Why Europe’s ‘climate moon-shot’ needs the private sector as co-pilot

The European Union is facing an important test. A few months after the launch of the Fit for 55 package – a set of policies to achieve a 55% reduction in carbon emissions by 2030 – a gas supply crisis is putting under pressure the European energy system, prompting member states to rethink their energy mix.

As governments around the world ramp up their commitments to address climate change, the European Green Deal – launched in December 2019 – stands out as a pioneering effort that aims to chart a new paradigm for Europe’s society and economy, founded on the concept of “economic growth decoupled from resources depletion”. The deal has been setting the scene for ambitious climate diplomacy – and has been of inspiration to other economies.

Earlier this year, the European Central Bank (ECB) reported that failing to address climate change could reduce Europe’s GDP by 10% by the end of this century, and that the likelihood of default for climate-vulnerable portfolios could increase 30% by 2050.

If there is any silver lining from the COVID-19 pandemic, it’s that public-private cooperation is instrumental in addressing global challenges – and that it can do so at a neck-breaking pace. For this reason, governments and private leaders should join forces and design scalable, bold and immediate solutions that can help achieve the ambition of the European Green Deal.

As the European Union emerges from the pandemic, the private sector plays a central role in co-piloting the EU’s moon-shot of becoming the first climate-neutral continent by 2050. While the European Commission and national governments are laying down the foundations for a successful green transition via climate-positive policies, the private sector is poised to be the real enabler that can redirect the EU onto a greener recovery path. Here’s why.

Scaling green investing

With yearly investments of almost 500 billion euros needed to meet the 2030 carbon emissions targets, capital markets would be particularly valuable in redirecting funds towards greener sectors. Because of that, the European Commission launched in September 2020 the New Capital Markets Union Action Plan to unlock capital funds for the EU’s twin green and digital growth.

In the past few years, the EU has enjoyed unprecedented growth in demand for sustainable investments, which is also leading to structural change in capital markets. In 2020, 60% of green bonds were issued in Europe, and the green bonds market is forecasted to exceed the 1 trillion-euro mark by 2025. Such a strong demand for ESG-driven investments is driving companies to revisit their business models through the ESG (Environmental/Social/Governance) lens and fostering increased adoption of sustainable practices.

To support investors and companies in this drive to sustainability, the EU is set to launch an overarching sustainable finance regulation which includes a clear definition of green investing, obligations for funds and asset managers to publicly disclose their ESG-risk assessment as of 2021 (Sustainable Finance Disclosure Regulation) and an upgrade of reporting requirements for public companies (Corporate Sustainability Reporting Directive).

Private companies have welcomed these regulatory initiatives accompanying the EU Green Deal and recently published a joint letter to call on EU institutions to ensure these measures are harmonized across the globe and to effectively support global markets.

A new architecture for climate-positive innovation

To achieve the European Green Deal’s objective of economic growth decoupled from natural resources depletion, innovation and technology are vital enablers. Through direct investments in R&D or indirect investments in innovative start-ups, the private sector could help shape a new architecture for industries, from identifying new sources and processes to upgrade our energy mix to optimizing their processes across the supply chain. Corporations are also fundamental in exploring and developing mechanisms of mitigation and adaptation.

Some examples are the collaboration between Eni, the Italian Energy company, and the Massachusetts Institute of Technology, which has made ground-breaking progress towards building a fusion power plant to generate carbon-free energy while addressing some of the major risk usually linked to this technology; and the partnership between TAE Technologies, the world’s largest private fusion energy company, and Japan’s institute for Fusion Science to test the effects of hydrogen-boron fusion reactions which can help the development of clean and affordable fusion power at scale. Another example of a revolutionary technology is the carbon removal deal that Swiss Re and Climeworks, an innovative start-up that created the first plant for carbon capture from the atmosphere in Iceland, called Orca.

The private sector’s enabling role in society at large

The role of business is not limited to investments. Companies can exercise their soft power with all stakeholders along the value chain, from suppliers to customers to employees.

Some of the examples we could list include Zurich Insurance’s decision to leverage digital communications and remote assistance for customers, and its commitment to reducing 70% of employees’ flights, and the pledge of a group of international companies, including Amazon, IKEA, and Unilever, to use only zero-emission cargo ships by 2040 to move their goods and raw materials around. Similar efforts in the shipping space include also the industry-led Call to Action for Shipping Decarbonization, initiative that has also resulted in the Danish-led government Declaration on Zero Emission Shipping by 2050 supported by 13 governments across the globe just announced at COP26 in Glasgow.

Also, through investing in employees and in innovative business models, companies could turn climate-positive actions from a threat to existing jobs to opportunities for reskilling and upskilling. Business can also support the EU in making sure the climate agenda is people-centric, aimed at fostering sustainable employment and in creating new jobs in line with changing industry requirements.

Finally, companies have a critical role to play in shaping public opinion. By developing environmentally sound solutions and offering more data about consumers’ daily choices, business can promote sustainable practices within the communities in which they operate. The joint agreement between Google and ENGIE to purchase only clean energy for its operations in Germany will have a far-reaching ripple effect and could inspire similar efforts by other businesses. Organizational practices and policies could influence employees’ awareness of climate change, which could have an indirect impact on their personal choices.

How can business leaders further support the European Green Deal?

The World Economic Forum’s CEO Action Group for the European Green Deal – a group of over 50 CEOs committed to supporting the European Green Deal – is championing action-oriented and cross-sectoral initiatives that aim to tackle decarbonization along the whole supply chain.

As a generation-defining task, to be successful, the European Green Deal needs deep and continuous public-private cooperation where governments and business leaders join forces to channel investments towards greener solutions, enable innovation and climate-positive technologies, and help consumers adopt more sustainable lifestyles.