” will also be put forward alongside an ambitious programme to electrify ports and airports.
Nevertheless, for this plan to become a reality, EU Capitals will need to overcome their differences and reach an agreement on the EU’s long-term budget before the end of the year. The list of contentious issues is long — debate over the ratio of grants vs loans in the recovery instrument or what policy actions should receive the greatest support — and is brought into sharp focus by the North-South divide. In normal times, the EU budget would provide companies with much welcomed investment predictability; in the post-COVID-19 world, it might be the only lifeline for many.
One thing is clear: the time has come for businesses to engage with the EU and national regulators to make sure that this new funding framework will provide the necessary support to rescue jobs and value chains, address systemic inequalities and promote a greener and fairer recovery. This also presents businesses with the opportunity to innovate and finance projects that contribute to sustainable and inclusive long-term growth.
Relaunching and modernising the EU economy must be the key focus of the recovery phase and, despite being originally planned for full rollout in 2021, the recently agreed EU Taxonomy can play a pivotal role in guiding both private and public sector plans post-crisis, including the European Council’s Roadmap to Recovery.
Developed after extensive consultations with over 200 industry representatives and experts, the Taxonomy sets a common language between investors, issuers, project promoters and policymakers. Ultimately it provides investors with a tool to assess whether their investments are meeting robust environmental standards and are consistent with high-level policy commitments such as the Paris Agreement on Climate Change.
The Taxonomy could become the main instrument to attract investments into economic activities deemed to be in line with the ambitions of the European Green Deal, preventing support to be allocated to environmentally or socially harmful activities, which would sink the bloc into another crisis with catastrophic consequences. It could steer the use of much-needed public and private capital for the post-COVID-19 recovery.
Hence, as Europe moves from stabilisation to the stimulus and recovery phases, the importance of the Taxonomy could not be overstated. Now more than ever the EU is likely to boost green financing to attract investments into what legislation defines as sustainable projects and activities. The work of the European Commission in setting the final technical screening criteria will define the future role and uptake of the Taxonomy, and above all its ability to shape Europe’s economic recovery in the wake of the current health and economic crises.
The goal is clear — a climate-neutral, resilient and sustainable economy back on a growth track. Businesses need to get on board now and take advantage of all the available support in order to survive and find new avenues to success.
Edited by Jillian Nystedt
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