This briefing sets out how advancing sustainable finance can address new European challenges, recommending seven actions for the onset of the next European Commission.
Emerging Challenges
- Technological shifts are disrupting politics and the economy. Digital technology, automation and Artificial Intelligence offer opportunities but are also creating economic disruption and facilitating disinformation and populist movements. Meanwhile, the climate crisis requires a structural economic transformation.
- The financial outlook for the economy is gloomy. Europe’s economy grew by only 1.1% in 2019 so far in the face of multiple risks. Global market indicators are unfavourable1a and European sovereign bonds have negative yields, indicating likely recession1b.
- Europe faces growing pressures on its internal cohesion and unity. Pressures include Brexit, internal disputes over human rights and governance including how to manage flows of refugees and migrants, demographic challenges and the rise of populism.
- Geopolitical instability is rising. An insular US has begun a trade war with China, hurting European industry. More frequent and intense extreme weather events, with effects including floods and forest fires, migration and conflict, are putting strain on economies.
How can sustainable finance address these challenges?
Sustainability and inclusivity are guiding principles for Europe’s finance policy. By renewing this vision, the Commission can address the four key challenges above in ways that will:
- Realise a Structural Economic Transformation and Capitalise on Technological Shifts: financing the fourth industrial revolution and increasing investments and innovation in a truly clean economy, including in clean infrastructure.
- Strengthen the Economy and Rebuild the Social Licence to Operate: rebuilding European public confidence that the financial system is there to direct money towards investment that delivers the future Europe they want.
- Provide Inclusive Access to Capital for All Europe: rebalancing access to affordable capital across the EU to deliver socially sustainable investment needed to meet the net zero target, and in particular ensuring that finance flows to the East in areas such as distributed clean energy, efficiency, smart system and resilience projects.
- Protect European Citizens and Offer a Fair Deal for Savers: protecting European savers, who are still being exposed to risks they cannot see or control by financial institutions that continue to invest in companies and projects which could be made worthless by climate policy or impacts. By not doing this, savers are missing out on the higher long-term returns achieved from greater investment in sustainable infrastructure.
Read the full briefing Advancing Sustainable Finance: Priorities for Europe, including the seven recommended actions for the onset of the new Commission here.
