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EU Green Deal and Investing in European Banks

Equity Research Analyst

The EU Commission is aiming to be a leader in tackling climate and environmental-related challenges and has set out ambitious plans in its so-called EU Green Deal to enable this.

The commitment is to be climate neutral by 2050 and the plans are to reduce greenhouse gas emissions by at least 55% in 2030 compared with 1990. The EU Commission is due to publish its legal proposals for the EU Green Deal in mid-July. The commission has estimated that achieving the current 2030 climate and energy targets will require €260 bn in additional annual investments. This is equivalent to approximately 1.5% of GDP compared with the nominal GDP of 2018.

In Europe, where bank lending and debt markets have a greater role in financing economies, banks will play a critical role in the development of sustainable finance, which in turn will be key to the success of the EU Green Deal. The banks will lead capital markets’ financing and innovative structured solutions to manage the transition risk. The commission is also aware that long-term incentives will be needed to direct financial and capital flows to green investments and to avoid stranded assets.