Head of Europe and Head of the Centre for Geopolitical and Regional Affairs, World Economic Forum
The European Central Bank (ECB) reported that failing to address the climate crisis could reduce Europe’s GDP by 10%, and that the likelihood of default for climate-vulnerable portfolios could increase 30% by 2050.
The European Union is facing an important test. A few months after the launch of the Fit for 55 package – a set of policies to achieve a 55% reduction in carbon emissions by 2030 – a gas supply crisis is putting under pressure the European energy system, prompting member states to rethink their energy mix.
The private sector has a central role to play in co-piloting the EU’s moon-shot of becoming the first climate-neutral continent by 2050. While the European Commission and national governments are laying down the foundations for a successful green transition via climate-positive policies, the private sector is poised to be the real enabler that can redirect the EU onto a greener recovery path.
Through investing in employees and in innovative business models, companies can create new long-term value.
Scaling green investing
With yearly investments of almost 500 billion euros needed to meet the 2030 carbon emissions targets, capital markets would be particularly valuable in redirecting funds towards greener sectors.
Additionally, in the past few years, the EU has enjoyed unprecedented growth in demand for sustainable investments, which is also leading to structural change in capital markets. In 2020, 60% of green bonds were issued in Europe and the green bonds market is forecasted to exceed the EUR 1 trillion mark by 2025. Such a strong demand for ESG-driven investments is driving companies to revisit their business models and fostering increased adoption of sustainable practices. It is a key component of stakeholder capitalism coming to light.
To achieve the European Green Deal’s objective of economic growth decoupled from natural resources depletion, innovation and technology are vital enablers. Some examples already in the works include collaborations between Eni, the Italian Energy company, and the Massachusetts Institute of Technology, working towards a fusion power plant to generate safe carbon-free energy; and Swiss Re and Climeworks, an innovative start-up that created the first plant for carbon capture from the air.
Through investing in employees and in innovative business models, companies can create new long-term value. The stakeholder capitalism model puts people and the planet at the centre of business activity. If we are to provide secure futures for the next generation, the private sector has a key role to play.