European Investment Bank (EIB) recently published the report “European firms and climate change 2020/2021: Evidence from the EIB Investment Survey”. The report sheds light on how European Union (EU) firms perceive climate risks, their investments to address the risks, and the key factors influencing their decisions. The report builds on the EIB’s EU-wide investment survey, which includes interviews with over 13,500 firms. The report also provides an overview of European Union (EU) firms’ preparedness to meet the challenges of climate change and the energy transition.

The report finds that around 45% of EU firms have reported climate investments, which comes on the heels of Europe being at the forefront of the fight against climate change with the Green Deal and the new “fit for 55” proposals.

The percentage of EU firms that have invested in energy efficiency rose from 37% in 2019 to 47% in 2020. Even though EU firms show commitment, increasing their awareness of climate change-related risks will be critical to more significant climate investment.

“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.” He added.

Share of firms investing in climate-related measures (% of firms)

Source: EIBIS 2020

Western and Northern Europe saw the largest share of climate investments at 50%. Southern Europe follows at 38% and Central and Eastern Europe at 32%. The differences are even more pronounced at the country level, with 62% of Finnish firms and 58% Dutch firms partaking in climate investment. At the other end of the climate investment are Cypriot firms at 23%, Irish firms at 19%, and Greek firms at 18%.

When it comes to specific investments in climate change, the push towards energy efficiency continues. About 47% of EU firms have invested in energy efficiency in 2020, a 10% increase from 2019. This falls just short of United States firms’ energy efficiency investments which stand at 50%. Firms in Western and Northern Europe lead energy efficiency investments at 48%, followed by Southern, Central, and Eastern Europe, all standing at around 40%. Despite higher energy efficiency investments compared to 2019, Europe’s energy savings potential remains untapped, mainly given the energy and non-energy benefits that these entail.

Physical climate risks are becoming a reality for firms

Direct physical risks and transition risks that arise from society’s response to climate change are the two main types of climate-related risks that create problems for EU firms. Physical risks are easier to observe and understand as they emerge from exposure to dreadful events or chronic transformation. Transition risks are less apparent, as they depend on global decarbonization commitments.

Almost 60% of European firms report a vulnerability to physical risks compared to 50% in the United States. Southern EU countries are likely to report higher physical risks for firms’ operations than other regions. Central and Eastern Europe report a higher vulnerability to physical climate risks than Western and Northern Europe firms.

This relatively higher perception of physical risk, particularly in Southern Europe, could be attributed to the rising threat of drought, limited food production, and disruption to the region’s tourism.

Barriers to climate-related investments

The most considerable constraints to climate-related investments in the European Union were the uncertainty about regulation, taxation, and investment costs. About 43% of EU firms cited uncertainty about regulation and taxation as the significant obstacle to climate-related investments. Around 41% of EU firms cited investment costs as an obstacle. Uncertainty about regulation can delay or cancel investment decisions, as EU firms try to have the complete picture of expected cost benefits before an investment.

The report concluded that addressing climate change requires coordination between the private and public sectors, with national governments working alongside businesses to formulate national adaptation plans. The availability of funds and a clear and well-designed regulatory framework will help the European Union become a net-zero emissions economy by 2050.

Recently,  EIB and the State Bank of India had launched a new initiative of €100 million (~$121.63 million) for climate action and sustainability financing, which will be provided to companies offering solutions for clean energy, electric vehicles, efficient use of raw materials, and water and circular economy projects in the country.

Last year, EIB had announced that it would provide €3 billion (~$3.55 billion) for renewable energy projects across Europe and around the globe. This was part of EIB’s €12.6 billion (~$14.93 billion) plan for new funding for transport, clean energy, and urban development.