What Does the European Green Recovery Mean for Business Sustainability?

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You will never have a better chance to make a greener world.

On May 27, the European Commission announced its financial recovery plan, taking into account the necessity of a sustainable recovery. The project is named "Repair and prepare for the next generation plan". More businesses face the uncertainty of the VUCA world (volatile, uncertain, complex and ambiguous). We dive into what the green recovery, powered by the European Union, entails for business and sustainability.

Lessons learnt from the 2008 global financial crisis (?)

Following the coronavirus pandemic and its socio-economic implications, experts, economists, policymakers and corporates discussed the impacts from the 2008 Global financial crisis (GFC), to not repeat past mistakes.

Back then, governments had urgently spent $3.3 trillion in stimulus packages, as well as austerity programmes to decrease public spending. However, what worked once would not work twice. Over the allocated budget, only $522 million, or 16% was spent on green expenditure or tax breaks. This enabled a significant cost reduction in solar and wind energy power. As the crisis provided a possible opportunity for transformative investments, the stimulus only succeeded in restarting the economy, not changing it. During the crisis and its aftermath, carbon emissions decreased and peaked again when governments invested in carbon-intensive projects stimulus.

Financial stimulus response to the COVID 19 compared to the 2008 subprime crisis (Credit: McKinsey)
Financial stimulus response to the COVID 19 compared to the 2008 subprime crisis(Credit: McKinsey)

What is the EU Green Recovery Plan?

Firstly, what is the public eye perspective on green recovery? Ipsos found that two-thirds of citizens agree that climate change is as severe as Coronavirus.

The green recovery established by the European Commission is the transition towards a green economy and a sustainable, digital model. An economy that is respecting all EU member states, while aiming to cut carbon emissions, and creating a new status quo for an inclusive, fair and sustainable economy. This new recovery instrument is called "Next generation EU", embedded with a powerful, revamped long-term EU budget.

The European Commission has announced a financial plan of €750 billion, split between €500 billion of grants to member states and €250 billion of loans. Besides,  it is important to note that this proposal still has to be voted and ratified by the European Union Council. 

Here is a list of the European green deal features (cf. roadmap to make EU economy sustainable, across all policy areas, in order to become carbon neutral by 2050):

- A massive renovation of infrastructures and buildings, including the principles of the circular economy, while creating local jobs.

- Developing renewable energy projects such as wind, solar and the beginning of a clean hydrogen economy in Europe.

- Cleaner transport and logistics, including the installation of a million points of electric vehicles and increase of clean mobility in European cities and regions.  

- Strengthening the Just Transition fund up to €40 billion, to help business create new economic opportunities.

The European Green deal and digitalization will boost jobs and growth, the resilience of our societies and he health of our environment. This is Europe moment. Our willingness to act must live up to the challenges we are all facing.

The aim of the green recovery is that governments want "shovel-ready" projects that generate jobs quickly, that do not require extensive training or skills while cutting carbon emissions permanently. The term "shovel-ready" is mainly used when referring to projects that, if given stimulus money, will have the most immediate impact on employment and the economy.  Thus, shovel ready projects are part of the EU green recovery proposition: planting trees, stations to recharge electric vehicles, smart cities that are friendly for bikes and pedestrians.

"These are things that can be done quickly, and they are labour intensive", commented Brian O'Callagan, professor at Oxford University. He adds: "It is time to rethink economic stimulus. This spending should be about more than just increasing next year's GDP. once-in-a-generation government spending could be used to reduce inequality and set up new industries for the coming decade."

Is 25% of the green recovery enough for climate care?

As mentioned earlier, 25% of the budget is allocated to the climate action, but it remains unclear if it applies to the all €750 billion budget. This proposal is in line with the European Green Deal, guided by the principles of "sustainable finance taxonomy" and oath to "do no harm"; which excludes investments in carbon-intensive infrastructures. Once again, it remains unclear if fossil fuels will be left out. For example, airline companies benefited from large rescue plans, as they were massively impacted by the crisis, and will take years to recover. However, to fight climate change, monitoring and assessing carbon emissions is primordial.

“We can beat the virus, address climate change and create new jobs through actions that move us from the grey to green economy. Many companies are showing us that it is indeed possible and profitable, to adopt sustainable, emission-reducing plans even during difficult times like this."

Some economists argue that there is a huge gap in the proposed program: 2.44 trillion is missing, to mobilise the necessary investments to achieve the EU climate targets.

The target currently stipulates that the EU must reduce its CO2  emissions by 40% compared to 1990 by 2030.

If the target is raised as planned to 50% or 55%, the investment requirement would even increase to more than €3 trillion. If the proposed funds from the new EU budget and the reconstruction program were spent in the best possible way, only €804 billion would be raised, about a third of what is needed, leaving an investment gap of €1,644 trillion.

We must address the necessity to measure carbon emissions, in order to deploy an efficient action plan. There is no plan B for our planet, and it is time to concentrate investments towards this issue.

Lubomila Jordanova, CEO of Plan A (Credit: Plan A)
Lubomila Jordanova, CEO of Plan A(Credit: Plan A)

Global Green recovery advocates

Beginning of June, a group of 150 companies worth $2.4 trillion (among which Unilever, Burberry, Adobe and many more) signed a petition asking governments to ensure the transition from the pandemic towards "green economy by aligning policies and recovery plans with the latest climate science." Two-third of corporates who signed the petition are located in the EU (e.g. majority are located in the UK and France). This initiative is supported by science-based target initiative, a body set up by the United Nations and international institutions, that aims to help businesses to reach their climate goals under the Paris agreement. 

The sustainable journey of these companies will be less costly and faster if such measures are implemented. For example, shifting to a clean energy provider will be less expensive, as public money will be spent on providing subsidies for such energy. Consequently, companies need an economic structure that supports such sustainable change, alongside suitable projects.

Food for thought: Willing to keep on track on the global green recovery? This tracker, designed by Carbon Brief, tracks the measures proposed, agreed and implemented by major economies around the world.

Measuring your carbon emissions is the first step to be part of the green recovery. Join the conversation.

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