For the EU to achieve prosperity, competitiveness and continued relevance in an increasingly volatile world, it must leverage sustainability as a competitive advantage, as outlined in the Clean Industrial Deal and in Mario Draghi’s report on competitiveness. Yet to achieve the transition to a decarbonised and resilient economy, money needs to flow urgently to close the existing investment gap. Making national transition strategies more useful for investors, while also leveraging insights from private sector transition plans, provides an opportunity to improve the environment for public and private transition finance to flow.
Transition planning – as carried out at EU-level, by Member State governments, and by private sector companies – holds great potential to facilitate the flows of finance needed. However, this is not yet happening at the scale required. A major issue is misalignment between the various layers of governance frameworks and requirements, leading to a lack of clarity about the objectives and regulatory burden for companies.
In this report, co-written by E3G and ECCO, we focus specifically on the interplay between national transition strategies at the Member State level, and private sector transition plans. There is an un-grasped opportunity to make these levels of planning work together in harmony, creating an environment in which public finance can be directed to the transition more efficiently, and the private sector can better identify the opportunities for investing in activities that support the transition.
What makes a national transition strategy investable
An “investable” national strategy is one that provides a compelling prospect for investors to allocate their capital to activities in line with national objectives. Achieving this relies on understanding private sector needs and current intentions.
Using National Energy and Climate plans (NECPs) as a case study and examining the existing obstacles to investability, we identify four principles for making national strategies investable. These principles can be applied more broadly to improve the investability of other national strategies.
- Design national strategies using a whole-of-economy approach, supported by sector transition plans in key sectors of the national economy.
- Systematically integrate climate resilience and risk management, allowing the private sector to determine their next steps in terms of management of climate risks.
- Ensure policy signals are credible and consistent, supported by a high-level budgeting exercise, ideally designed within a whole-of-government approach.
- Evaluate and consider private sector insights for national planning of public investments, as a result of more structured engagement processes.
Incorporating private sector insights: a framework for aggregating information from transition plans
Private sector transition plans provide forward-looking insights into investment needs, policy dependencies and potential transition risks across value chains. This is extremely valuable information for governments in drawing up national strategies that reflect real-world developments.
This information is, however, currently under-used. With it being impossible for governments to consult each company’s individual transition plan, there is a need for representative, aggregated insights from across the private sector.
We propose a framework to allow Member States to aggregate and analyse information from private sector transition plans. This is intended as a modular framework: governments could apply all four of the below pillars as a package, or choose the most appropriate to their national context.
- Mandate financial market authorities to aggregate transition-related information in CSRD reports of listed companies.
- Expand the functions of national environmental agencies to include the aggregation of transition-related information.
- Engage with business associations to establish industry dialogues and explore opportunities to collaborate with private organisations.
- Implement and support the European Single Access Point’s (ESAP’s) functionality as a database for transition plan data.
This report is co-published by E3G and ECCO, the Italian climate change think tank. Beatrice Moro is a Senior Policy Advisor Sustainable Finance at ECCO, where she leads work on sustainable finance and transition planning at both EU and national level.
