A Green Biased Recovery Fund

EU Green Deal: Bold headlines, elusive impactA green flag with the stars of Europe

Morgan Stanley | The European Recovery Fund will not only benefit peripheral countries but also sustainable activities. In the end, this package will have an even greater green bias than initially expected: 30% of the funds will go towards climate investment compared to 25% in the initial proposal. The plan will allow for the promotion of several of the objectives set out by the Green New Deal EU. While it does represent a step forward in terms of sustainable investment, the EC recently stated, however, that Europe will need to invest close to 470 billion euros if it is to meet the emissions targets for 2030 and another series of sustainable objectives. So this leaves the door open for further sustainability-biased investment.

Our ESG analyst, Jessica Alsford, believes that the targets set by the EU taxonomy – climate change mitigation and adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and biodiversity/ecosystem protection and restoration – will guide sustainable investment. In line with this, she recalls that our EU strategists recently prepared a screening of the 37 companies benefitting most from the reconstruction fund, due to their strong exposure to several of these trends. They include: RWE, Orsted, EDPR, Renault, Daimler, BMW, Valeo, Gestamp, Infineon, BASF, E.ON, National Grid, Alstom, Kingspan, Rockwool, Legrand, Covestro, Basf, Air Liquide, Linde, Engie, Naturgy … etc.

Apart from reinforcing the objectives set out in the EU taxonomy, European leaders have also agreed on several green bias measures for the repayment of funds raised under the European New Generation programme. These include:

  1. New tax on plastic: expected to be introduced in 2021.
  2. A proposed carbon footprint import tariff and a digital tax, both by the end of 2022.
  3. The EC will make a revised proposal for the EU Emissions Trading Scheme (ETS), potentially extending it to the aviation and maritime sectors as well.