The European Investment Bank’s Economics Department conducted a Municipality Survey in the summer of 2020 on "How do EU and US firms perceive and invest in climate change?": the survey interviewed 685 municipalities between May and August 2020, asking them to assess their infrastructure gaps, investment needs and constraints; the EIB Economics Department of 40 economists is headed by Debora Revoltella, Chief Economist.
The main findings of the study included:
• EU businesses’ climate-related investment continues to evolve despite COVID-19.
• Climate change’s ultimate impact may still be hazy for many businesses, but more EU firms are investing to protect themselves than US firms.
• Uncertainty about regulation and taxation cited as the biggest obstacle to climate-related investment.
• Although investment in energy efficiency measures has increased, Europe’s energy savings potential remains largely untapped.
As Europe shows global leadership in the fight against climate change with the Green Deal and the new “fit for 55” proposals, around 45% of EU firms report investments to address climate change. Nearly half of firms in the European Union have invested in energy efficiency, up from 37% in 2019 to 47% in 2020. Although EU firms show commitment, enhancing their awareness of climate change-related risks will be key to greater climate investment.
These are the key findings of a new European Investment Bank (EIB) report “European firms and climate change 2020/2021: Evidence from the EIB Investment Survey” that was published today. The new report provides an overview of EU firms’ perceptions of climate risks, their investment to address those risks and the main factors influencing their decisions. The report builds on the EIB Investment Survey, an EU-wide survey that includes interviews with over 13 500 firms. These report findings are comparable across EU countries and the United States, as well as sectors and firm size.
“The catastrophic rainfalls and terrible loss of life this summer should leave no doubt that climate change is happening. We can no longer afford a wait-and-see attitude,” said EIB Vice-President Ricardo Mourinho Félix. “Our latest study shows that if we want the transition to a greener economy to succeed, raising awareness of those risks matters: EU firms that understand those risks are more likely to invest in climate action. Regulatory requirements and transparency, as well as setting the right incentives for businesses will be crucial. Firms need to plan today to gain a competitive edge or risk losing ground to more forward-thinking competitors. As the EU climate bank, we finance climate projects around the world. We can assure you, becoming green pays off — for the environment but also economically.”
“As the realities of climate change become more apparent, firms have to start accounting for climate risks,” said EIB Chief Economist Debora Revoltella. “Nearly 60% of EU firms perceive physical risks, while transition risk is less well understood. The majority of firms are unaware of the challenges ahead and how to adapt to regulatory changes that will affect their supply chains, products, or reputation. Enhancing firms’ awareness of these risks will be as important as reducing uncertainty about regulatory changes. The fit for 55 package has opened the way for fruitful discussion among EU countries about a clear regulatory framework, enhanced climate awareness and proactive public and private investments.”
European investments to tackle climate change are gaining momentum
Around 45% of EU firms report investments to address climate change, compared to 32% of firms in the United States. Western and Northern Europe saw the largest share of firms investing in these measures, at 50%. The share in Southern Europe is 38% and in Central and Eastern Europe 32%. At the country level, the differences are even more pronounced: Finnish (62%) and Dutch (58%) firms are at the forefront of climate investments, whereas only 23% of Cypriot, 19% of Irish and 18% of Greek firms make this kind of investment.
When it comes to specific investments in climate change, the push towards energy efficiency continues. Nearly half of firms in the European Union have invested in energy efficiency, rising by ten percentage points to 47% in 2020. This is slightly lower than the 50% of firms that invested in energy efficiency in the United States, which saw a similar jump from 2019. Firms in Western and Northern Europe invest the most (48%), followed by Southern, Central and Eastern Europe, standing at around 40%. Despite higher energy efficiency investments than in the previous year, Europe’s energy savings potential remains largely untapped given the energy and non-energy benefits that these entail.
Physical climate risks are becoming a reality for firms
Firms face two main types of climate-related risks: direct physical risks and transition risks that arise from society’s response to climate change. Physical risks are easier to observe and for firms to understand, as they emerge from exposure to acute events or chronic transformation. Transition risks are less evident, as they depend on global decarbonisation commitments.
Almost 60% of European firms report vulnerability to physical risks compared to 50% in the United States. In summer 2020, firms were asked if physical risks had impacted their business. Southern EU countries are likely to report higher physical risks for firms’ operations than other regions. This is followed by firms in Central and Eastern Europe, reporting a higher vulnerability to physical climate risks than firms in Western and Northern Europe. This relatively higher perception of physical risk, particularly in Southern Europe, may be due to the rising threat of drought, limiting food production and potentially disrupting tourism in the area.
Barriers to climate-related investments: Uncertainty about regulation and taxation cited as the biggest threat
Uncertainty about regulation and taxation and investment costs are the biggest constraints to climate-related investments in the European Union, where the most frequently cited obstacle is uncertainty about regulation and taxation (43%), followed by investment costs (41%). Uncertainty about regulation can delay or cancel investment decisions, as firms try to have the full picture of expected cost benefits before an investment.