In times of pressing environmental concerns, countries are recognising both the urgency of corporate transition and the business opportunities it brings. In Europe, the Green Deal Industrial Plan (GDIP) – the EU’s counteroffer to the US Inflation Reduction Act – has emerged as a catalyst for green financing, prompting questions about Europe’s competitive edge.
As governments worldwide offer subsidies for clean technologies, Europe must equally recognise the importance of integrating climate transition into companies’ business models and ensure that legislative and regulatory measures mainstream sustainable practices throughout the private sector modus operandi.
Ensuring long-term profitability
The transition towards a greener economy presents significant opportunities for businesses to bolster their competitiveness, contrary to the perception that environmental and regulatory measures are costly or hinder economic growth. By embracing sustainability practices, companies can unlock innovative solutions, attract additional finance, tap into new markets, and secure long-term profitability. The green transition is neither a short-term trend nor a niche ethical business model. It is a strategic imperative for businesses seeking to thrive in the rapidly evolving global landscape.
Europe’s ambitious clean energy targets would secure abundant clean power, a key ingredient in EU industrial competitiveness. Central and Eastern European countries in particular have significant potential. Ambitious wind and solar targets in the region would lower prices by a third, secure energy independence and attract more investments. Together with macroeconomic stability, access to European and global markets, and good standing in global value chains, countries in the region are well placed to become the green economies of the future.
Moreover, Europe’s strong focus on environmental standards and regulation gives businesses a competitive edge in meeting the increasingly stringent sustainability requirements of consumers and governments worldwide. Through investing in research and development, nurturing a skilled workforce and building a robust ecosystem for innovation, the green transition can catalyse Europe’s business competitiveness, enabling companies to thrive in the emerging green economy.
Engaging the whole economy
To remain competitive internationally, European industries must engage the entire economy in the transition process. Some large corporations and financial institutions are already picking up on market and societal signals and incorporating transition thinking into their strategies. However, most European businesses, particularly SMEs, have yet to fully embrace the shift. In fact, 99% of European businesses are SMEs and account for over 60% of companies’ GHG emissions, making their transformation imperative.
Even among larger companies that report having Paris-aligned transition plans, fewer than 5% of them are estimated to show credible indicators for their plans’ feasibility. Widespread participation is essential, and the need to transition over time must be further mainstreamed into business practices. Political guidance and regulatory certainty are key to driving this change and supporting market players – large and small alike.
While public financing and subsidies play a crucial incentivising role, linking public financial stimuli to the climate and environmental performance of private sector beneficiaries can be a powerful driver for companies looking to transition. Legislative and regulatory measures that promote climate and environmental-related transparency are a powerful mechanism for unlocking additional targeted finance and investor visibility.
From regulation to transformation
Europe has taken the first important legislative steps to steer business transition. The Corporate Sustainability Reporting Directive (CSRD) and accompanying European Sustainability Reporting Standards (ESRS), as well as the Corporate Sustainability Due Diligence Directive (CSDDD) currently in the making, establish a reporting framework for entity-based transition planning. Under these rules, transition plans will become a vital reporting requirement and risk management tool, ensuring that companies consider their impact on people and the environment.
The small initial cost of undergoing this process will be outweighed by significant business opportunities from collecting, assessing and disclosing an array of climate and environment related information under these laws. Companies can make use of these data for better planning, futureproofing their operations and making their business models more resilient. They will also enjoy better visibility and brand image to clients and investors.
Preparing European businesses for the transition
Europe’s success in maintaining its competitive edge in the global economy lies in integrating climate transition at the heart of business models and engaging the entire economy. Legislative and regulatory measures such as ESRS and CSDDD can strengthen incentives, drive transition planning, and enhance competitiveness. Mandating transition plans for both financial and non-financial entities – while incorporating climate risk assessment into financial operations – could further enhance sectoral competitiveness, help identify bottlenecks, and highlight innovation and investment opportunities.
Additionally, a robust EU-level roadmap for identifying gaps, funding opportunities, and capacity-building would support companies in long-term planning and benefitting from Europe’s industrial transformation. Thus, by embracing sustainable practices, European businesses can lead the global shift towards a greener future – ensuring long-term prosperity while safeguarding the planet.