Europe sets new standards for a sustainable market economy

Sustainability is high on the global agenda. Europe’s vision is clear: we want a sustainable, innovative and climate-neutral economy, with quality jobs and flourishing businesses. The scientific evidence is indisputable, and young people around the world rightly demand decisive action.

Over the past five years, the European Commission has taken some of the world’s most ambitious steps to reorient the EU towards a sustainable economy. In 2015, the Commission adopted a “Circular Economy Action Plan” aimed at moving us from the “single-use” mentality to the circular economy. We have laid the foundations for moving from a “serve, manufacture, use and throw away” attitude to the principle of circularity, for example, with plastics. The Plan has paved the way for waste reduction, recycling of raw materials and reuse of water, to name a few examples. The European Union is committed to achieving by 2030 the targets for reducing greenhouse gas emissions, renewable energy and energy efficiency. In its long-term vision, the Commission sets out how the EU can become by 2050 a climate-neutral, carbon-neutral economy that is modern and competitive and creates jobs.

This commitment to a sustainable market economy requires considerable investments, many of which come from the private sector. We believe that, over the next ten years, the EU will need between €180 billion and €290 billion a year of additional investments to meet its 2030 climate and energy targets. Let me introduce you to three ways to drive investment to achieve these goals.

Firstly, the European Commission has proposed that the EU devote a quarter of its 2021-2027 budget, i.e. €320 billion, to fighting climate change.

Secondly, the EU already provides public funding to stimulate private investment by covering part of the financing risks. Much of the current “Investment Plan for Europe” is already used to finance climate action, while its proposed successor, the InvestEU Programme, explicitly envisages devoting 30 percent of its spending to sustainable investments, mobilising almost €200 billion of investment.

Thirdly, the Commission’s strategy to finance sustainable growth of March 2018 is a decisive step towards redirecting private capital flows towards sustainable and climate-oriented objectives: inter alia, classifying environmentally sustainable activities, creating low-carbon benchmarks, introducing a green bond standard, apply the EU Ecolabel to sustainable financial products and clarify investor obligations. All these measures offer transparency and clarity to investors as to which activities are sustainable.

The central proposal of this strategy is to establish a classification that offers security and clarity to investors and consumers, so that they can make more informed investment decisions, and to protect them against “greenwashing”. The adoption of the technical aspects of such a climate classification by the end of 2019 will have to be supported by the efforts of member states to reach a political agreement as soon as possible. The planned International Platform for Sustainable Finance will also help to better coordinate these initiatives at the global level: financial markets are global and climate change affects us all.

By investing in sustainability today, the EU will strengthen its market economy while limiting the effects of climate change. Profitable economics and profitable sustainability go hand in hand, increasingly based on circular business models. Growth and emission reductions are compatible and, in fact, their coexistence is already real. The potential of a sustainable economy is enormous.

It is now up to the Member States to make tangible progress in this area. The EU is the first major economy to have created a legally binding framework to meet its commitments under the Paris Agreement. In June 2019, for the first time, all member states have prepared their draft integrated national energy and climate plans, to determine at national level the financing and investment operations needed to achieve the 2030 targets. Final plans are due to be ready by the end of 2019 and we expect member states to make even more ambitious commitments to achieve the EU’s energy and climate targets.

Ursula von der Leyen, President-elect of the European Commission, has committed in her political guidelines to adopting a Green Deal for Europe in her first hundred days in office. This confirms our commitment to become the first climate-neutral continent. By creating frameworks to support sustainable investment and investing more in innovation and research, reshaping our economy and updating our industrial policy, we are on the right track.

Source: The Economist