The European Fund and Asset Management Association, Efama, has reacted to the proposed EU Green Deal, noting that it "wholeheartedly" supports the initiative.
Tanguy van de Werve, director general of Efama, said: "We congratulate Ursula von der Leyen, president of the European Commission, and her team, for developing such an ambitious, and welcome action plan."
"The European Green Deal, with the active support from the member states and the European Parliament, has the potential to be a real game-changer for our society, and which could go a long way to making Europe the first climate-neutral continent by 2050."
"As the voice of the asset management industry in Europe, we wholeheartedly support the European Commission in this initiative. We are committed to playing our role as an industry in channelling the necessary funds for projects which are essential to its success."
The Green Deal has been issued as the response of the institutions of the European Union to climate change. It aims to make the EU and broader Europe a "climate neutral continent" by 2050.
Announcing the target, the EC stated: "Supported by investments in green technologies, sustainable solutions and new businesses, the Green Deal can be a new EU growth strategy. Involvement and commitment of the public and of all stakeholders is crucial to its success."
"Above all, the European Green Deal sets a path for a transition that is just and socially fair. It is designed in such a way as to leave no individual or region behind in the great transformation ahead."
(See here for further details: https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en. Details on the Green Deal are being presented at the COP25 meeting in Madrid, according to the statement by von der Leyen on 11 December (https://ec.europa.eu/commission/presscorner/detail/en/speech_19_6749 )
However, there have yet to be comments from the EC, the European Parliament or Council of Ministers as to how the Green Deal will be applied to participating member states currently in the EU, but which in future may be outside. For example, the EU already has rules in place around so called carbon leakage, to stop "relocation of economic activity and its emissions relocated from the EU to countries/ regions with less ambitious climate policies in place. These rules operate as part of the Emissions Trading System".
Because of Brexit, there is uncertaintly around future UK commitments to climate change, biodiversity and other environmental objectives. The UK general election on 12 December may provide some clarity in terms of the future direction of policymaking in the UK, but there is a risk that it does not.
Efama represents asset management associations in countries that both are and are not members of the EU, so its statement presumes that the members of all its member organisations will also commit themselves to the EU targets.
Considering factors such as the share of the STOXX Europe 600 index constituted by UK equities, it is likely that the EC will wish to ensure that UK companies do not get unfair advantage by being outside the EU's commitments to carbon neutrality, while also ensuring commitments to systemic financial market stability are maintained.
Certain specific objectives have been noted by the EC, which are likely to effect investors, particularly those exposed to legacy oil and gas businesses, but also other sectors:
- A Commission proposal to give legal force to the objective to achieve climate neutrality by 2050 (‘climate law') that will set the EU onto an irreversible path to climate neutrality.
- An action plan to promote a more circular economy that will address more sustainable products and accompany the new industrial policy strategy.
- Proposals to revise, where necessary, the Emissions Trading System for the EU's power sector and industrial installations, possibly extend European emission trading to road transport, shipping and buildings' emissions as well as revise the member states' targets for sectors outside of the Emissions Trading System.
The EC added that: "Some sectors such as transport, buildings, agriculture and energy production are responsible for a significant share of greenhouse gas emissions. Other sectors like finance will have a role in directing private capital towards more sustainable investments."
"Meeting the objectives of the European Green Deal will require significant additional investment. The Commission has estimated that achieving the current 2030 climate and energy targets will require €260bn of additional annual investment, about 1.5% of 2018 GDP. Both public and private sectors will need to sustain these investment flows over many years."
"The Commission will present in early 2020 a Sustainable Europe Investment plan to help close the funding gap. It will combine dedicated financing to support sustainable investments, and proposals for an improved regulatory framework. At the same time, it will be essential to build up a pipeline of sustainable projects through technical assistance and advisory services to help project promoters. The EU's budget (and its commitment to achieve 25% dedicated to climate action) and the activities of the European Investment Bank will support the Sustainable Europe Investment Plan together with national funding sources."
"The private sector will be incentivised to contribute to financing the green transition. Long-term signals are needed to direct financial and capital flows to green investments. The Commission will present a green financing strategy in the third quarter of 2020 that will focus on a number of actions to promote and mobilise private sustainable finance."
The Green Deal also brings a focus on chemicals, in addition to the focus on greenhouse gasses and climate change. This is a commitment that has the potential to influence developments in Germany, where the likes of BASF and Beyer are headquartered and rank among the biggest European chemicals and agrochemicals companies by turnover.
"More than 400,000 people still die prematurely every year due to air pollution as many urban areas are in breach of agreed EU air quality standards," the EC states.
"Pollution of water is a widespread concern across Europe since concentrations of harmful chemicals and nutrients are still high in many places. With 3 million potentially contaminated sites in the EU, the threat posed by soil pollution to human health continues to be present. Exposure to hazardous chemicals or to a combination of chemicals continues to be one of the key factors behind human health problems such as cancer, reproductive diseases, or respiratory sensitisation, as well as environmental degradation (e.g. decline of insect and bird populations). This imposes significant costs for health care, decontamination work, lost workdays, damage to buildings, crop losses for farmers."