The European Green Deal and the EU

white papers

The European Green Deal and the EU

Arnaud Langlois - Portfolio Manager

Arnaud Langlois

Portfolio Manager
Cyrus Azarmgin - 1798 TerreNeuve Strategy – Senior Analyst

Cyrus Azarmgin

1798 TerreNeuve Strategy – Senior Analyst
Andrew Gowen - 1798 TerreNeuve Strategy – Senior Analyst

Andrew Gowen

1798 TerreNeuve Strategy – Senior Analyst

We have been talking about the European Green Deal and the EU Sustainable Investment Taxonomy since the start of the year. These policy initiatives are, in our view, game changers that will redefine the notion of sustainable investing.

At the end of 2019, the European Commission presented this new growth strategy. The Green Deal provides a roadmap with actions, policies and financing tools that are designed to make the EU carbon neutral by 2050. It is also a basic Keynesian instrument seeking to unleash an unprecedented wave of investment and job creation in decarbonisation technologies, recycling and resource efficiency. As is often the case with anything EU-related, the market initially took little notice.

The COVID-19 pandemic and the resulting economic crisis have created the conditions for EU states to rally behind the Green Deal and use it as the foundation for Europe’s economic recovery. On 27 May this year, the European Commission proposed a EUR 750 billion recovery fund called Next Generation EU on top of its 7-year budget of EUR 1.1 trillion. To access this fund, countries have to help accelerate the EU’s green and digital revolution. According to Euractiv, an EU policy news site, the draft set of proposals includes EUR 1 trillion of investments in building renovation, renewable energy, hydrogen, clean mobility and the circular economy. 

The EU will disburse the majority of the money in the form of grants, with projects vetted by the Commission based on their alignment with the Green Deal roadmap. This is a game changer for a number of reasons. Firstly, it establishes the principle of debt mutualisation at the EU level (the European Commission will raise debt and then distribute it to member states). Secondly, grants are a guarantee that states/companies will invest in the areas outlined by the Green Deal as opposed to loans that may, or may not, be taken up. Finally, the EU is putting in place regulations and subsidies/penalties to ensure the success of Green Deal investments, such as subsidising the cost of carbon for new technologies and imposing carbon or plastic taxes. The recovery fund and the EU budget will be subject to the usual compromises but they already have the strong backing of France and, more importantly, Germany, which should ensure their success. 

In this white paper, we list the key Green Deal initiatives presented by the Commission and how our strategy is positioned to take advantage. 

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