European companies accelerating climate action: EIB

Some 53% of European companies are now investing in climate action like energy efficiency and emissions reduction activities, the European Investment Bank said.

The rise from 43% a year ago has come as the energy crisis fueled by the Russia-Ukraine war and economic pressures has spurred investment in clean energy and renewables, the EIB said in its Investment Report for 2022-23.

However, the high uncertainty caused by energy security concerns due to the energy crisis was also weighing on some investment decisions in decarbonization.

Climate action includes efforts to reduce greenhouse gas emissions and strengthen resilience and adaptive capacity to climate-induced impacts; integrating climate change measures into national policies, strategies and planning; and improving education, awareness-raising and human and institutional capacity with respect to climate change mitigation, adaptation, impact reduction and early warning, according to the United Nations Development Programme.

"The increase has been particularly pronounced in regions such as Central and Eastern Europe (up 15%) and in small-medium enterprises (up 11%). Energy-intensive manufacturers have a stronger appetite for climate investments than non-energy intensive firms: 48% of them are currently investing, while 57% are planning to invest," the EIB said.

The European Commission's efforts to unite Europe behind renewables took a significant step forward last year with the REPowerEU deal. Increasing the uptake of renewables, energy efficiency and energy storage capacity are amongst the key objectives of REPowerEU to increase the resilience, security and sustainability of the EU energy system, by reducing the region's dependence on Russian fossils fuels.

EIB Chief Economist Debora Revoltella said companies were still investing in climate action despite soaring energy costs.

"Europe's future depends on our ability to transform and embrace the digital and green transitions. This calls for bold investment in climate action and climate mitigation. EU firms have realized that climate change is not a distant reality anymore," Revoltella said.

"However, despite an increase in climate investment, ongoing uncertainty is weighing heavily on EU firms and dampening their readiness to invest in climate solutions."

Some 88% of EU companies have taken up climate mitigation measures, with recycling and energy efficiency being the most popular, with western and northern Europe investing more in mitigation than southern and central and eastern Europe, the EIB said.

Climate reforms

The EIB is the long-term lending institution of the EU owned by its 27 member states that provides long-term finance for projects that contribute to EU policy goals.

The European Parliament has approved a raft of climate reforms in recent months, part of its Fitfor55 package and the REPowerEU deal.

On Feb. 21, the parliament agreed to extend to 2030 the Market Stability Reserve of the EU Emissions Trading System, which is in place to protect against falling CO2 prices due to external shocks.

The parliament also approved a bill that calls for EU countries to reduce greenhouse gas emissions from 30%-40% compared with 2005 levels.

In mid-December, negotiators agreed to reform the EU's Emissions Trading System, increasing carbon cutting ambitions to 2030, detailing the removal of free allowances and introducing new carbon pricing mechanisms.

The main purpose of the ETS is to reduce GHG emissions and carbon intensity to meet their net-zero targets, which includes a commitment to reduce net emissions by 55% by 2030.

The EU's ETS cap and trade system places a limit on the level of emissions covered by different sectors. It includes around 45% of the bloc's total greenhouse gas emissions. The cap declines each year to guarantee emissions fall over time.

Companies can buy and sell carbon permits known as EU Allowances, which can be traded for the CO2 they emit.

EU Allowances, carbon permits under the EU ETS, recently hit record highs above Eur100/mtCO2e ($105/mtCO2e) in February, attributed to technical signals and strong financial investor interest, along with the tightening of rules of the bloc's key climate policies, especially under its ETS.

Platts, part of S&P Global Commodity Insights, assessed EU Allowances for December 2023 at Eur95.92/mtCO2e on April 13.