Summary
The European Green Deal outlines the ambition of the European Commission to transition towards a more sustainable and digital economy; which themes are most likely to benefit from this shift?
Key takeaways
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The Green Deal is a comprehensive new strategy from the European Commission (EC) that aims to ensure the European Union leads the rest of the world in transitioning towards a green and digital economy. The Green Deal is likely to inform the EU’s actions for decades to come and will open up new investment opportunities – and it may make sense for investors to consider the opportunities thematically. We have identified four major, interlinked investment themes that we expect to benefit from the Green Deal:
The Green Deal is tied to major funding and trade initiatives
The Green Deal arguably began as environmental policy, but it is now much bigger than that – an EU-wide set of policies, action plans and principles that are tied to major funding and trade initiatives.
For example, although the Covid-19 pandemic set back the implementation timeline for the Green Deal, the European Recovery Fund – which EU leaders agreed on in July in response to the pandemic – gives an additional boost to the agenda by unlocking further funding and helping the EC ensure that recovery plans and the Green Deal are aligned.
The Green Deal also gets a major source of financing over the next decade from the EUR 1 trillion Sustainable Europe Investment Plan. Roughly half of this amount will be provided directly from the EU budget. The remainder will be mobilised by the InvestEU programme, which is designed to align financial support from the EU, development banks, national governments and private investments.
In addition, the Green Deal is central to the EU’s foreign relations strategy. The Green Deal is closely aligned with the UN Sustainable Development Goals (SDGs) and the Paris Agreement, and the EC hopes to encourage other regions to follow its path towards sustainability in support of these ambitions. Diplomatic engagement and strategic partnerships will be an essential part of this effort, as will the EU’s trade policy – the EC proposes that all future trade agreements include a binding commitment to ratify and effectively implement the Paris Agreement.
The Green Deal represents such a profound shift from how the EU’s economy currently functions that it has been dubbed “Europe’s man on the moon moment”. It will have significant implications for millions of EU citizens but will also create opportunities for those private investors willing to contribute towards making this vision a reality.
Take a deeper dive into the Green Deal
This article is excerpted from a paper that explores the Green Deal in more detail. To read more, download a PDF version.
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Financial markets could remain volatile as we head towards US elections in November – particularly with the prospect of a contested result. But this could provide a tactical opportunity for investors to add risk to portfolios, or to further diversify their holdings.
Key takeaways
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Decarbonisation
To achieve its ambitious climate targets, the EU will make decarbonisation of its economy a priority, with a focus on industries responsible for the highest share of greenhouse gas (GHG) emissions. The Green Deal’s stated aims include:
Circular economy
The Green Deal also calls for wider adoption of a “circular” economic model, which decouples economic growth from resource use and thereby increases energy- and resource-efficiency. The EU envisions products that are designed to be durable, repairable, reusable and recyclable. It also intends to increase its own capabilities around waste collection, processing and recycling. In addition, the Green Deal aims to create an internal market for secondary raw materials.
Preserving and restoring ecosystems and biodiversity
The EU’s guiding principle for the Green Deal is that “all policies should contribute to preserving and restoring Europe’s natural capital.” Direct focus areas include forestry, sustainable agriculture without the use of harmful substances, and a sustainable “Blue Economy”, which unlocks the full potential of aquatic and marine resources while ensuring healthy and resilient seas and oceans.
Digitalisation
Digital tools will be essential to establishing the Green Deal and driving its impact. Technology enables several key functions, including: