European sustainable finance rules already benefit hundreds of companies

During the European elections, criticism of the EU’s green policies has increased in a worrying way. While some argue that these policies harm the quest for greater competitiveness, the reality is that they strengthen Europe’s global leadership and boost the competitiveness of many companies. Over the past six years, I have worked with experts from across Europe on the European Platform for Sustainable Finance focusing on the EU strategy to maximise the role of the financial system as a catalyst in building a sustainable and resilient economy. While the climate crisis poses real risks to our economy, the green transition offers enormous opportunities to strengthen it.

To attract the necessary financing for a transition that is now inevitable, companies must provide clear information about their strategies. European rules, and the data they are generating, play a crucial role in this process by helping companies to draw up their transition plans and attract financing to implement those plans, and thus outperform their competitors in adapting to the economy of the future, and as we show in a recent report based on a survey of dozens of European companies.

More investments, more competitiveness

The paradigmatic example is a utility company that brought forward its decarbonisation target by 10 years, using the new EU green investment guide, the European Taxonomy. This company allocated 80% of its fixed asset investments to environmentally sustainable activities.

More than 720 companies, with a market value of over €6.5 billion, have followed suit, investing €249 billion in key sectors to mitigate climate change, such as transport, manufacturing and energy generation. Even companies that cannot yet fully align themselves with the taxonomy are using it to set medium- and long-term goals.

Clear investment objectives are embedded in the DNA of any solid transition plan. Having an EU-backed definition of green investments has been vital in designing companies’ transitions and reducing their risk of being accused of green posturing or greenwashingThe taxonomy also helps companies to achieve better returns on capital markets. According to Goldman Sachs data, companies with high revenues from activities aligned with the taxonomy outperformed their competitors over the past five years. This success story tells us that CEOs looking to boost their company’s competitiveness and position themselves as leaders in this transition should look to the EU’s green agenda for guidance.

A support for the banks

New European transparency rules requiring companies to publish their green investment plans bring significant benefits to banks, allowing them to assess the level of commitment and how far along their clients are in their transition to net-zero emissions.

This transparency improves the relationship between both parties: banks can tailor their offering to increase the customer’s chances of success, while companies can set targets and, by meeting them, earn the bank’s trust. Indeed, banks can also use this data to create incentives that reward customers who meet their targets ahead of schedule. Having better information about the companies in their lending and investment portfolios also helps banks manage their own transition by anticipating and minimising any risks – a vital step in preventing future financial crises.

More funding

Thanks to EU rules, Europe is leading the way in raising funds for the green transition. Today, the EU is leading the way in green bonds, helping governments raise €266 billion in 2022, more than three times the €85 billion raised in 2019. European companies, meanwhile, have more than doubled their green bond issuance since 2019. Sustainable finance is now one of the fastest-growing asset classes in Europe.

Even SMEs, which are outside the main focus of these green rules, can benefit from them: around 10% of EU SMEs have taken out sustainable loans, a figure that is likely to increase when the simplified tools being developed for them are made available to them. Whether you run a large or small company, European rules are creating new ways to finance your business. We must now increase that support, especially for SMEs, which are the backbone of the European economy.

We must continue working

Before the EU regulations, investors were navigating a sea of ​​greenwashed products. This deprived them of the confidence to invest, which in turn deprived companies of funding. After six years of hard work, investors have more and more information about green stocks, funds and other products, while companies have many more ways to attract the funding they need to innovate and become more competitive.

The foundations for the sustainable finance agenda have been laid. The next European Commission must simplify the use of these rules and work with businesses, especially SMEs, to increase their use of the financing tools at their disposal.

There is a wave of green investment waiting to be unleashed into our economy if we continue to build a robust sustainable finance agenda. Let us not miss this opportunity.

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