European sustainability on the rise

Europe is one of the most sustainable economies in the world. And it is now pursuing two policies that might boost that growth even further. John Dyer reports.

 

Image credit: Thomas Kelley via Unsplash

“Sustainability is part of Europe’s DNA,” said European Commission Vice-President for Jobs, Growth, Investment and Competitiveness Jyrki Katainen in a press release.

Now, experts believe that trend should continue owing to new European Union policies.

More than 23 percent of $22.9 trillion of professionally managed assets worldwide have some sort of sustainable investing mandate, according Morgan Stanley’s Sustainable Signals report. Around $12 trillion of that sum is in Europe. Another $8.7 trillion is in the US, while the rest is in Asia, Latin America and Africa. Those assets are growing at an annual compound growth rate of almost 12 per cent.

The European Sustainable Investment Forum recently found that the best ESG opportunities in Europe amount to around $657 billion, with a compound annual growth rate of 20 per cent.

Sustainable development about people

The EU is now pursuing two policies that might boost that growth further, reported Brink.

First, the European Commission has launched an action plan on sustainable finance that includes a $23.7 billion investment fund as well as new regulations to help classify and identify sustainable investing opportunities.

Those efforts are part of a push to promote sustainable development that would come online by 2030. The Commission estimates that they need to spend around $203.8 billion annually to hit the Union’s targets under the 2015 Paris Agreement on climate change, including a 40 per cent cut in greenhouse gas emissions.

“Sustainable development starts and ends with people, it is about making our economy and society sustainable and prosperous at the same time,” said Commission First Vice-President Frans Timmermans in a press release.

“We do this so we can uphold our way of life and upgrade the well-being of our children and grandchildren when it comes to equality, a healthy natural environment, and a thriving, green and inclusive economy. Our task is nothing less than to secure our planet for all people. Europe can and should lead the way.”

ESG assets are less susceptible to risk

Second, the European Central Bank is evaluating a proposal to reduce minimum capital requirements for banks investing in ESG assets. Those investments theoretically benefit from the “green supporting factor”, or less risk because they are less susceptible to the setbacks of climate change.

Companies that ignore ESG principals have already struck roadblocks. Facebook allowed political consulting firm Cambridge Analytica to access information on more than 50 million users, for example. When the scope of the Silicon Valley social media giant’s actions become clear, it lost $126 billion in market value – a clear message from investors, especially in Europe where strict privacy laws prevail, that poor governance won’t be tolerated.

European leaders moving too slowly

Still, while welcoming Europe’s moves, critics have said Commission officials and other bloc leaders are moving too slowly. In a report, the European Public Health Alliance said EU officials should have already articulated concrete measures, a timeline and monitoring system for reaching their sustainable goals.

“This political debate is three and a half years overdue and just before the mandate of the current Commission comes to an end,” the alliance said. “By now, we should have been well-beyond the phase of reflection and well-into the process of discussing a concrete implementation plan.”

In the future, however, ESG investors might help speed up the Union’s efforts.

“Global investments hold the key to fighting climate change, with trillions already invested in solutions such as renewables and energy efficiency,” said Miguel Arias Cañete, Commissioner for Climate Action and Energy.

“The Paris Agreement is a massive investment opportunity. How can we unlock it? Today’s action plan will help Europe’s financial sector position itself as a leading global destination for investments in green technologies.”

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