The European Environment Agency (EEA) has called for more private investment to help underpin a smoother sustainability transition.
According to the organisation, the continent needs a “solid socio-economic and fiscal policy framework” to ensure that the European Green Deal is implemented smoothly.
First presented by the Commission in 2019, the European Green Deal aims to make the continent climate-neutral by 2050. That deal was further ratified in 2021 when the European Parliament approved a law to make stated emissions targets legally binding.
In order for the European Green Deal to be successful, the EEA has calculated investment of €520bn a year is needed until 2030, with additional funds of €92bn needed to boost the EU’s capacity to manufacture net-zero technology. However, the EEA said there are issues holding it back.
“Fiscal sustainability is emerging as a limitation on all public policies,” the organisation noted. “European governments are facing competition in allocating scarce public budgets between the digital transition, military expenditures and investment in social infrastructure. They must also balance high inflation and interest rates with higher costs in public debt management, and the cost of an ageing population. The political will to invest in the green transition may fall short in light of these competing factors.”
Other factors abound, with the EEA noting: “Furthermore, it is critical to highlight that the financing of investments in EU Member States via the Recovery and Resilience Fund, as the centrepiece of NextGenerationEU, will cease at the end of 2026.
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“Member States must allocate at least 37% of the funds, identified in the country-specific Resource and Resilience Plans, to green transition measures amounting to €216bn at EU-27 level. Discontinuing these additional funds may lead to reduced efforts in financing public green infrastructure measures as otherwise national funds would have to be increased to offset the shortfall in EU funds set aside for green investments.”
The EEA attempted to make a case for private rather than public investment in implementing the EGD, saying the latter “must cover a substantial share”. “This is the concept behind sustainable finance where private funds complementing public money are crucial for the transition process, especially by funding long-term investments in sustainable economic activities and projects,” it argued.
“The split between the public and private role in financing additional investment needs is projected to range from a ratio of 1:5, up to 1:2, but will vary significantly between EU Member States. For example, the European Investment Bank projected about 60% of additional investments will be funded from public sources in Central and Eastern Europe and the share will only be 37% in western and northern Europe.”
This article first appeared on ESG Clarity sister publication Expert Investor.
